default

Spain takes one step closer to a bailout, then eventual restructuring (aka, default), thus far exactly as forecast by BoomBustBlog. For those not keeping track, it is currently the financing premium leader among the non-bailed out PIIGS group.

Let's compare Spain to other nations that have defaulted in the recent past and see if there are any similarities. Surprise, surprise. We all know that Spain is big enough that if it goes, there goes that Euro-thingy experiment.

Watch this story. It will prove to be the story of 2011.

Some serious bedside reading here. Lots of pretty charts too, if a little too much undue optimism.Still, certainly one of the less Koolaidish reports out there.

For those who don't specialize in sovereign state financial models, I have broken down the anatomy of the inevitable Portugal default into a few simple graphs with direct comparisons to the Argentina default and restructuring. As the equity markets drink the liquidity elixirs, the debt markets are about to enter the greatest string of sovereign defaults in recent history. Many of my next few posts will provide a clear road map of the event. Move over Dancing with the Stars!

You don’t need a “wikileaks.org” site to reveal much of the BS that is going on in the world today. A lot of revelation can be made simply by having motivated, knowledgeable experts scour through publicly available records. I’m about to make said point by showing that the proclamations of the ECB, IMF, the Portuguese government and all of those other governments that claim that Portugal will not default on their loans is simple nonsense.

There's an enduring myth that the U.S. has never defaulted on its debt, but that's merely a function of how default is defined. When Treasury abrogated the gold clause in 1933, holders of U.S. debt suffered serious losses, and as evidenced by the dollar's decline versus gold since 1971, Treasury has been a serial defaulter ever since. Assuming a default of the haircut variety, this has been the global norm for at least two centuries, and if the U.S. were to default in this way, it's not something we should fear. Post WWII the largest economic powers were regularly in default of the haircut kind, and the global economy boomed.

The alternative title for today entry is: Ireland, please drive a stake through the heart of the vampire banks which have the world by the throat. The entire controlled demolition of the Eurozone's finances can be summed up in one phrase: privatize leverage and profits, socialize losses and risk. The basic deal is this: protect the bank's managers, shareholders and bondholders from any losses, while heaping the socialized losses and risks on the taxpayers and citizens. While there are murmurings of "forcing bondholders to share the pain," any future haircut will undoubtedly be just for show, while the Irish pension funds are gutted to bail out the banks.

Today the myth of a popular, democratic government in Ireland collapsed for good. After an impromptu poll of 500 people nationwide found that a "substantial majority" of the people, or 57%, wants the State to default on debts to bondholder, what it ended up getting was precisely the opposite. Why? "Last night that the Irish delegation
negotiating with the EU-IMF last week raised the issue of default. "The Europeans went completely mad," a senior government source said." Of course, this is a reason for the Europeans not to want an Irish default, not for the Irish. And last time we checked, the Irish government represented its people, not the interests of Brussels. As America showed all too well, we expect every banker in the world to threaten perpetual damnation for Ireland should they decide on doing what is right for its people (and so very wrong for another year of record banker bonuses). Then again, with elections in Ireland imminent, it is almost certain that there will be a massive popular overhaul of the government, and all bets at that point will be off whether the ECB can dictate terms to a brand new, and far more loyal, government. To quote to Independent: "In Dublin, there is barely concealed outrage at the interventions of Ms Merkel
and at the position adopted recently by the European Central Bank, which
precipitated the arrival of the EU-IMF team in Ireland."The ECB f**ked us," one government official in Dublin was reported
yesterday to have said." We wonder how soon before rhetoric finally shifts to action.

Next year, IMHO, we are going to see a further sharp decline in residential home prices as the tide of foreclosures begun in the past year starts to clear the courts and move to market via involuntary sales. The same thing is happening in Spain, by coincidence.

As a disclaimer to this update, I just want to reiterate once again that I firmly believe that the Euro is not viable, at least certainly not the way it is designed and I think the flaws in its conception are so profound that dissolution makes the most sense. With this assumption in mind, let us look at what the solutions are to the current woes. The individual bail-out route is not an option. When dominoes fall in panic the speed at which they fall tends to accelerate exponentially. Rewind the tapes to late July 2007: American Home mortgages files. The market goes on to make new highs but in January Bank of America takes over otherwise soon defunct Countrywide and by March Bear Stearns is belly up. The forced hand out to JP Morgan appeases the market temporarily, but by early September Fannie and Freddie are de facto nationalized, and so is AIG, Lehman collapses, Wamu is taken over by JP and at that point the government has no choice but backstop the entire system. Well, this is not unlike what we are witnessing here: We first had Iceland in November 2008, then Greece in the spring of 2010, now Ireland. Make no mistake if you let that fester enough or decide to bail them one by one without attempting a larger scale resolution by January Spain Portugal and possibly Italy will have been downgraded several notches, LCH will have raised the margins on all those bonds, and French and German banks will start dragging their country down the same slope. - Nic Lenoir

This is an extensive post designed for those who want to truly comprehend what I perceive to be both the root causes and the practical solution to the Irish sovereign debt problems and the threat of Pan-European possibly global financial and economic contagion.

Harrisburg, PA, whose bankruptcy is now about a year overdue, has just hired bankruptcy counsel: New York law firm Cravath, Swaine and Moore. The financial advisor has not been decided yet although the pitches there must be fast and furious, and probably involved every single bankruptcy advisory firm which recently has had exactly zero work courtesy of Ben Bernanke providing convertible DIPs at negative rates. Cravath took a tricky strategy to beat out other law firms: it would advise the city pro bono on its imminent Chapter 9. But don't think of it as money lost: think of it as league table credit, which will send the firm to the top of the ranks, and allow it to charge $1,000 an hour when the muni dominoes start tumbling left and right: after all Harrisburg is just the proverbial cherry pop. After it - the deluge. And the bankruptcy advisory vultures are already licking their chops over what will make the Lehman fee bonanza (now in the billions) seem like Greenspan's stingy monetary policy compared to Bernanke's global paradropping of Bennies.

In September 2008 the US came to a fork in the road. The Public Policy decision to not seize the banks, to not place them in bankruptcy court with the government acting as the Debtor-in-Possession (DIP), to not split them up by selling off the assets to successful and solvent entities, set the world on the path to global currency wars. By lowering interest rates and effectively guaranteeing a weak dollar through undisciplined fiscal policy, the US ignited an almost riskless global US$ Carry Trade and triggered an uncontrolled Currency War with the mercantilist, export driven Asian economies. We are now debasing the US dollar with reckless spending and money printing with the policies of Quantitative Easing (QE) and the expectations of QE II. Both are nothing more than effectively defaulting on our obligations to sound money policy and a “strong US$”. Meanwhile with a straight face we deny that this is our intention. It’s called debase, default and deny.

This is the math, the reasoning and the logic behind a nearly inevitable default by Greece. Why hasn't this been present in the mainstream media?