Things are getting real. After all the bluffing, huffing and puffing by Geithner, the rating agencies, and anything with a pulse and a TV or radio pulpit has failed, the last trump card is coming down. While yesterday the Treasury informed that it would not disclose any details of its contingency plan, Bloomberg has just learned via a Treasury leak that the US government will give priority to bondholders. From Bloomberg: "The U.S. Treasury will give priority to making interest payments to holders of government bonds when due if lawmakers fail to reach an agreement to raise the debt ceiling, according to an administration official. The official requested anonymity because no announcement has been made. The Treasury has said about $90b in debt matures on Aug. 4 and more than $30b in interest comes due Aug. 15. Overall, more than $500b matures in August." And so it begins: while the Treasury has not yet pushed the big red flashing button, this leak is nothing but it latest and greatest bluff. It also means that America will, indeed default, next week, as the absence of a contractual payment is a default. And then we get into the fine print with the rating agencies whether or not X is default but Y is not. At that point however it won't matter: every form of intermarket liquidity will be permanently gone as Lehman will be a cherished walk in the park. Thank you Tim Geithner and your total lack of contingency plans.
Attn Captain Obvious | Fed Proposes Rule that Would Require Creditors to Determine a Consumer’s Ability to Repay a Mortgage BEFORE Making the LoanSubmitted by 4closureFraud on 04/20/2011 13:34 -0400
What kind of back-assward world do we live in when the FED has to propose a rule like this?
PBoC Governor Says Chinese Foreign Reserve Stockpile Is Excessive, As SAFE Issues Another Warning At US Treatment Of Creditors... And DollarsSubmitted by Tyler Durden on 04/20/2011 08:32 -0400
One of the key news from the past week was that Chinese FX reserves passed a record $3 trillion for the first time, a surge of $200 billion in the first quarter alone. And with the bulk of that in dollar, it is not surprising that the recently collapse in the dollar has forced more posturing out of both the PBoC and SAFE (the State Administration of Foreign Exchange). In comments published Tuesday, Zhou Xiaochuan, governor of the People's Bank of China said that China's huge stockpile of foreign exchange
reserves have become excessive and the government
must diversify investments using the reserves. "Foreign exchange reserves have exceeded our
country's rational demand, and too much accumulation has caused
excessive liquidity in our markets, adding to the pressure of the
central bank's sterilization." That this is a not so subtle hint aimed at the dollar was confirmed earlier today by SAFE which said that the US government should take responsible measures
to protect the interests of investor. "U.S. Treasuries reflect the credit of the US government and are an important investment product for domestic and international institutional investors," the ministry said in a statement carried today on SAFE's website. "We hope the U.S. government takes responsible measures to protect investor interests." Alas, with the US administration solely focused on making confetti out of the US currency, we hope that China is not holding its breath too long. On the other hand, should the DXY take out its 2009 lows, all bets will surely be off and only another market collapse will be able to generate a potential flight to safety in the dollar. In the meantime, both gold and silver continue to benefit, and the only thing that appears to be able to drag down precious metals at this point is a wholesale margin call invoking cross asset liquidation.
Bill Gross: "Ultimately Creditors And Investors Are At The Behest Of A Central Bank And Policymakers That Will Rob Them Of Their Money"Submitted by George Washington on 01/19/2011 20:30 -0400
But, but, munis always pay back almost 100 cents on the dollar, even in bankruptcy, right? Wrong. Bankrupt Vallejo just filed a POR to pay back unsecured creditors between 5 and 20 cents. "The city regrets that it cannot pay a higher percentage,” Vallejo officials said in the court filings. “The city lacks the revenues to do so while maintaining an adequate level of municipal services, such as the provision of fire and police protection and the repairing of the city’s streets." Just wait for the reaction when holders of unsecured debt all those other (hundreds of) insolvent cities, towns, and states realize that a 5 cent recovery is all too possible...
Enter The Twilight Zone: World's Biggest Cocoa Exporter Tells Creditors To Legitimize Corrupt President... Or Face Wipe OutSubmitted by Tyler Durden on 01/17/2011 23:38 -0400
And so things move from the simply violently revolutionary to the outright surreal, and once again they originate in Africa where today's TheOnion reality seems to feel most at home in practice (unlike its mostly theoretical, for now, US counterpart). Ivory Coast, the biggest producer of cocoa, today told bondholders of $2.3 billion in debt that unless creditors legitimize the corrupt incumbent regime, and recognize voted out president Laurent Gbagbo, then the country will not make an interest payment on its bonds which already are in a grace period, and will essentially default, unless the political gridlock is resolved in two weeks. “It’s a joke, right?” said Phillip Blackwood, head of emerging markets at Sydbank A/S, Denmark’s fourth-largest bank and holder of Ivory Coast debt. No, unfortunately it isn't. And just like Tunisia is a harbinger of the food riots to come to the developed world, so Ivory Coast is a leading indicator of how the world's greater debtor - the US Treasury - will one day negotiate with its own creditors. As both countries are bona fide banana republics, it won't be much of a stretch...
The Beginning Of The End For Ernst & Young? Auditor Back In Spotlight As Lehman Creditors Seek ProbeSubmitted by Tyler Durden on 04/20/2010 09:22 -0400
With the spate of corruption news out of Wall Street and seismic updates out of Iceland dominating headlines in the past month, everybody forgot about the culprit in the Lehman Repo 105 fraud. Well, almost everybody - the Lehman unsecured creditor committee, or basically the post reorganized equity estate, has decided to seek a probe of Ernst & Young to see "if the estate may have causes of action against the auditor arising out of Lehman's use of a the controversial accounting technique, Repo 105" reports Reuters.
A vivid chart from VisualEconomics, demonstrates the key US creditors and their most recently disclosed holdings. Of course, the TIC does this monthly (in a much less pretty format), but it does make for a good poster, especially if knowing off the top of your head whom the U.S. will be screwing if and when it decided to repudiate its debt, is of notable relevance . One name omitted: the United States itself, which according to the H.4.1 owns $777 billion of debt, essentially making it the second largest creditor after China. Obviously, this analysis excludes retail level and individual holders of debt.
As expected, Bankruptcy Case 09-16565, Southern District of New York, is the latest addition to the Bowling Green testament of the collapsing consumer class. $71 Billion in Total Assets, $64.9 Billion in Total Liabilities listed, as well as a metric ton of various bond issues. Common stock holders getting hosed include recently downgraded FMR (9.9%), Brandes (9.7%) and Franklin Mutual (5.7%). Bank of America listed a primary creditor (as administrative and collateral agent) at $7.5 billion. The Goldman Sachs Swap agreement is listed as having a notional value of $1.934 billion.
In an event that just as easily may not have occurred, Judge Gonzalez presiding over the boiling hot Chrysler bankruptcy, has sided with an objection of the Chrysler Non-TARP creditors (aka abominable hedge funds). The issue at hand was a request for a delay of the hearing on Section 363 bidding procedures from today until tomorrow at 2:30 pm.
For those that remember the surreal weekend before Lehman filed chapter 11, Barclays was considered an eleventh hour white knight who would swoop in and buy the bank. These rumors were squashed after Barclays pussied out, saying it would not be able to afford Lehman without the Queen's, the Fed's and Santa Claus' blessings... Nonetheless, the bank did its diligence, and 4 days after Lehman filed, Barc used the smoke and mirrors of bankruptcy court to snatch the U.S. broker dealer for metaphorically pennies on the dollar, and literally $1.75 billion.
The acrimony over the world's largest DIP is reaching fever pitch. For a second day in a row, Judge Gerber said he will listen to yet another round of arguments tomorrow before deciding whether to approve the Debtor in Possession loan. As we wrote previously, the fate of the company (at least over the next 6 months) hangs in the approval of the DIP, as without it Lyondell will proceed straight to liquidation.
A group of disgruntled Sirius creditors has threatened to fire Mel Karmazin and other senior execs if the company does not cut a deal with EchoStar or John Malone (who has offered to provide bridge financing) and instead files for bankruptcy. Edward Weisfelner, a lawyer with Brown Rudnick was quoted as saying:
Restructuring consultancy firm Alvarez & Marsal has decided to take the easy way out, and simply give creditors in the Lehman's bankruptcy equity instead of trying to maximize cash recoveries. The bulk of Lehman's residual value (or lack thereof) is contained in its hard to value real estate and private equity assets.