Tag Archives: bankruptcy

Video on Greece w/ Hugh Hendry: Never compromise when it comes to moral hazard.

Posted on by
1

On Russia Today via Zerohedge:

-

Hendry:

-  ”This is a bailout of the banking community… especially in France but of course also in Germany.”

-  Questionable whether the French banking system could take the hit, estimated at 35 billion euros.  This would raise questions about their Spanish, Portuguese and Italian bonds. This is not the end, but the “end of the beginning.”

RT:

-  How does this help the Greek people? They will be “paupers in Europe.”

Hendry:

-  There is a remedy. The remedy is that Greece could leave the Euro. If it were to bring back the drachma, the currency would be very, very cheap. This would bolster tourism and exports. London is full of foreign shoppers now that the pound is down 25%.

-  Soveriegn bankruptcy is the normal and healthy procedure. Bankers take the hit they deserve.

-  Great political flaw in the euro, trying to join cultures that don’t want to join. Angela Merkel is not being generous. Spending taxpayers’ money is not generousity. She’s trying to salvage a bankrupt philosophy.

RT:

- Moral hazard issue is not being talked about. This gives a green light to Spain, Portugal, etc to spend away.

Hendry:

- The truth is unpalatable. Giving an over-indebted country more debt is not the solution. We need to restructure the debt and punish the irresponsible banks and investors.

- We should never compromise with bailouts, and certainly not on Greece, which is just 2% of the European economy.

Listen to Mish: Public unions and their pensions have bankrupted your city and state.

Posted on by
Reply

I don’t care where you live, odds are that your local politicians have put you and your fellow taxpayers on the hook for unpayable quantities of debt, mostly to fund government salaries and benefits that are way out of line with the private sector. This is a huge issue, and the only people who cover it in detail are the blogger Mish Shedlock and author Stephen Greenhut.

This is exactly what has happened in Greece and the rest of the GIPSI states in Europe, and for that matter the US Treasury since FDR introduced the Keynesian the welfare/stimulus state to those shores.

The only ethical solution to the problem is a swift, honest default. Public debt is a racket, the advance sale of stolen goods (interest, extorted at gunpoint) and just another capital transfer from producers to lazy government workers, politicians, bankers, government contractors and other moochers. The alternative to default is a slow death by debt slavery, all to prop up a corrupt system that will fail in the end anyway.

As Murray Rothbard responded to the idea that public debt is ok because “we owe it to ourselves,” the problem is “who’s the we, and who’s the ourselves?”

-

See more here: Default, Greece, Default

Murray Rothbard on repudiating the public debt (mises.org)

Detroit, model for future US?

Posted on by
4

Hat tip to Mish for this explanation of how government ruined one of the wealthiest cities in the world:

-

Now, if the government had let Chrysler and GM go under, their factories would have been bought by Toyota and Honda and their employees would be turning out cars that people actually want, not gems like the Aztec:

.
.
.
.
.
.
.
.
.
.
.
.
.
.

Prime brokerage clients stand to lose assets in Lehman bust

Posted on by
Reply

This is why everyone needs to be extremely careful about their brokerage, banking, counterparty and business relationships. What would a bankruptcy of any of these entities do to your finances? From Bloomberg:

Lehman Won’t Return Prime-Broker Assets for `Months’ (Update2)

By Tom Cahil

Sept. 22 (Bloomberg) — Lehman Brothers Holdings Inc. will take “considerable time” before it returns assets stranded by the world’s largest bankruptcy to hundreds of hedge fund clients, according to PricewaterhouseCoopers.

“Our current view is that this process could take several months to conclude,” PwC, Lehman’s bankruptcy administrator in London, said in a statement today.

GLG Partners Inc., a $24 billion hedge fund, and CQS U.K. LLP. are among those that used Lehman as a prime broker for borrowing stock and clearing trades. They may now join a line of creditors trying to recover money after Lehman filed Chapter 11 bankruptcy on Sept. 15 listing $639 billion of assets.

“There’s a short queue to recover assets and a long one,” said Jerome Lussan, founder of Laven Partners LLP, a hedge fund consultant and investor in London. “If your hedge fund assets have been included with Lehman’s, you’re in the back of a queue that’s quite long.”

Lehman had the right to lend prime-brokerage clients’ securities as collateral in the stock-loan and repurchasing markets, PwC said. Securities used for these purposes were mingled with Lehman’s, PwC said.

“The assets, once `used,’ were no longer held for the client on a segregated basis, and as a result the client may cease to have any proprietary interest in them,” PwC said in the statement.

Margin account holders at any institution should beware. Read about SIPC and assess your risk. Is margin really worth it?

Questionable Value

Hedge funds with assets tied up with Lehman probably will have to write down the value of those assets when they report net asset values to investors or restrict redemptions, Lussan said.

“What’s the market value of, say, $100 million that’s owed to you by Lehman?” he asked. “I’d say it’s not that great, and it’s going to have to be written down.”

Any hedge fund managers who allowed Lehman to lend out their securities were asking for a world of hurt, and in my opinion, were not qualified to handle other people’s money.

Lehman reportedly to declare bankruptcy. US futures down 3% Sunday night.

Posted on by
Reply

According to The New York Times Dealbook blog, the word is that nobody wanted the entirety of this gangrenous carcass without a complete Federal Reserve guarantee a la Bear Stearns, so the healthy parts are being carved off, while the Fed graciously trades some of its remaining assets for the fetid pieces:

Lehman Brothers will file for bankruptcy protection on Sunday night, in the largest failure of an investment bank since the collapse of Drexel Burnham Lambert 18 years ago.

Lehman will seek to place its parent company, Lehman Brothers Holdings, into bankruptcy protection, while its subsidiaries will remain solvent while the firm liquidates its holdings, these people said. A consortium of banks will provide a financial backstop to help provide an orderly winding down of the 158-year-old investment bank. And the Federal Reserve has agreed to accept lower-quality assets in return for loans from the government. …

How many billions of its remaining $400 billion in Treasuries is the Fed going to lose in this deal?

Lehman’s broker-deal subsidiaries would not be a part of the bankruptcy filing. Those entities must file under Chapter 7 rules, which are the procedures for liquidation, under the assumption that it is the best way to protect customers. The Securities Investor Protection Corporation would handle the liquidation of such brokerages, and bankruptcy lawyers say that customers are likely to receive their holdings back.

Boy, if I were a Lehman brokerage client, I would hate to have to wait for the bureaucrats at SIPC to get me my securities back. And what about clients with margin accounts? Will they be wiped out?

… Moreover, changes to the bankruptcy code mean that counterparties to Lehman’s credit-default swaps can seize their collateral at any time, posing an enormous potential risk to the entire financial markets. Investment banks, hedge funds and other financial players labored throughout Sunday to offset their exposure to Lehman, moving their contracts to other firms.

As of 7:30 PM in New York, traders are anticipating a nasty open Monday morning. With a Fed meeting Tuesday and options expiration Friday, this should make for an interesting week.