To me the customers made out this time, the dealers didn't.

When I look at the losses the dealers are taking, I keep wondering how the heck they all got caught. Think of it like this -- if this merchandise were equities, you would ask: How did Merrill (NYSE: MER) (Cramer's Take) and Citigroup (NYSE: C) (Cramer's Take) get caught owning so much stock?

That's why we have to be shocked at the losses at Citigroup and Merrill. It was like they were making a big bet on housing and just masking themselves as dealers.

Now it is true that they were merchandizing and got caught. Prince was such an idiot. I hectored this guy and the board for a year, but all they did was stand by and applaud him. He probably had no inventory controls because he never understood the instruments anyway. That's OK, they were hard to understand. But he was the CEO, for heaven's sake.

But you have to marvel that so many firms had so much of this gunk that didn't sell. It was almost as if right at the end they were calling NovaStar (NYSE: NFI) (Cramer's Take), Countrywide (NYSE: CFC) (Cramer's Take), Fremont (NYSE: FMT) (Cramer's Take) and American Home Mortgage and saying, "Give us your worst stuff, we want to own it ourselves." I bet a lot of that Citigroup loss this morning was directly related to American Home, which they were the real sponsor of.

When the book is written on this era, there is going to be a new realization that the book of business, the amount of money being bet by the house on product, can never be that big again. Firms like Citigroup and Merrill are meant to be dealers, not accumulators. Nevertheless, that's what they did, and the results are what we see today.

Pathetic.

Think of all of the mistakes they made: 1. They dealt with unethical and stupid mortgage brokers who put together phony packages of no-doc loans. 2. They then borrowed a huge amount of money to finance that inventory as they attempted to merchant it to hedge funds. 3. They ended up being caught with the worst paper. I say that because we have not seen big writedowns on the buy side. It is all sell side.

Remarkably stupid. Both Prince and O'Neal should have been fired a year ago for these strategies. The year of living dangerously almost destroyed Citigroup and Merrill.

Now it looks like Citigroup took a big enough charge and dumped enough stuff to make it so its exposure is now cut by about a third.

There's two-thirds that is still to come. Hopefully some rate reductions will allow them to make more money as the charge-offs continue. It was not "kitchen sink," despite what you will hear. The savings from the dividend, the capital raising and the coming fire sale -- albeit at higher prices because of all the capital raising -- of extraneous businesses that Price moronically tacked on will at last make Citigroup a buy.

But it is a disaster. No two ways about it.

Random musings: I see that Kevork-Hovnanian (NYSE: HOV) (Cramer's Take) just made a huge insider buy of stock. I hesitate to say it means anything anymore for the number of bottoms that firm has called. These guys are rich; they can blow a couple million trying to restore some confidence in the company.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider NovaStar, Fremont General and Hovnanian to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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