There’s a great line in the Superman movie with Christopher Reeve, when our hero catches Lois Lane from a disastrous fall. It goes something like this: he catches her and says “Don’t worry, I’ve got you.” She looks at him and looks around at the thin air and says, “But who’s got you?”

That came to mind today when it was announced that Citigroup announced it was “on the verge” of a deal with three private equity firms: Apollo Management, TPG Capital and Blackstone, to sell some $12.5 billion of leveraged loans that were used to finance corporate buyouts, according to the Financial Times.

It says these private equity groups have “established funds” to buy the debt. But the question is, who is financing the funds? Part of me believes it’s all balance sheet voodoo, another part thinks its the biggest Ponzi scheme of all, something akin to the mortgage market today. Reminds me of the notional funds model…..I give a manager a letter of credit saying trade like I’ve given you $100 million, but really, I’m going to give you only $10 million to use as margin. The other $90 million can be drawn from when needed, but why have it sitting in T-bills when it can be promised elsewhere (doubling down?) and make some higher returns? This is a great plan, until it all comes crashing down due to a default, or made into some financial products that are so distressed they are disguised as something else, and sold to the big firms, who perhaps ought to know better and look behind the curtain.

Makes me wonder if you really followed the leveraged loan to the private equity money to the investors to their debt, would it be Citigroup actually financing its own “safety net” in the end?