"Lehman 2.0" Imminent Warns John Taylor

Tyler Durden's picture




 

By John R. Taylor, Jr. Chief Investment Officer FX Concepts

Lehman 2.0

Global investors either have extremely short memories or they are far too concrete, as my wife the psychologist would say. Saying that Greece is not a bank but a country means nothing. Almost all Europeans argue that a default by the Greek government would now be more straightforward and not as significant as the collapse and bankruptcy of Lehman Brothers in September 2008, especially since the Eurozone, under the influence of the surplus countries, has effectively ‘ring-fenced’ Greece from the other 16 members. Lehman was not a very large factor in the global banking scene with less than one quarter the capital of the biggest US banks and with assets below those of more than 100 banks around the world. Greece might represent less than 3% of the GDP of the Eurozone, but when lined up against Lehman, Greece stands larger in its relevant market. Anyone can read the newspapers, blogs, and Internet scribblings before the Lehman collapse and see that the impact of its collapse was not expected to be significant. Tim Geithner, then head of the New York Fed, worked to arrange the emergency liquidation of Lehman’s assets and there were expectations that the company could be sold to Bank of America or Barclays, but the Bank of England vetoed a sale to Barclays and the US government refused to lend any support to Bank of America in its effort to buy Lehman.

Rereading the documents and remembering the situation as I set out for a weekend cruise on the Chesapeake, the world was not worried. The market had already seen the rescues or restructuring of Washington Mutual, Countrywide, Fannie Mae, and Freddie Mac, so no one was worried. This looked like another Bear Stearns, a manageable problem but this time the Bush administration was not interested in getting involved – ‘let the market solve this, don’t throw good money after the bad.’ So, what is the difference now? The world is as blasé about a Greek default or departure from the euro as it can be – credit spreads are dropping, the other weak Eurozone sovereigns are financing themselves easily, and everyone thinks the LTRO has solved the problem for the next year or two. Why should we worry about Greece? Who cares if their unemployment is 20.9% and climbing very fast, or that it is now in its fifth year of declining GDP? Let’s teach them a lesson!

Hubris is at the heart of this. Everyone says this cannot happen – we won’t allow it. Says who? The EU says: if it is written in an agreement, it must be totally correct, unchangeable, and followed at all costs. New realities can’t intervene and no slippage is allowed. Why the Germans are so sure that they know the future is beyond me. They are fallible too, but they won’t admit it, and the Greeks can’t make them budge. Haven’t they looked around? Santorini has a different economic and social cost structure than Wiesbaden. Humanity (and common sense) seems totally lacking in the negotiations with the Greeks and a violent backlash would be totally understandable. Why the countries that have been fattening up their current account surpluses selling products to Greeks, whom they should have known were basically broke – just as they always have been – should be paid 100% on the euro is beyond me. Major losses should apply not only to sovereign borrowings but also to accounts receivable for cars, electronics, and other consumer goods. The market has not opened its eyes to the impact this Greek unraveling will have. The Eurozone will be mortally wounded and the world will suffer a significant recession – maybe as deep as 2008. European banks will lose much of their capital base and many should be bankrupt, but just as in the Lehman aftermath, the governments will try to save the banks and the banks’ bondholders, solvent or not. As the bank appetite for Eurozone sovereign paper will be decimated, austerity will probably follow shortly, followed by deflation and uncontrollable money creation. The European recession should be one for the record books.

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Thu, 02/16/2012 - 10:03 | 2165522 gojam
Thu, 02/16/2012 - 10:05 | 2165529 LawsofPhysics
LawsofPhysics's picture

Maybe.  Got physical? we are all greek now.

Thu, 02/16/2012 - 10:07 | 2165537 King_of_simpletons
King_of_simpletons's picture

This is good news. US unemployment will drop to 5%, A wall street stooge will get elected, Recession....what recession ? We are having an economic boom...

All of this in Prozac induced LA LA LAND.

Thu, 02/16/2012 - 10:15 | 2165574 Badabing
Badabing's picture

“As the bank appetite for Eurozone sovereign paper will be decimated, austerity will probably follow shortly, followed by deflation and uncontrollable money creation. The European recession should be one for the record books.”

They will bail out Greece with “uncontrollable money creation” anyway!

Thu, 02/16/2012 - 10:27 | 2165611 A Man without Q...
A Man without Qualities's picture

It's more likely to follow the Lehman example - let one go down, create fear and panic and in the confusion bail out the bigger problem.  Therefore, Spain and Italy will be the Citi and AIG, with Portugal and maybe Hungary as the Merrill/ Bear.  It is important to remember it was the near collapse of Citi and AIG which scared the shit out of the markets, not the "Lehman moment"...

IMHO, they know they are going to have to do something massive (LTRO is not a panacea, it merely creates a centralized repo market, it does not de-risk), and they could choose to bring Greece inside the tent, but frankly, the level of BS coming from the Greek establishment has made it easy to kick them down.

My guess, they will find a way to arrange the bond swap without putting too much money down, and the banks will take it, because given the almost total collapse in Greece, a 75% haircut in order to switch from local law to London, Lux will make sense in the long run. 

Thu, 02/16/2012 - 11:22 | 2165756 Harlequin001
Harlequin001's picture

'The European recession should be one for the record books.' I certainly fuckin hope so, I've got rather a lot of gold and silver that I'm not expecting to go down...

Thu, 02/16/2012 - 11:45 | 2165846 steve from virginia
steve from virginia's picture

 

Funny thing is the EUers could end the entire crisis any time they want.

Create a fiscal entity (a room w. a computer in it) and an oil import fee for the continent.  Fuel imports are now priced so that gasoline is now five euros per liter. The new entity would issue new bonds to retire the 'trash'.

 - Energy conservation would be imposed to cut external currency drain. Import fee would be increased as necessary to cut fuel imports in half.

 - The shiny, new lender of last resort would take away the bond vigs. Greek debt would be like New York State General Obligation bonds.

Sorry, bad dream this won't happen Greece will repudiate its debts and credit will freeze across Europe despite LTRO. Germany will exit the euro or go bankrupt -- it cannot pay Greece's finance debts any more than Greece can. The euro will die and trillions of euro wealth extinguished.

All for the sacred auto manufacturers and dealers. Can't ask them to sacrifice, can we?

Thu, 02/16/2012 - 14:09 | 2166473 The Watchman
The Watchman's picture

This sucks!!!! I just learned how to use Lehman 1.0 and now there's a new version!!!!! Damn it all to Hell!!!!!!

Thu, 02/16/2012 - 11:26 | 2165771 fourchan
fourchan's picture

NO MARK TO MARKET, NO PROBLEMS.

Thu, 02/16/2012 - 11:48 | 2165855 GMadScientist
GMadScientist's picture

The whole "see no evil" thing is a lot more appealing when the monkey isn't also a pilot.

Thu, 02/16/2012 - 10:13 | 2165560 gojam
gojam's picture

"Got physical?"

I've got this video of a song by Olivia Newton-John.

http://www.youtube.com/watch?v=vWz9VN40nCA

(Warning may shock younger viewers or anyone with a sensitive disposition.)

Thu, 02/16/2012 - 11:38 | 2165811 LFMayor
LFMayor's picture

you mean the sweaty fat guys?  or the pole smokers?

Thu, 02/16/2012 - 11:07 | 2165708 SMG
SMG's picture

Who knows, there has been so much disinformation over the last few years, I've become numb to it.

Leaking a "rumor" like this could be just enough to set up millions of shorts for the slaughter once again.

On the other hand, maybe it's true and we can finally reset, and my shorts will finally pay off.

But again, this is a crooked casino, full of lies and tricks.

 

 

Thu, 02/16/2012 - 11:55 | 2165889 brewing
brewing's picture

then again, you could ignore the troll's re-post of claptrap...

Thu, 02/16/2012 - 10:08 | 2165542 Tyler Durden
Tyler Durden's picture

Total debkaesque BS

Thu, 02/16/2012 - 10:10 | 2165554 SheepDog-One
SheepDog-One's picture

As opposed to US mediaesque total BS.

Thu, 02/16/2012 - 10:19 | 2165575 gojam
gojam's picture

Tyler,

John Ward is fairly reliable. If he's says he's seen this document AND got confirmation then he has.

Whether it's a contingency document or a timetable is a another matter.

I'm not aware that John Ward's source is Debka. I seriously doubt it.

Thu, 02/16/2012 - 11:46 | 2165625 FinHits
FinHits's picture

The storyline here sounds correct to me: the €14.5 billion bond is due on March 20, but supposedly one can push the default by another week to March 27. Therefore the weekend starting March 23 is the optimal time to pull the plug and put in place capital controls in Greece.

The narrative on the negotiations also appears to be credibly described.

I fully expect Greece to hard default, and it not to cause a Lehman 2.0. Pain and suffering and write offs, but no systemic shock. During the Lehman times the short-term interbank funding, Tier 1 capital ratios at around 5% and overextended CDS positions at the likes of AIG were truly horrible.

I will enjoy the resulting pain nevertheless. It is good to see capitalism in action: losses for Greek investors, whether public, private, IMF or ECB.

This IFR article on the March CDS not being triggered due to 7 day grace period also makes the "The Slog" blog entry sound very credible. Some idiots are left with useless March 2012 CDS positions that cost a fortune and don't give any protection, when the March 23 default weekend comes!

http://www.ifre.com/derivatives-investors-dump-march-greek-cds-contract/20048490.article

Thu, 02/16/2012 - 19:58 | 2167729 Ratscam
Ratscam's picture

come on even the biggest german travel agencies as TUI, etc. have negotiated contracts with all of their hotel providers that they have to accept THE new currency of Greece if it would be introduced. That was back in 2011. google for yourself.
So go figure yourself what the future "surprise" will be!

Thu, 02/16/2012 - 11:03 | 2165700 Seize Mars
Seize Mars's picture

@TD

Total debkaesque BS

What does that mean?

Thu, 02/16/2012 - 11:08 | 2165713 Crumbles
Crumbles's picture

Read and draw your own conclusions -

 

http://debka.com/

Thu, 02/16/2012 - 13:27 | 2166295 blueRidgeBoy
blueRidgeBoy's picture

just because Debka's conspiracy theories aren't nearly so diabolical as those found on ZH doesn't mean they're any less entertaining...

Thu, 02/16/2012 - 14:01 | 2166420 ninja247
ninja247's picture

Tyler,

What's your grief with debka?

Thu, 02/16/2012 - 14:49 | 2166627 Treason Season
Treason Season's picture

Ziops

Thu, 02/16/2012 - 11:11 | 2165722 vote_libertaria...
vote_libertarian_party's picture

So if they shut it down on March 23rd and Greece pays back NONE of their bonds...zero...nada...will the grand poo bas that rule on whether it is a default finally deem it a default?

 

"Oh sure you are getting none of your money back but it was voluntary.  You really wanted to get nothing back."

Thu, 02/16/2012 - 15:17 | 2166737 malek
malek's picture

What part of "...or they are far too concrete" by John Taylor didn't you understand?

Thu, 02/16/2012 - 10:04 | 2165526 Conrad Murray
Conrad Murray's picture

These financial terrorists and their enablers in governments, holding the world hostage for the purposes of enriching themselves and gaining power, need to be skinned alive in front of their children on a worldwide television broadcast.

Thu, 02/16/2012 - 10:28 | 2165614 RSloane
RSloane's picture

You're joking right? They own television networks across the globe.

Thu, 02/16/2012 - 10:07 | 2165534 falak pema
falak pema's picture

Lehman 2 imminent; hitchcockian scenario for doom and gloom; whereas MSM sings "alles gut" in 2012 for US economy!

Who sings the true, true song of economy?

Thu, 02/16/2012 - 10:50 | 2165667 ex VRWC
Thu, 02/16/2012 - 10:58 | 2165682 Conrad Murray
Conrad Murray's picture

Very nice. Thank you.

Thu, 02/16/2012 - 10:06 | 2165535 orved
orved's picture

Greece is not Lehman

Say your mantras! *mantra mantra mantra...*

Thu, 02/16/2012 - 11:57 | 2165894 V in PA
V in PA's picture

There is no inflation. Gold is not money.

There is no inflation. Gold is not money.

There is no inflation. Gold is not money.

 

You're right! I do feel better. ;)

Thu, 02/16/2012 - 10:07 | 2165541 undercover brother
undercover brother's picture

everything's going according to my evil plan.  

Thu, 02/16/2012 - 10:25 | 2165598 disabledvet
disabledvet's picture

You forgot your evil laugh. This is very important in these matters.

Thu, 02/16/2012 - 10:40 | 2165651 brooklynlou
brooklynlou's picture

Do you start the monologue with the evil laugh or end it? I get the timing of the pinky to the lips thing, but I always get confused and a bit self conscious about the laugh part.

Thu, 02/16/2012 - 10:08 | 2165544 juicyfruit
juicyfruit's picture

Peter Schiff was accurate in calling the housing bubble pop and subsequent recession....has John Taylor's calls been accurate? and which calls were they and when? I have not followed Taylor.

Thu, 02/16/2012 - 11:18 | 2165744 JimBowie1958
JimBowie1958's picture

All I could find is this, but my Google fu is weak.

http://marketswiki.com/mwiki/John_R._Taylor,_Jr.

Thu, 02/16/2012 - 11:52 | 2165877 GMadScientist
GMadScientist's picture

Schiff is a tiny pimple on Taylor's ass.

Thu, 02/16/2012 - 12:34 | 2166080 Straw Dog
Straw Dog's picture

Taylor called the equity market top in May 2011 very accurately.

http://www.bloomberg.com/news/2011-05-12/currency-hedge-fund-manager-tay...

Thu, 02/16/2012 - 10:09 | 2165545 SheepDog-One
SheepDog-One's picture

The EU says 'If it is written in an agreement, then it must be followed'....WELL except for our own EU charter...but nevermind all that hey China can we haz a few trill?

Thu, 02/16/2012 - 10:11 | 2165547 Sandmann
Sandmann's picture

but the Bank of England vetoed a sale to Barclays and the US government refused to lend any support to Bank of America in its effort to buy Lehman.

NOT TRUE !  The Bank of England had nothing to do with it as Regulation of Banks was in the hands of the FSA following changes in 1998. Geithber and Cox were too busy in New York to bother telling London what was going on and failed to involve the Financial Services Authority in discussions which meant they could not advise on UK Company Law or EU Law. So Barclays needed 60 days to arrange a Shareholder Vote to approve a takeover as it involved >5% Barclays share capital and in those 60 days someone had to guarantee Lehman trades plus which the Clearing House in London was due a software upgrade that same weekend and HBOS was failing.  

 

The Masters of the Universe like Paulson seem remarkably ignorant about other jurisdictions and laws, even the Lehman Bankruptcy was bungled with Cox ORDERING a US Company to file bankruptcy yet failing to take account of  English Bankruptcy Law where the trades were taking place and stripping out all the Cash from the London operations on a Friday for window-dressing in new York so there were no cash reserves in London to meet trades or payroll which by definition is Bankruptcy and that means shutdown. 

 

Coming so soon after Paulson had wiped out Shareholders in Fannie Mae and Freddie Mac one wonders how this Goldman Strategy of "Fuck Your Client" ever got into the US Treasury 

 

Oh and btw, Ken Lewis had the Feds lean on the Federal Reserve Bank of Richmond with regard to B of A's rather poor ratios  as a quid pro quo for paying $29/share for a dog and guaranteeing $5.8 billion in bonuses

Thu, 02/16/2012 - 10:13 | 2165565 Ned Zeppelin
Ned Zeppelin's picture

"The Masters of the Universe like Paulson seem remarkably ignorant about other jurisdictions and laws."

Why pay attention to something as trivial as "laws," which you've spent your life ignoring and consider applicable only to the hoi polloi.  Paulson was and is a criminal and a traitor to the American Republic and its People. The criminal mind is blind to such considerations.

Thu, 02/16/2012 - 12:29 | 2166051 ElvisDog
ElvisDog's picture

Yeah, saying that TPTB even consider laws and jurisdictions is the very definition of naive. Jon Corzine stole 750 million from his clients and is still vacationing in the Hamptons and dining in 5 star restaurants. I don't think he thought for one moment that he was going to jail over it.

Thu, 02/16/2012 - 10:09 | 2165550 Ned Zeppelin
Ned Zeppelin's picture

The long rumored financial apocalypse is a perennial no show.  I'll guess we'll see soon.

Thu, 02/16/2012 - 10:35 | 2165568 SheepDog-One
SheepDog-One's picture

Thats true, 2008 economic implosion was also a ridiculous no-show, confined to subprime, nothing to see here move along and just keep buying stocks we got this shit...till 1 morning we had a nice -800 point open.

OH yea and also the exact same maniacs who saw nothing coming last time are still in charge of it all today. Cheers!

Thu, 02/16/2012 - 11:01 | 2165691 Vince Clortho
Vince Clortho's picture

It's good to know there is an experienced hand guiding the ship.

Thu, 02/16/2012 - 11:53 | 2165879 GMadScientist
GMadScientist's picture

Exxon Valdez.

Thu, 02/16/2012 - 12:00 | 2165909 V in PA
V in PA's picture

No. The Costa Concordia. TPTB will leave the sinking vessel and let the passengers fend for themselves.

Thu, 02/16/2012 - 12:10 | 2165966 GMadScientist
GMadScientist's picture

Well-played. :)

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