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Strangely, this is not the first time grocery diverting was used as the pretext for a Ponzi scheme in South Florida. Kenneth Thenen's Premium Sales Corp managed to steal $500mm back in the early 90s. He worked his way through the Montreal Jewish snowbird community, networking through a couple of tony country clubs...
"That's not a proprietary position, Mr. Regulator. I have that $1bb face in Smegcorp 10% '2020 cuz I need inventory to accomodate customer flow!"
A nice scheme. These guys had Alliance provide guarantees to offshore companies that in turn borrowed from offshore banks using the Alliance guarantee. ALliance collateralized the guarantee with its portfolio of US Treasury securities. The treasuries remained on balance sheet, with no disclosure that they were pledged. When Alliance finally blew up, the offshore banks seized the treasuries. Unpleasant surprise for Alliance's creditors and bondholders!
"I, Fuld, am a hero to my own valet"
Was at a presentation held by one of the big IBs where ratings agency analysts responsible for US and Western Europe talked about their outlook. Interestingly, the audience was 100% emerging markets investors. The vultures are circling!
Amazing that an American legislator tries to legislate protection for foreign governments -- the very *hardest* debtors for creditors to collect from -- against creditors who are often managing American money. Anything to stick in the capitalist "man." I'm reminded of when Ecuador defaulted back in '99. The author of that default, Jamiel Mahuad was ousted from the presidency a few months after defaulting. He found refuge at Harvard's KSG thanks to his buddy Jeff Sachs, whose opinion of Mahuad probably soared for Mahuad's having defaulted on foreign creditors. Of course, one of Ecuador's bigger bondholders was Harvard's own endowment! Incidentally, those same Ecuadoreans, having managed a 35% haircut on the debt they defaulted on in '99 (which itself was the product of a debt deal with something like 40% NPV reduction in the early 90s) recently defaulted on the bonds that came out of the 2000 restructuring. This, despite the fact that they are sitting on billions in foreign currency reserves and have just enjoyed years of stratospheric oil prices. The president convoked some cockamamie "debt commission" that decided that the bonds were somehow "illegitimate" and that Ecuador could simply stop paying. Having created FUD among bondholders, the Ecuadoreans bought back a substantial portion at or below 30 cents on the dollar. Then, they defaulted on the rest and made a tender offer for the rest. It cleared at 35, backed by the threat of continued non-payment. Now, if creditors found themselves stripped of what little recourse the Foreign Sovereign Immunities Act leaves them, where do you suppose that auction might have cleared? And how many countries might follow Ecuador's willful default. Oh well... perhaps Maxine is really thinking far, far ahead... hoping that some Chinese legislator will return America the courtesy when Chinese bondholders sue on their devalued Treasuries years hence...
@4 Seems different to me. You could have a principal-protected note where the issuer is a bankruptcy-remote SPV or is secured with Treasuries or whatever. It's surely dumb for an investor not to do the work to figure out who is offering the principal-protection, but not inconceivable by any means. On the other hand, how exactly can a sentient human buy a reverse-convertible and not know that one can end up with stock? Why is YHOO mentioned? Why is your coupon 11%? This geezer's looking for a litigation do-over, seems to me.
Guys on our ABS desk had this idea a while back, but legal shot it down... *sigh*
A Mason!
This is negative for GBP, EUR, JPY, and USD and positive for every overlevered EM country's currency. Before, the EM country would face a torrent of hard currency buying from USD (or EUR) indebted local corps/individuals. The EM country had a limited level of reserves to meet that demand. Now, with a grant of SDRs, the country's reserves are higher -- it can get hard currency by using the SDRs and can then intervene to meet hard currency demand from the locals. One reason USD has held up well in this crisis is that EM countries are USD-indebted and deleveraging requires local agents to buy USD (or default). Now they can get the USD via the SDR route rather than via the market. Unequivocally EM bullish and USD bearish.
Whatever navy captures the pirates should indeed hang them from most convenient yard-arm. Of course, the second-guessing, victim-mongering pukes of the MSM will shortly thereafter start running stories along the lines of "The last time Fatima Faarah saw her husband Mohammed, he was setting off from this small port in Puntland on a fishing voyage. He never returned. Mohammed was hanged aboard the U.S.S. Whatever as an alleged pirate. But people in the village say he and the 6 men hanged alongside him were simple fishermen..."
@11 levered ETF rehedging means that you have a position in serial correlation. High vol and high mean-reversion and you'll be screwed.
@33 Hear, hear. I can't tell you how many times GS has called up to pitch some deal that we two weeks later read has gone tits-up; or to buy some tail risk for I-swear-the-trader-just-needs-a-mark-purposes which somehow then winds up in the money. I very quickly learned not to be the sucker at GS's table. But other people in the firm TO THIS DAY come to me and whine "the GS relationship manager wonders why your area doesn't do much business with them" and lecture me how if we don't do more biz with them we won't be "in the club" that gets to look at their "juicy deals." Geez, it's like some club, with always another level of VIP behind yet another door or velvet rope. But the doors never end...
Ms. Goodman used to be at Moore. She knows her stuff.
I wonder if employment/compensation contracts have "illegality" clauses in them?
@17 -- yes, you're right... not really ex post facto per se, just the fact that retroactivity can raise due process issues.
So the real lucky winners are those non-US citizens who work for TARP banks in offices/subs outside the US...
Take a look at what's happening to Six Flags. The co is heading for default and claims that one of its biggest bondholders won't even agree to meet. The guys apparently have on a basis trade and would like nothing more that to experience a Credit Event and collect the NPV of the negative basis to maturity. This is only going to get worse after the Big Bang change to make CDS clearable. One aspect is that the Restructuring event will go away for all new trades. That means that CDS buyer will have to count on Failure-to-pay or Bankruptcy. Holders of basis trades will not merely have no incentive to talk restructuring, they may have to do everything in their power to prevent it.
There is a certain irony in the U.S. imposing restrictions on the right of expatriation. For over 30 years, the U.S. had denied most-favored-nation status to countries that systematically deny citizens the ability to emigrate. THe Jackson-Vanik agreement was passed unanimously by Congress and signed into law in 1975. Russia was its first target (and remained denied MFN under the law until 2001), after Brezhnev imposed a "diploma tax" on educated emigrants (the measure was perceived to be aimed at Jews, FWIW). They had a diploma tax, we've got a "expatriation-as-death-even tax". Maybe we should impose sanctions on ourselves?
Given that the RF's Reserve Fund (to be clear, this is a fiscal savings fund, not the CBR's reserves) is in massive decumulation mode, this is just grandstanding. The Reserve Fund ain't gonna be buying anything in the near future. In fact, it's going to be liquidating holders as aggressively as any redemption-hounded hedge fund out there.