On Your Mark, Get Set, (Bank) Run! The Dominos of Serial Lehman 2.0 (x 4) In The EU Are Falling Into Place At A Quickening PaceSubmitted by Reggie Middleton on 08/01/2011 07:36 -0500
NPAs and devalued sovereign debt infect bank balance sheets, which are bailed out by sovereigns who assume too much debt for the bailouts, thus dropping the value of their bonds, further stressing bank balance sheets, thereby increasing the need for bailouts. Wash-Rinse-Repeat. Hey, he who panics first, panics best!
Proof That Europe Is Primed For A Lehman Brothers-Style Bank Bust, But Likely On A Much Larger Scale!!!Submitted by Reggie Middleton on 07/21/2011 12:24 -0500
Recent history shows us what happens when you borrow short and lend long against assets that have been halved in value, hasn't it? Guess who hasn't been to (very recent) history class...
For the week ended June 27, the Fed flooded the financial system with $76 BILLION in liquidity. Bill King of the King Report puts that number into perspective noting that it’s BIGGEST increase since September 22, 2008 right after Lehman Brothers collapsed. That’s right, the Fed just juiced the system as much as it did when Lehman Brothers went under. While a shockingly large single money pump, the Fed’s generally been flooding the system with liquidity at a pace equal to that of 2008 since the beginning of the year.
Last night, the FT penned a rather curious, not to mention 2 month delayed, PR puff piece, discussing Paulson's success in investing in Lehman bonds, ostensibly to offset the firm's recent horrendous investing performance (Sino Forest, Bank of America and Premier Foods to name a few). While it is true that Paulson was one of the very first investors in Lehman bonds following the banks bankruptcy on September 15 some of the math in the FT piece is rather misleading. We will present a detailed analysis and a more objective version of Lehman bond trading history when we bring to our readers the complete breakdown of trading as disclosed in the Lehman 2019 ad hoc committee response (thank you Northwest airlines) that hit the Lehman docket on April 19. However, in the meantime we wanted to bring to both readers', and regulators' attention one rather peculiar piece of information that has emerged as a result of the trading disclosure provided by the firms in the Lehman ad hoc creditor committee, in this case Paulson and Taconic, which hold over $4 billion and just under $2 billion in face value of Lehman General Unsecured Claims. Specifically, it appears that when trading out of Lehman bonds, Paulson may have obtained highly preferential terms which were certainly not available to other hedge funds, beginning the question: were (are?) dealers willing to assume losses on transactions with Paulson (to the detriment of other market players), simply to be in the hedge fund manager's good books? We don't know. But here is the data.
European liquidity just went into Defcon 1.
The May Chicago PMI is out and contrary to the herd of clueless Wall Street idiots, better known in polite circles as economists, it came at 56.6 on expectations of 62.0, a collapse drop from the 67.6 before. This is the worst monthly drop since the economy imploded back in October 2008, and the second largest two month drop since 1980! A quick look at the New Orders index indicates it was the lowest since September 2009. But the good news: the economy is still in expansion... for about 1 more month. The release says it all: "NEW ORDERS and PRODUCTION posted their largest declines in several years...but remained positive" and "INVENTORIES accelerated buildup" - thank god for artificial economic expansion. And from the respondents: "Fuel cost are going to have a major impact on business activity in a negative way that will slow recovery to a crawl." Uh, what recovery? Just you wait until QE3 is announced in 3 months. And elsewhere, the May consumer confidence completed the trifecta of bad news, coming at 60.8 on expectations of 65.4, and down from 66.6.
As we reported yesterday, The Treasury Borrowing Advisory Committee, easily the most important 3rd party advisory structure at the US Treasury currently, chaired not surprisingly by JP Morgan and Goldman Sachs, released a letter to Tim Geithner, doubling up his calls for untold death and destruction, not to mention plunging year end bonuses, if the US is not allowed to kick the can down the road for another 1-2 years. For those curious, in addition to the Matt Zames chaired committee, other members include Soros, Tudor, Bank of America, BNY, Moore, Alliance Bernstein, Morgan Stanley, Round Table IMC, Brevan Howard, PIMCO (lol), Dodge & Cox, RBS, and Western Asset Management. The full M.A.D. letter is presented below.
And while the general public frets over the latest geopolitical disasters, the SEC proves Rahm Emanuel correct once again, and letting no disaster go to waste, man-made or natural, the world's most incompetent (but massively underpaid, or so they claim) regulator is preparing to let Dick Fuld completely off the hook for last spring's stunning Repo 105 report by Anton Valukas, whose findings even the bankruptcy expert said were probably cause for civil lawsuits. The WSJ reports: "In recent months, Securities and Exchange Commission officials have grown increasingly doubtful they can prove that Lehman violated U.S. laws by using an accounting maneuver to move as much as $50 billion in assets off its balance sheet, which made it appear that the securities firm had reduced its debt levels....After zeroing in last summer on the battered real-estate portfolio and an accounting move known as Repo 105, SEC officials have grown more worried they could lose a court battle if they bring civil charges that allege Lehman investors were duped by company executives. The key stumbling block: The accounting move, while controversial, isn't necessarily illegal." Oh no, illegal it is. The problem is that should the SEC actually pursue it and win, that act would open up the floodgates for hundreds of lawsuits against everyone from Bank of America and Citi, which have also disclosed they used comparable tactics to misrepresent the true status of their books, to shady accounts like Ernst & Young, all the way to FASB at the very top of the corruption pyramid. And with hundreds of millions if not billions in legal fees about to be paid out if the fraudclosure back door settlement fails, the SEC simply can not allow the pursuit of justice to threaten the viability of America's only national interest: that of its criminal banking syndicate.
The largest US public pension fund accused Lehman Bros. Holdings Inc., its former top executives and numerous bond underwriters of fraud and making materially false statements about losses from mortgage-backed securities during the financial crisis of 2007 and 2008...
NYSE October Margin Debt Jumps To Highest Since Lehman Failure As Investor Net Worth Is At Lowest Since April HighsSubmitted by Tyler Durden on 12/22/2010 17:11 -0500
It is not just the stock market that is at the highest levels since Lehman. Probably just as importantly, NYSE margin debt has surged to $269 billion, an increase of $13 billion from the prior month, and the highest since September 2008 when it was at $299 billion, and subsequently tumbled as investors rushed to get out of all margined positions. And this has happened even free cash credit accounts and credit balance in margin accounts remained relatively flat. In other words, net NYSE available cash decreased by $10 billion M/M to ($34) billion, the lowest since April 2010, just before the market tumbled, and net cash surged by almost $50 billion in two months. We are confident that NYSE cash in November will be at the lowest level of the year, not to mention December, as hedge funds leveraged everything they could, in some cases hitting as much as 3-4x gross leverage, in pursuit of beta, now that unleveraged alpha strategies have ceased to work. Which means that with retail stubbornly missing from the picture, the only beneficiaries of the HFT and Fed facilitated melt up are the 1000 or so hedge funds, where average net worth is in the 6 digits, that will be profitable this year. Everyone else can drown their sorrows in McDonalds fries which are about to surge in price. Of course, what this means should some unexpected credit event occur, is that the forced selling that will follow this two year high margin debt unwind will lead to a comparable results as those seen after the Lehman collapse. For the sake of America, we can only hope that the centrally planning Chairman can sustain the lie for a few more months before the house of cards on the camel's back, which in turn is suspended on a ladder as the eye of the hurricane passes over, finally topples.
No End In Sight To Equity Outflows As Stock Boycott Persists Despite Largest Bond Outflow Since Lehman FailureSubmitted by Tyler Durden on 12/22/2010 16:44 -0500
For the second week in a row, those claiming that flows will any.minute.now. shift away from bonds and go to equities are proven dead wrong. ICI has just reported that in the week ended December 15, not only was there another massive outflow, the 33rd in a row, from domestic equity mutual funds to the tune of $2.4 billion, but taxable and municipal bonds saw a stunning $8.6 billion in outflows, including another record $4.9 billion in muni outflows. At this point absent another major pull back in bond prices, we anticipate that bond inflows will once again resume, even as stock outflows persist indefinitely. Year to date investors have pulled just under $100 billion in money from US-focused equity mutual funds, offset by just $16 billion in comparable inflows into equity strategies via ETFs as we described yesterday. The reason for this seemingly endless boycott of stocks via the bulk of the population was given best by Geoff Bobroff, who told Bloomberg: "I would guess most retail investors are staying put
because you aren’t seeing the money go anywhere else." Another explanation, and just as spot on: nobody, save for a few hedge funds, gives a rats ass about manipulated stocks prices anymore.
It was only a matter of time: back in March, following revelations of the Lehman Repo 105 scam, we speculated that the days of Ernst & Young are numbered. Back then we said "we are confident that (again, with the assumption that we live in some
semblance of a sane/ration world), E&Y's Financial Services Office
and quite possibly the entire firm. Integrity is the number one
currency for an auditor, and just like Anderson, E&Y's just went out
in a puff of green-colored smoke." Today we learn that Andrew Cuomo is about to make E&Y's life a whole lot more difficult. Per the WSJ "State Attorney General Andrew Cuomo is close to filing the case, which
would mark the first time a major accounting firm was targeted for its
role in the financial crisis." Too bad - E&Y was surely hoping that just like everything else in this corrupt country, out of sight would mean out of mind, and soon everyone would forget about the firm's involvement in the biggest bankruptcy in history. Better luck next time...
Following increasing concerns that China may finally realize that its repeated RRR hikes are insufficient and the PBoC will finally be forced to do the right thing and hike the general interest rate (or depeg the Yuan, but that ain't gonna happen), or otherwise withdraw liquidity, the 7 day Repo Rate has jumped to 3.58, the highest since October 2008, when there was no liquidity in the markets anywhere following the Lehman collapse. This merely indicates that obtaining liquidity in China, either directly or indirectly, is becoming increasingly more costly and problematic. But surely this news, together with the escalating riots in Athens, as well as the fact that gasoline prices this holiday season will be the highest on record, are not only priced in but in fact positive for the US stock market, which now responds to no negative news whatsoever, and jumps on the smallest hint that the latest fiscal and monetary stimulus is trickling through in the economy.
It always seemed to us that the whole Lehman Repo 105 fiasco seemed to be too much of a slam dunk for nobody to get sued over it. Yet here we were, almost a year after the Valukas report, and nobody was even pretend to be fighting off justice, or even a bunch of brain impaired porn addicts. Not so any longer. Bloomberg reports that per an unsealed filing in the Lehman bankruptcy docket, the Lehman 401(k) retirement plan, which had just under $230 million invested in Lehman stock, has sued Dick Fuld "and other former executives of the defunct firm for failing to disclose Repo 105, a financing method allegedly used to conceal billions of dollars of debt." And all this is occurring as the SEC is scrambling to find new and improved ways to pay off its multi-million midget porn bill, up to an including firing every staffer with an IQ over 50...All 4 of them.
The latest confirmation that there is nobody left in stocks save for hedge funds, HFTs (who do so at a comped exchange loss via liquidity rebates), and primary dealers, comes courtesy of UBS Client Flow research, which reports that "long only funds increased their net selling to levels last seen in October 2008." Putting a number to this: the week outflows by long-only funds was $783 million in the week ended October 1. This is in addition to observations that retail flows are now a one way street away from stocks, and merely reinforces the threat that the hedge fund playground which is what the stock market is now exclusively, could plunge the moment there is coordinated selling and profit taking. To use more graphic terms, the entire theater is just full of hedge fund millionaires, where everyone owns the same stock (mostly Apple), there is only one open door, and the Fed keeps on pouring gasoline all over the place.