Lehman

MF Global's creditors (and clients) in Europe, and everywhere else, have many reasons to be furious. Now those in Europe have one more to add to their list of grievances: a complete and totally public disclosure, courtesy of KPMG, of not only how much they are owed, but their mailing, and in many cases, home address. In other words, not only will these individuals not receive their full claims in the insolvent entity whose primary specialty as it turned out was rehypothecating what little assets it did have, but now have to worry about the taxman coming after them.... As well as promptly changing their home address. One party, however, that will hardly mind, is JPMorgan which is supposedly owed just over €100 million. Luckily for them, they already quote unquote collected the (client) money.

CDS is once again (still) in the spotlight. We have moved on from debating whether or not a Credit Event has occurred in the Hellenic Republic, to concerns about whether the CDS market will settle without a problem. There is a lot of talk about “net” and “gross” notionals and counterparty risk.  What I will attempt to do here, is build a CDS world for you. We will look at various counterparties, the trades they do, and the residual risks in the system. It will be loosely based on Greek CDS but some liberties will be taken. None of the institutions are real world institutions (in spite of how much they sound like some people we know). It is a simplification, but to make it useful, it has to be robust enough to give a realistic picture of the CDS market/system.

Over the weekend, the BIS released its latest quarterly review of financial organizations, which despite being chock full of assorted data, merely summarizes what banks already report. As such, it completely avoids the potentially black swan areas, such as derivative, off-balance sheet and shadow banking exposure. In other words, it is largely a waste of time. One section, however, that is useful,is the analysis by Morten Bech on "FX volume during the financial crisis and now" which has created a constant time series to evaluate FX trading volumes all the way through October 2011, as opposed to the traditional BIS Triennial survey, the next of which is due in April 2013. Morten's finding: "I estimate that in October 2011 daily average turnover was roughly $4.7 trillion based on the latest round of FX committee surveys."

Germany just launched a €480 billion fund that it will use to backstop its banking system should a Crisis hit. And in the fine print, which no one has caught,... the fund will also allow German banks to dump their EU sovereign bonds... as in German banks'  PIIGS/ EU exposure disappearing in an instant. So... why would Germany do this?

I hold up my hand, “One moment please” as I introduce you to the 800 pound Greek Gorilla that is about to enter the room. Allow me to now present to you the “OTHER” Greek debt that is outstanding and will have to be accounted for as the country defaults. Detailed below are some of the “OTHER” sovereign obligations of the Greek government which have now been submitted to the ISDA and I list some of them below. You will note that there are bank bonds, Hellenic Railway bonds, Urban Transportation bonds et al that are guaranteed by Greece. You will also note that there are bonds tied to Inflation, Floating Rate Notes, Asset-Backed securities and a whole mélange of other structured products with a Greek sovereign guarantee. What we all thought was fact is now clearly fiction and default will now bring “Acceleration” one could reasonably bet in all kinds of these securitizations and in all kinds of currencies.  This could come from the ratings agencies placing Greece in “Default” or it could come from the CDS contracts being triggered depending upon each indenture and you will also note that a great many of these off balance sheet securitizations are governed by English Law and not Greek Law. You may also wish to consider the fallout to the banking system as the lead managers of all of these deals could find themselves behind the eight ball as various clauses trigger and as the holders of these securitizations line up at the judicial bench [ZH note: there is a reason why Allen & Overy is getting paid $1500 an hour to indemnify ISDA with a plethora of exculpation clauses - they know what is coming] The ISDN numbers are on all of these securities and the lead managers may be found on Bloomberg or other sources as well as the holders of the debt.  The curtain just lifted and the show is about to get way too interesting!

As Portugal gets jealous of Greece's ability to just not pay bills, insurance portfolios will suffer greatly as the FIRE sector burns! The first domino has fallen, yet the MSM is taking this as a non-event!

After reading this, everyone should have a fairly good grasp of what happened not only today, but ever since the great (and quite endless) European financial crisis took center stage, and what to look forward to next...

Total confusion around this, as there is no formal Press Release from ISDA yet, but since this one comes from Bloomberg, let's assume they have double checked their data. From Bloomberg:

• ISDA EMEA DETERMINATIONS COMMITTEE: RESTRUCTURING CREDIT EVENT
• ISDA SAYS CREDIT EVENT HAS OCCURRED WITH RESPECT TO GREECE
• COMMITTEE DETERMINES AUCTION TO BE HELD ON MARCH 19
• ISDA EMEA: AUCTION TO BE HELD ON OUTSTANDING CDS TRANSACTIONS

This despite refutations from ISDA 15 minutes ago that no decision had been reached. Of course, if this is a spoof PR that has gotten half the media world confused, the farce will be 100% complete.

Even With Back Dated Deals Featuring Only One Party, One Can't Escape Greece's Problem Shared By Much Of The EU. Let's look at some nasty consequences...

This entire deal is just stupid. And all it’s done is alert Spain and Italy to the fact that handing over fiscal sovereignty and implementing austerity measures in exchange for bailouts is a waste of time. Indeed, Spain just woke up and smelled the coffee. And it's told the EU to "shove it."

Yesterday we were quite amused to note that following the Hilsenrath leak (pre-backpeddaling as a result of some FRBNY spanking) of a sterilized QE that for supposedly tries to avoid "generating" inflation (hence confirming that QE does in fact stimulate inflation instead of being a tool to lower rates and make housing affordable) the market reaction was... inflationary, with stocks rising, but far less than crude and gold. So much for the Fed's trial balloon to see if it can intervene in the market without costing Obama a few million ballots. Today, Art Cashin observes precisely the same paradoxical response in his daily note.

Lies, damn lies and charts.  Why no one in charge dares utter the "F" word (fraud).

Markets appear to be tentatively recovering some of yesterday’s heavy losses, recording modest gains so far this morning. Comments made overnight by the German finance minister as well as senior officials from the Greek finance ministry may have mercifully given market participants some hope as they are confident the Greek PSI deal will be completed by the deadline tomorrow evening. The DAX index has underperformed the other European equity indices in recent trade following the release of some disappointing factory orders data for January, with markets expecting an expansion of 0.6%, however the reading came in at -2.7%, moving DAX stock futures into negative territory. WTI crude and Brent have also retraced some of their losses made earlier in the week following a drawdown in US gasoline inventories reported last night as well as a generally weak USD index in the FX markets today. Markets are awaiting US ADP employment change later in the session, as well as the weekly DOE oil inventories casting further light on the US energy stocks.

• Key rate for $350 trillion market in limbo - Libor Links Deleted as U.K. Bank Group Backs Away From Rate (Bloomberg)
• Rift Grows Between Germany's Bundesbank and ECB (Spiegel)
• Athens issues threat to bond holdouts (FT)
• SNB to Reveal Board Members’ Currency Transactions After Hildebrand Furor (Bloomberg)
• Sarkozy Floats New Corporate Tax (WSJ)
• Super Tuesday Ensures a GOP War of Attrition (WSJ)
• Martin Wolf - The pain in Spain will test the euro (FT)
• Refinancing Fees Are Reduced for Some F.H.A. Borrowers (NYT)

All you need to read.