Quantifying The IMF's Ability To Bail Out The World

Today is D-Day for Europe, and soon, the world. Shortly, the IMF will take its historic place as the cash cop of last resort, a post traditionally reserved for the Federal Reserve, which incidentally was rumored to have activated its FX currency swaps with European banks last week (whether or not that is true will be disclosed by next week's H.4.1). This action will open a floodgate of consequences, as every semi-bankrupt country forces itself into a spending frenzy to guarantee that it is truly bankruptcy, no ifs about it, and qualifies for IMF (and thus 20% US) aid. And at that point the politics of a US-funded world bailout really will come to the fore. Because while the Fed bailing out America is one thing due to the Fed's untouchable and unsupervisable status, the IMF, as a corporation, does not share the same "above the law" privileges. And in an election year, with Americans slowly realizing that the fate of the world is truly in their hands, and their tax money is being involuntarily taken away from them as we speak yet again, ahead of midterm elections, all bets are off. For those interested in the actual mechanics of the IMF rescue mechanisms available, as well as some of the political implications likely to follow, here is an overview via Bank Of Countrywide Lynch.

Guest Post: The End Of The Beginning

"If you had read “This Time is Different: Eight Centuries of Financial Folly” by Reinhart & Rogoff,
none of the current alarm over Greece’s debt situation would come as any surprise. Indeed the book
shows that Greece has been in default roughly one out of every two years since it first gained
independence in the nineteenth century. However, it is never knowable
in advance at what exact moment the tipping point is reached. Today, the government of Greece is burdened with approximately €275 billion of debt, equating to
115% of GDP, are running a nearly 14% budget deficit for
2009, [Eurostat, April 2010] and S&P has downgraded
their debt to BB+/B - junk status! Up until March, the
world bond markets had taken a remarkably sanguine
view of this situation. In January, the Greeks sold €8
billion worth of bonds at a rather high (historically)
6.25%, while there was demand for €25 billion. But
shortly afterward, the situation deteriorated rapidly." Oisin Zimmermann

Greece Has Hired Lazard For Restructuring Advice

EuroWeek magazine reports that Greece has hired Lazard in an advisory capacity: it is not a stretch to assume that this is in connection with a potential, and some say inevitable, bankruptcy... unless the country is really serious about procuring a stalking horse distressed M&A bidder for Santorini. We also note that DebtWire has yet to report on this development: looks like the FT is really starting to slip. It would not be a stretch to see why Greece and Lazard are on good terms: after Greece basically put all banks on the kleptocrata non grata list, the pseudo-French company seems like a legitimated candidate (not to mention that France will fail first should Greece default). Additionally, in March 2009 the firm advised the Hellenic Government on the sale of various Olympic Airlines assets to Marfin. Lazard is also no stranger to sovereign reorg, having worked with Nicaragua, Ecuador and Cote d'Ivoire on various restructuring assignments. However, while those deals were a walk in the park, Jim Millstein and and new (and critical) addition Felix Rohatyn will find Greece, where 80% of the population does not want a bailout and in fact is rooting for a default, a much tougher nut to crack.

More Hypocrisy From Lloyd Blankfein On Charlie Rose

Just because Goldman refuses to get it, and wishes to inflict even more pain on itself with more and more public appearances, here is Lloyd on Charlie Rose last night. More of the same: "We did well because we had the disciplined hedging [on housing]."Paraphrase: "Thank you Paulson for letting us steal your idea and have our prop book go $10 billion short two months before HSBC and New Century went tits up. Also thank you for reminding us to short hundreds of millions worth of Bear stock." Also, the amount of money put into Goldman by the government was not important for us. Ok Lloyd, please refund all the $2 billion in CDS profits you made by shorting AIG immediately. And again Lloyd blatantly misrepresents the truth, by saying that doing away with prop trading would only cost the firm 10% of the firm's revenue (so why the massive fight against the Volcker rule?). Forget all this market maker, liquidity provider generic fallback bs and mumbo jumbo. How about some disclosure on just how you classify prop trading Lloyd? Because something tells us that at least 50% of your flow and correlation desk is purely Prop (and certainly serves to bolster prop profits instead of putting clients "first" as we have disclosed about 10 times in the past week alone), as the 901 pages in Goldman discovery make only all too obvious (we will post on that soon). Hey Lloyd, here's an idea - how about instituting P&L stop limits on all your OTC FICC prop trades just like RBS? Oh yes, we'll go there... and in much more detail. Soon.

Weekly Chartology

Goldman may have hit the iceberg, but at least David Kostin keeps on playing the groupthink music which always validates Farrell's rule #9. "Portfolio managers with whom we met on the West Coast this week expressed strong bullishness on the near-term direction of US equities and several had earnings estimates for 2010 and 2011 that were substantially above both our and bottom-up consensus forecasts." In other words everyone is convinced that the Fed will never regain its monetary independence and keep ZIRP at least until Obama's second presidential campaign.

Radio Zero: Sick Leave

Having now returned from extended sick leave and coming to you from within her digitally wired ISOPORT™ (the CDC approved portable, negative pressure isolation enclosure in which she now resides full-time) Marla Singer is pleased to share with you:

- A small but finite risk of exposure to plague in the form of multi-drug resistant Streptococcus Pneumoniae

- The lingering side effects of ongoing and massive doses of vancomycin and linezoli (including altered taste perception- brown sugar Pop Tarts™ now taste like foie gras to her, though cornflakes apparently remain as bland as ever)

- A large supply of Laudanum painstakingly hoarded from the 19th century medical facilities in which she was imprisoned housed and soon to be available for resale through the Zero Hedge Store (Act now! Supplies are limited!)

- A (hopefully) temporary loss of speech (induced by repeated intubation)

- Advanced, multi-lingual electronic speech synthesizer with integrated wheelchair (one beep for "yes," two beeps for "no")

- Several advance copies of her new book: The Complete Guide to Defrauding ObamaCare (with an introduction by Dick Fuld)

Oh, and

- 12 hours of Radio Zero (brought to you by the complete lack of circadian rhythm long hospital stays apparently induce)

Join us around... well, around now.

Connection details: http://radio.cl.zerohedge.com

Or just connect direct: http://72.13.86.66:8000/listen.pls

Treasury Redeems A Gargantuan $643 Billion In Treasuries In April

A week ago we were practically speechless when we showed that the Treasury had redeemed nearly $494 billion in Bills in April. A truly stunning number and an indication of just how much cash the Treasury needs to have access to to keep rolling its ridiculously short average maturity debt load. Today we stand even more speechless: according to today's DTS, the Treasury has now redeemed $596 billion in Bills in Aprils: an all time world record, even when accounting for the Fed's steroid abuse period of SFP 1 (we are currently in the second iteration). Add $47 billion in Notes and there are almost $650 billion in redemptions. This number is simply ridiculous. Forget the interest expense: this ever increasing roll is the number one danger to the US and world economy. Should the Treasury be unable to keep issuing shorter and shorter dated debt (and it already is skirting away from even the belly of the curve), it is for all intents and purposes game over.