- J.P. Morgan to Pay Over $1 Billion to Settle U.S. Criminal Probe Related to Madoff (WSJ)
- Ford board aims to pin down CEO Mulally's plans (Reuters)
- Raising Minimum Wage Is a Bad Way to Help People (BBG)
- Japan Lawmakers Demand Speedy Pension Reform (WSJ)
- EU reaches landmark deal on failed banks (FT)
- In which Hilsenrath repeats what we said in August: Fed Moves Toward New Tool for Setting Rates (WSJ)
- Senators Vow to Add to Iran Economic Sanctions in 2014 (BBG)
- Centerbridge in $3.3bn LightSquared bid (FT)
- Banks, Agencies Draw Battle Lines Over 'Volcker Rule' (WSJ)
In his last book, The Five Stages of Collapse, Orlov viewed collapse through rose-colored glasses - after all, it is human nature to try to be optimistic no matter what; and so almost subconsciously crafted a scenario where industrial civilization fades away quickly enough to save what's left of the natural realm, allowing some remnant of humanity to make a fresh start. Ideally, it would start of with a global financial collapse triggered by a catastrophic loss of confidence in the tools of globalized finance. That would swiftly morph into commercial collapse, caused by global supply chain disruption and cross-contagion. As business activity grinds to a halt and tax revenues dwindle to zero, political collapse wipes most large-scale political entities off the map, allowing small groups of people to revert to various forms of anarchic, autonomous self-governance. Those groups that have sufficient social cohesion, direct access to natural resources, and enough cultural wealth (in the form of face-to-face relationships and oral traditions) would survive while the rest swiftly perish. Of course, there are problems even with this scenario.
Here is Part Two of our exclusive interview with World Bank Whistleblower Karen Hudes in which I discuss with Ms. Hudes the need to end an immoral fractional reserve banking system that continually drains the wealth of citizens without their consent and without their knowledge.
The US government is essentially unique - and not in a good way - in how it treats its citizens living and working in foreign countries. No other country in the developed world imposes and effectively enforces as many burdens on its citizens abroad (and those who would do business with them) as does the US government. It is not likely to change in the foreseeable future. In fact, we would bet that the burdens will actually increase as the US government becomes more financially desperate. That is a significant incentive to act sooner than later... or before it is too late altogether. However unpleasant this reality is, it does not negate the need to internationalize. Quite the contrary. As spending on welfare/warfare related programs continues to rise, it is clear that US government will sink deeper into fiscal and moral bankruptcy, with political risk increasing in tandem. It is far better to deal with the burdens associated with internationalization than to leave your savings, your income, and yourself in range of a desperate government's wrecking ball.
"Both before and after the appointment of an emergency manager, many talented individuals have put enormous energy into attempting to avoid this outcome. I knew from the outset that it would be difficult to reverse 60 years of decline in which promises were made that did not reflect the reality of the ability to deliver on those promises. I very much hoped those efforts would succeed without resorting to bankruptcy. Unfortunately, they have not. We must face the fact that the City cannot and is not paying its debts as they become due, and is insolvent..... I know we share a concern for the public employees who gave years of service to the City and now fear for their financial future in retirement, and I am confident that all of the City's creditors will be treated fairly in this process. "
Richard D. Snyder Governor, State of Michigan
When news hit the tape in February of 2007 that TXU would be acquired by a consortium of PE firms including KKR, TPG and Goldman, for the mind-boggling price of $45 billion, to this day the biggest LBO in history, there were those who were morbidly excited about the future as money was flowing freely, bonuses would hit a record, and there was only upside, and then there were those who knew this was the can't miss top-tick indicator of the beginning of the end. The latters ones turned out to be right. And not only because a year later the entire financial system imploded and only a $25 trillion global coordinated bailout prevented the collapse of the western way of life as we know it, but because now six years later, in the worst kept secret of Wall Street of the past month, TXU, now known as Energy Futures Holdings, is on the verge of the ultimate humiliation for private equity investors: Chapter 11, and a complete wipe out of not only the equity but major impairment of the debt holders as well.
Politics aside, the bottom line is that the Rubicon has been crossed, and deposits have now been forcefully confiscated in what Europe promises to be a standalone case. What is certain, is that nobody will wait to find out how long it takes before Europe's class of increasingly more desperate and ill-meaning despots is found to be have lied once more (as it has about everything else since the start of the European crisis). And while the mainstream media will be focused primarily on Europe in the coming days, as BCG and we have warned, the topic of "wealth taxation" is now front and center, and it stars not only Europe, but the US as well. The question then becomes: what does the funding structure of the US private depository institutions look like, and is there any possibility of Cyprus "wealth tax" recurring on the other side of the Atlantic. To answer this question, we present the summary layout of the consolidated US depository system, which according to the Fed's December 31, 2012 Flow of Funds report had a grand total of $15 trillion in assets, and a matched number of liabilities, of which 72%, or a total of $10.9 trillion was in the form of deposits. So, if the US was to go the Cyprus route, and begin impairing balance sheet liabilities to remark assets, there would be precious little space (with just $4.3 trillion in total other funding liabilities), before one would need to start eating into the deposit base, should Congress decide to implement a very "fair and just" financial asset tax in the US next.
New Jersey Casino Files For Bankruptcy Ten Months After Opening; No Taxpayer Funds Will Be Lost This TimeSubmitted by Tyler Durden on 02/19/2013 20:54 -0500
If it seems like it hasn't been even a year since the latest Atlantic City casino, this one with the surreal ads showcasing Revel Atlantic City, opened up, it is because that is exactly the case. Ten months to be precise. And just as quickly as it came, just as quickly did it file for bankruptcy. Moments ago, the company issued a press release that it would engage in a debt-for-equity prepack (with Moelis, K&E and A&M all advising) Chapter 11 which will be completed over the summer. The biggest losers here are not so much the original owners of Revel Entertainment Group, Morgan Stanley which three years ago decided to walk away from its entire $932 million sunk investment in the bankrupt hotel (instead of spending another billion to complete it), but the people of New Jersey, who just lost another investment opportunity as some $260 million in the tax incentives that were supposed to help the project along will never reach their intended target. The continuation of the abandoned investment was the brainchild, and pride and glory of one Chris Christie who then said "the $2.4 billion Revel is one of the most spectacular resorts he's ever seen and expects it will motivate other Atlantic City casinos to revitalize their properties. "I think that one of the things that Revel will be is a catalyst for additional modernization and investment by the other casinos to say, listen, if we grow more people here coming to the region and we're offering something that looks nice further down the boardwalk, maybe people will want to look there as well." As it now stands, the Revel will only be a catalyst for further bankruptcies as industry after industry finds out what a tapped out consumer with no access to $1.8 trillion in excess reserves truly means.
Post-Hyperinflationary Zimbabwe Welcomes The Holidays With 80% Unemployment, Empty ATMs And Paralyzed TransportSubmitted by Tyler Durden on 12/24/2012 13:02 -0500
Zimbabwe's hyperinflation, courtesy of one Gideon Gono - the brilliant man behind such grand monetary experiments as QE and its offshoots throughout the developed world - and numerous one hundred trillion dollar Zimbabwe dollar bills, may have come and gone, and the country may no longer have a functioning currency of its own, but it certainly has the aftermath of the most recent episode of modern-era monetary hyperinflation to contend with. And with the holidays here, AP provides a very bleak snapshot of what the country which currently has an 80% unemployment, has to look forward to. Zimbabweans are facing bleak holidays this year amid rising poverty, food and cash shortages and political uncertainty, with some describing it as the worst since the formation of the coalition government in the southern African nation.... Banks have closed, ATMs have run out of cash and transport services have been paralyzed." It gets worse: "Zimbabwe's unemployment is pegged at around 80 percent with many people in Harare, the capital, eking out a living by selling vegetables and fruits on street corners." And all of this is after the massive economic imbalances in Zimbabwe's economy should have been "fixed" (or so conventional economic theory would have one believe) courtesy of hyperinflation, which left any savers in tatters, destroyed the value of the old currency, benefited solely debtors but also allowed a fresh start to a government, which could only remain in power due to a violent power grab by the democratically elected-turned-dictator Robert Mugabe.
The price of the euro as a “romantic icon”
The Latest Greek "Bailout" In A Nutshell: AAA-Rated Euro Countries To Fund Massive Hedge Fund ProfitsSubmitted by Tyler Durden on 11/21/2012 14:06 -0500
What is the latest state of play that has the biggest support from all parties? It appears that the plan which is now back in play, is one which Greece had previously nixed, namely a partial Greek bond buyback of the private bonds at a discount to par: with numbers currently rumored anywhere between 25 cents and 50 cents on the euro. And even if Greece agrees with this proposal, there is a question of where Greece will get the money for this distressed debt buyback? After all Greece is completely broke, and any new cash would have to be in the form of loans, as not even the most nebulous interpretation of the Maastricht treaty would allow an equity investment, or to use the proper nomenclature, "a fiscal investment" into Greece. But the kicker is when one traces the use of funds. Because what is will happening is a payment not to Greece, obviously, but to its creditors: entities which for the most part are hedge funds, and which have bought up GGB2s in the mid teen levels as recently as 4 months ago (recall Dan Loeb's major position in Greek bonds).
Last week, when discussing the next steps for the company, and specifically the hope that mediation may resolve the epic animosity between management and workers, we stated that "What makes a mediation improbable is that the antagonism between the feuding sides has certainly hit a level of no return: "Several unions also objected to the company's plans, saying they made "a mockery" of laws protecting collective bargaining agreements in bankruptcy. The Teamsters, which represents 7,900 Hostess workers, said the company's plan would improperly cut the ability of remaining workers to use sick days and vacation." Sure enough, moments ago we learned that mediation has now failed and the liquidation may proceed. And since in America nobody understands that proper sequence of events involved in a bankruptcy liquidation, where the valuable parts always end up being acquired by someone, in this case the Twinkie brand and recipe, let the pointless Ebay bidding wars over twinkies continue. As for what really happens next, if indeed Bimbo is prohibited from acquiring the assets in the Stalking Horse auction due to anti-trust limitations, then the buyer will almost certainly be a "financial", i.e., another PE firm, whose coming means the end of any hopes and dreams of preserving union status at fresh start Hostess, or whatever the new firm will be named.
Tim Geithner's public "servant" tenure has not been without its blemishes: from his deplorable run as the (figure)head of the New York Fed (from 2003 until 2009), when the entire financial system literally imploded under his watch, to his epic failing up as Hank Paulson's replacement as treasury Secretary of the United States, despite his legendary inability to navigate the Minotaurian labyrinth that is the TurboTax income tax flowchart, the Dartmouth alum has had his share of run ins with adversity (and adversity won). Of course, Geithner's tenure in charge of the Treasury in the past 4 years has been somewhat mollified by the fact that here too here was merely a figurehead, and the true entity that runs the US printing presses is none other than the JPM and Goldman Sachs co-chaired Treasury Borrowing Advisory Committee (for more on the TBAC read here and especially here as pertains to the former LTCM trader and current head of JPM's CIO group), meaning that the US Treasury, just like the Fed, are merely branches of the one true power in US governance: Wall Street. Geithnerian figureheadedness aside, the one undeniable fact is that Tim Geithner's days as head of the Treasury are now numbered: he has made it quite clear that he will not accompany Obama (should the incumbent be reelected) into his second term. So what is a career "public servant" to do once the public no longer has any interest in retaining his services? Bloomberg's Deborah Solomon has some suggestions...
One of the zanier proposals floated in the past few weeks, yet sufficient to send Greek bonds soaring to post-restructuring highs on hopes of a take out, was the suggestion that Greece would repurchase its fresh-start bonds in the open market, which recently traded in the teens, and have since virtually doubled, at a price ~25 cents of par. Obviously since the price of the bonds had been much lower, even the mere possibility of what is termed in the industry as a distressed buyback, sent everyone scurrying to purchase the paper, as if it had any intrinsic economic value (it did not), instead of mere hopes that Greece would throw even more good money after bad (especially since the fresh start bonds have a meaningless cash coupon and nobody expects them to be repaid at maturity). There is also the detail that a distressed buyback is, for the rating agencies, equivalent to an Event of Default, but knowledge of that small fact would be demanding too much out of those who scrambled in the latest chase for yield. Anyway, with all that said, it now appears that the whole idea is over, with Greek Kathimerini reporting moments ago that Greece has scuttled the proposal for a bond buyback.
Once "Jollying The Markets" With "Faith, Hope And Charity" Fails, What Comes Next: A Primer On Europe's Next StepsSubmitted by Tyler Durden on 10/17/2012 09:06 -0500
Back in January, Zero Hedge proposed a pair trade, which to date has returned well over 100% on a blended basis, namely the shorting of local law peripheral European bonds, while going long English law (or strong covenant) bonds (a relationship best arbed in Greece, when various foreign-law issues were tendered for at par to avoid a bankruptcy, even as the local law bond population saw a massive cram down a few months later as part of the second Greek "bailout"). In big part, this proposal stemmed from the work of Cleary Gottlieb's Lee Buccheit, who has been the quiet brain behind the real time restructuring of Europe's insolvent states. In fact, one can say that what is happening in Europe was predicted to a large extent in his "How to Restructure Greek Debt" and "Greek Debt; The Endgame Scenarios." Which is why we read his latest white paper: "The Eurozone Debt Crisis - The Options Now", because it presents, in clear, practical terms, just what the flowchart for Europe looks like, unimpeded by the ceaseless chatter and noise of clueless politicians and career bureaucrats who have never heard the term pro forma or fresh start. In brief, Buccheit, unlike all European politicians, is hardly optimistic.