Third Quarter Fiscal 2026 Highlights [press release]

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Anastasia Beverly Hills Owner Injects $225 Million Into Brand [Business of Fashion]

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And a gigantic mistake it was: Musk paid $44 billion for a platform that’s now worth, according to one of his backers, just $12.5 billion. But misery loves company, and Musk’s got a lot of it among those who now deeply regret financing one of the greatest boondoggles in history.

Seven banks involved in the deal, including the likes of Bank of America and Morgan Stanley, gave Musk’s holding company about $13 billion to take the social media giant private in 2022…. Banks haven’t been able to sell the debt without taking huge losses, predominantly because of the company’s poor financial performance. That means the loans have remained “hung,” or stuck, on banks’ balance sheets….

“Twitter loans have been hung longer than every similar unsold deal since the 2008-09 financial crisis for which the research firm has complete records,” the report says.

While the lenders have been able to receive large interest payments on the X loans, some of the banks have marked down the value of the loans to the tune of hundreds of millions of dollars.

I mean, we know Elon was high when he made the deal, but what’s your excuse Brian Moynihan?

Anyway, in spite of his full-throated support and self-abasement, Musk’s preferred presidential candidate (and nominal competitor in the social media space) seems pretty well set on destroying the source of the cash flow that allows Elon to burn money operating Twitter, SpaceX, xAI, etc.:

The Republican nominee also said he would consider getting rid of a $7,500 tax credit for certain new electric vehicles. That could affect business for Tesla, which sells EVs.

On the bright side, President Trump would be willing to give Elon another federal handout.

Former President Donald Trump on Monday said he would offer Tesla and SpaceX CEO Elon Musk a Cabinet position or an advisory role in his administration if he wins a second term in the White House./Trump told Reuters in an interview that he would tap Musk for such a position “if he would do it….”

Musk, in an apparently tongue-in-cheek reply on his social media platform X, said, “I am willing to serve.”

We’re sure he’ll give whatever job it is the full attention he’s paid to all of the other jobs he’s got, given the generous $246,400 annual salary.

Elon Musk’s Twitter Buyout Is Officially the Worst Deal Since Financial Crisis [Daily Beast via Yahoo!]
Trump says he would offer Tesla CEO Elon Musk a Cabinet slot, but might end EV tax credit [CNBC via Yahoo!]

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“People are spending too much money on their cars,” said Kali McFadden, a senior research analyst at LendingTree who I interviewed at the time about her company’s study. “People are spending the equivalent of a college education repeatedly throughout their lives,” McFadden added. “But a car is a depreciating asset; education is typically an appreciating asset.”

Well, the more things change, the more they stay the same. A new report indicates that the average monthly car payment now exceeds $700 for the first time in history.

There are a lot of reasons why cars are getting more expensive, including inflation and supply chain disruptions. Mostly, though, it’s because more automakers are making, and more Americans are buying, the most expensive models.

You guessed it: carmakers are churning out fewer sedans and compact cars, and more gas-guzzling, profit-margin-padding pickup trucks and SUVs. Not surprisingly, given that monthly car payments are the highest on record, the average sticker price of a new vehicle has also reached new heights. In America, the average new car now costs a whopping $47,000. Hey, you can still get about one-and-a-half new cars for a year of tuition at Harvard Law though.

The price of gasoline has come down a bit from record highs hit last month. Even so, a gallon of gas will still cost you about five bucks in many parts of the country, and gas prices have been decidedly elevated since early this year — in particular since Russia’s invasion of Ukraine. This hasn’t deterred car buyers from snatching up the pricier (and less fuel-efficient) models though.

Nor has the driving public been dissuaded by higher interest rates. As the Fed attempts to cool the economy, it has been slowly raising interest rates. This, of course, filters into the auto loan market. The average annual percentage rate on a new car loan hit 5% in June, with no discernible effect on consumers preferences.

Despite gas prices, despite the supposedly challenging economy, particularly pricey cars appear to only be getting more popular. More than 12% of consumers who financed a new car last month took on a monthly payment of at least $1,000 — another record. One year ago, only 7.3% of auto purchasers could stomach a monthly payment in excess of $1,000.

Automakers have been reporting robust profits — shocking, I know. Toyota, for instance, reported all-time highs for revenue, net income, and operating profit earlier this year. Dealerships are making out like bandits too — car dealership profits are also at a record high.

One might think that high gas prices, high interest rates, an economy that people keep complaining about, and a car component shortage would have people delaying new auto purchases or at least hunting for some bargains. But one would be wrong. Nope, people are going hog wild on expensive new cars, at high interest rates, and burning up all the pricey gas they want.

I suppose if I didn’t feel like I was shouting into the wind a lot of the time, it wouldn’t really be writing on the internet. Oh well. If people have disposable income to throw away on interest and gasoline and a whole lot of car they don’t need, there are probably worse things they could be spending that money on. Like heroin. Or the Matt Gaetz re-election campaign.

Although electric vehicles are slowly gaining in popularity, unfortunately, only a small percentage of all those new cars being sold are EVs. So, don’t hold your breath on not having to hold your breath to avoid inhaling deadly exhaust fumes. If there’s anything you want to see on the coast that isn’t behind a pretty large floodwall, I’d also recommend checking that out sooner rather than later. Hey, maybe you can drive your new car there!

I get it, responsibility isn’t our thing as Americans. It sure would be nice if we could at least pretend though.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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Madison Technologies is a recent name of the penny-stock company, now called Go.TV Inc., which says it will revolutionize broadcast television. The company plans to buy up low-price local TV stations and build out a nationwide platform for people who use antennas…. Mr. Falcone’s name is misspelled in a company pitch deck to investors, and his biography is filled with dummy copy beginning “Lorem ipsum dolor sit amet.” The company is backed by more than $16 million from New York firm Arena Investors LP. “Arena is a lender secured by certain of the TV stations/franchises of the public company…not a lender directly to Mr. Falcone,” a spokesman said.

That’s probably a good idea, because not only was Falcone more than $100 million in debt at some point this year, but he has neither the ability to nor intention of paying it.

“Mr. Falcone has made it his mission not to pay this money,” New York State Supreme Court Justice Arthur Engoron, who oversees a number of the creditors’ cases, said during a hearing this year in a case filed by New York state…. Justice Engoron said at the hearing in the state case that the move [to put Falcone’s Go.TV shares into trusts out of the reach of creditors] constituted fraud, and that he was “tempted to throw Mr. Falcone in jail immediately.”

To which Falcone has what might seem a strange response: Sure, he’s drowning in debt, but less of it, and also he’s not as poor as he’s told the courts, which seems like something Engoron might want to know about. Hopefully for Phil’s sake he doesn’t read The Wall Street Journal.

Mr. Falcone said in emails that the information about his debts in public records was months out of date and that they now stand at around $45 million. He said asset sales helped him to pay down the debt…. He also questioned The Wall Street Journal’s accounting of his financial situation. “Does it include my offshore acct or Madison Technologies ?” he asked in an email. He didn’t provide further details on any offshore account, including how much money it might hold.

It must be a lot, because in spite of having lost his New York City homes, his St. Bart’s property and even his $375,000 share of his family’s Minnesota lakefront compound, Phil couldn’t be happier.

“Yesterday is already in the rearview mirror,” he said in a text message. “I’m looking forward and I like what I see, in fact, I love what I see.”

How to Lose $2 Billion in 10 Years: Unpaid Bills Pile Up for Former Hedge-Fund Star [WSJ]

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Now, thanks to the creative eye of Paul Singer, (almost) all sovereign debt deals include some pretty stringent collective action clauses, even without the assistance of the New York State Legislature. And, thanks to the incomprehensible idiocy of one of the world’s biggest and allegedly most sophisticated banks, the boilerplate has been amended once more to make it literally idiot-proof.

Wall Street banks including Citi are protecting themselves from similar situations by inserting legally binding clauses in the form of accidental payment covenants in debt documents, which allow banks to demand the repayment of any money sent to lenders by mistake…. The covenant typically gives banks the discretion to judge whether a payment was mistakenly made and to demand its repayment as well as any interest from the date that the funds were received….

The accidental payment protection has so far been spotted only in US documents, according to Steven Hunter, chief executive of 9fin, who said it may be because of a quirk of New York’s law which allowed Revlon’s hedge fund investors to keep the accidental transfer…. “This is probably going to become pretty standard . . . There’s no harm in putting it in,” he said.

It also can’t hurt to not do business with the hedge funds that necessitated the change in the first place.

The bank is choosing to not invite these money managers, who hung on to over $500 million, to its new-issue debt deals, the people said, asking not to be identified discussing a private matter. Firms targeted include Brigade Capital Management, HPS Investment Partners and Symphony Asset Management, the people said.

These firms and others tangled in a lawsuit with Citigroup can still participate if an issuer specifically requests for them to be able to join their offering, one of the people added…. At least two firms that received the errant payments opted to return it last year after the bank threatened to retaliate, according to people familiar with the matter.

Banks adopt new debt terms to avoid repeat of Citi’s $900m payment mishap [FT]
Citi Blocks Firms With Errant Revlon Payout From Debt Deals [Bloomberg]

WeWork’s parent postponed its initial public offering after investors questioned how much the company is worth and raised concerns about its corporate governance.

The shared-workspace company—which had planned to begin a roadshow to market the shares as early as Monday ahead of a trading debut next week—shelved the offering until at least next month, people familiar with the matter said.

This makes sense when your valuation is thought to be about a quarter of what it was like weeks ago, and you've had to admit that your CEO and founder is way too involved in the fabric of the company's unique ethos, and his personal finances are troublingly entwined with your corporate P&L. And also that you had a net loss of about $2 billion last year.

And it makes extra sense when you realize that "WeWork's parent" means "SoftBank," and "until at least next month" means "not for a while." 

Here's how we see it: Once the valuation looked like it dropped below the amount of money that SoftBank has poured into WeWork [about $10 billion], Masa Son and Co. started ringing the alarm and pulled every lever to halt the IPO. That included a bunch of leaks to the press that WeWork was considering halting the IPO, which looked weird since WeWork was clearly telling other people in the press that the IPO was on like the proverbial Donkey Kong. And this was all still going down as recently as literally yesterday. The adults and the kids are not talking, likely because there are no adults.

SoftBank doesn't get to be the voice of reason here. It does get the chance to make a cogent corrective decision after pouring the GDP of a developing nation into a real estate arbitrage startup that thinks its disrupting consciousness by making secondary leases and giving out beer. It's literally funded the creation of this Millennial thought crime Frankenstein.

Of course WeWork thinks it can overcome basic financial logic and go public at a $20 billion valuation. What with SoftBank's giving the company multiples funding rounds to pop like Viagra, WeWork has never had this problem before. But now it has a variety of problems, namely that a suddenly flaccid WeWork is being given a deeper inspection from every angle. Per the FT:

WeWork’s bond prices tumbled on Tuesday after the property group shelved its initial public offering, in the clearest sign yet of the financial strain afflicting the lossmaking company.

The company’s $702m of junk debt is one of the few gauges that investors have to judge WeWork’s financial condition. The yield on the debt, which rises when its price falls, surged to a high of 8.9 per cent in early trading on Tuesday, according to bond trading platform MarketAxess. When the company borrowed the $702m last year, it yielded 7.875 per cent.

Now, we're not some gaggle of Gundlachs over here, but that kind of yield growth looks like distress to us. Call us crazy, but we're not seeing this IPO happening in a few weeks since it's hypothetically going to take more than a few days to fix what ails WeWork -- a company that we should all remember pulled down almost $2 billion in revenue last year. But that revenue is an even starker figure when you remember that the whole IPO process was aimed at raising enough public funding to activate a $6 billion loan that WeWork has baked into its financial future. 

Setting aside all of the MBA-level financial thinking that you dipshits will apply to this thing, isn't this simply a lot of debt for a company that thinks it's worth $20 billion and needs the next recession to happen literally never?

Turning this thing into a palatable public company is going to take some time. The next time WeWork opens its kimono, it better not reveal Adam Neumann holding cash in each hand and making investors guess which is his, which is theirs, and then pontificating about how he plans to spend all of it immediately. This process should rightly take months, and it would be borderline malpractice to say otherwise:

“The We Company is looking forward to our upcoming IPO, which we expect to be completed by the end of the year,” it said in a statement late Monday after The Wall Street Journal reported on the delay. “We want to thank all of our employees, members and partners for their ongoing commitment.”

WeWork could best thank everyone involved in WeWork by halting the IPO indefinitely until WeWork works for everyone who isn't We.

WeWork Parent Postpones IPO [WSJ]

WeWork bond prices tumble after it shelves IPO [FT]

In anticipation of its very aggressive IPO, the real estate arbitrage play trussed-up as a tech unicorn that also invented the concept of self-pleasuring accounting has hit on a new plan to show everybody it doesn't have a spending problem:

WeWork Cos. has a plan to shore up confidence in its business before it goes public: offer billions of dollars in debt that would fund its growth until it can turn a profit.

The money-losing office-space manager is seeking to raise as much as $3 billion to $4 billion in coming months through a debt facility that could grow as big as $10 billion over the next several years, the people said. This debt offering would be independent of the money WeWork raises in its initial public offering and could even raise more money for the company than the IPO itself.

Yes, in order to show prospective investors that it can turn it a profit, WeWork is planning to float at least $4 billion in debt-equity so that those same people can then pretend that WeWork could conceptually turn a profit one day. And all that liquidity is now literally necessary because SoftBank backed out of the plan to give away all of its money at once and WeWork refuses to engage with the black magic of "Spending Less."

That is the plan, right?

The huge capital raise even before the IPO reflects the skepticism surrounding well-known companies like Lyft Inc. and Uber Technologies Inc. that have racked up steep losses and gone public with much fanfare but without much trading success. Both Lyft’s and Uber’s stock prices are below where they went public—and even further below lofty pre-IPO expectations of how high they could trade.

This is like watching an illusionist attempt to wow his audience immediately after asking them to pay a little more for their tickets...and then explicitly telling them that he needs the cash to make the next payment on his illusion machine. 

Goldman Sachs Group Inc. and JPMorgan Chase & Co. are structuring and backing the deal, potentially along with other banks, the people said. WeWork Chief Executive Adam Neumann met in recent weeks with the banks’ CEOs, Jamie Dimon and David Solomon, to discuss this deal and the company’s IPO, people familiar with these discussions said.

Well, look at these two fucking hipsters. Has anyone on "Adult Wall Street" managed to just yell "Cut spending!" at Neumann?

The debt deal is designed to help WeWork showcase the value of its leases and the cash flows from them, some of the people said. It is also expected to show that profitability is something within the company’s control, these people said, because many of its individual properties are profitable and much of its loss-making comes from growth efforts.

So, no?

If anything, this debt round is a huge opportunity for anyone who loves a chance to grab a little bond action on a pre-IPO company that's going to have a wacky-ass cost of capital and a solid enough chance of going t̶i̶t̶s̶ cold brew taps up that buying post-IPO equity would be malpractice. 

WeWork is about to go public with almost $2 billion in annual losses and a surfeit of douche-chilly explanations as to why, and the best way it can think to show people that it knows how to handle money is to go $4 billion in debt just weeks before it goes public? We're going to need to rent a co-working space just to figure this plan out.

WeWork to Raise Billions Selling Debt Ahead of IPO [WSJ]

Markets are retreating from the highest levels in the history of the world, which they hit last week, over fears the Fed will cut rates 25 bps rather than 50 bps following a strong June jobs report. With more than 10 years having passed since the financial crisis, leading to the longest bull market in history, it's crazy to think 'the greatest economy anywhere in the world' is panicking over the difference between a 25 bps or 50 bps rate cut, let alone any rate cut at all.

For the first time ever, the universe of negative yielding debt has surpassed $13 trillion and isn't showing any signs of slowing down.  40% of global bonds are now yielding less than 1%, according to Bloomberg. Investors are so desperate for yield that Austria just reopened its 2117 bond at a yield of 1.20% that was four times over-subscribed, pushing the yield down to 1.17%. 

The IPO market had its strongest first half since the Pets.com days. The number of companies valued at $10 billion or more is higher than at any other time since the dot-com days of 2000. Like then, many of these companies are losing money and have business models that may not ever be profitable. WeWork, which is preparing to go public, was last valued at $47 billion on losses of nearly $2 billion. However, in an attempt to ease fears and boost confidence, it is seeking to issue $3 billion to $4 billion in debt prior to its IPO.

Even as the Wall Street Journal celebrates its 130th birthday today, the way investors get market-moving news is far different than your grandpa did back in the day. Rather than wait for the newspaper to see day-old news, investors have to keep a close eye on Trump's twitter account to see if he's pumping China trade deal hopes or saying the Fed doesn't have a clue. 

Only time will tell if markets return to the markets of old. If they don't, the CFA Institute may have to add a 4th level covering subjects such as BTFD as an investment strategy and programming algos to read Twitter to its curriculum. In the meantime, maybe it's not a coincidence the market hasn't hit an all-time high since the latest season of Stranger Things premiered.

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One could compose a laundry list of government programs and laws that the American political system has proved incapable of reforming at an acceptable pace, but here are the three most important:

Education: Since the end of the recession in 2009, the total size of student loan debt outstanding has doubled to just less than $1.5 trillion. Roughly 1 in 10 student borrowers in repayment are delinquent, and while, so far, the direct macroeconomic implications of this have so far been slight, that is beginning to change. What is certain is that if total student indebtedness continues to surge ever upward it will ultimately have a large, deleterious effect on growth and American welfare.

What’s most tragic is that education finance reform should be an area ripe for bipartisan compromise. Unlike many other issues, Democrats and Republicans don’t fundamentally disagree on the role of higher education in the American economy. Americans see their country as a meritocracy, making institutions of higher learning essential tools for social mobility. But the university can’t be a means for social mobility it if also saddles graduates and dropouts with debt that significantly lowers their net worth over the course of their lifetimes. Reform that can be sold as investment in education to Democratic constituencies and retributive regulation of the free-spending higher-education establishment to Republican ones is quite possible to imagine, and should have been done long ago.

The Environment: For decades, we’ve been taking a massive economic gamble by not insuring climate-change related risk. A dispassionate assessment of the science of climate change and the likely economic impact of policies that would ameliorate it clearly argues for taxing carbon. And it’s possible to raise the price of carbon through taxes while keeping the overall size of government steady. A carbon tax would likely slow economic growth, but not nearly as much as climate change will.

Government debt: The Republican Party just celebrated the doubling of U.S. government during the Obama years with a $2.7 trillion debt binge of their own. The jury is out on the question of how much sovereign debt is too much debt, and that is a public discussion that desperately needs having. We should also publicly discuss whom should be the beneficiary that added debt. The most recent tax rewrite was none of those things. Nobody who voted for the bill would admit its budgetary impact, absolving them of answering either of those most important questions.

Meanwhile, government, corporate, and household debt continues to grow, so that the total indebtedness of the economy nears its pre-crisis peak. Higher debt loads make the economy more fragile and more vulnerable to the failure to solve other problems, like education finance and climate change reform.

The problem with decrying gridlock is that it has a clear moral logic to obstruction when a citizenry is divided on fundamental questions, like whether climate change is real or not. But all too often the mostly right-wing refusal to compromise stems from a growing belief that the other side is illegitimate and should be prevented from wielding power at any cost. This stance is a perversion of that same logic, but attractive nonetheless. The folks adopting this stance should carefully consider, however, the historical record of countries that become paralysed by indecision and paranoia. It’s not one we should like to repeat.

Christopher Matthews is a writer who splits his time between New York City and Accra, Ghana, with an interest in the intersection of markets, the economy, and public policy. He previously held staff positions at Axios, Fortune Magazine, and Time Magazine, and has been published in Forbes and Debtwire.

Investors treated the news as it has other evidence of Washington’s growing fiscal irresponsibility in recent year: with near total indifference. Indeed, the 10-year treasury yield has actually fallen since the president signed his most recent deficit-ballooning measure, a 2-year budget deal which increased government spending by $300 billion with no offsets.

This reaction is just the latest in a growing body of evidence that if there is a limit to how much bond investors are willing to lend wealthy and stable like the United States, we are nowhere near that limit. Indeed, even as it predicts the U.S. to add more than $12 trillion in new debt over the next decade, the CBO expects interest rates to not rise above 4% during that time.

In other words, the conventional wisdom is that United States is headed for a future that looks a lot like Japan’s: one in which social spending on retirees drives budget deficits higher, but also one in which low interest rates make the resulting debt loads manageable. And there’s a strong argument Japan’s economic present would be a good future for American policy makers to hope for. Despite rising debt loads and slow GDP growth, Japan’s economic performance over the past quarter century has been strong, if you adjust for the effects of its aging population. GDP growth per working age person, for instance, has grown nearly as quickly in Japan as in the U.S., since the early 1990s, and it has grown faster than in Europe.

Japan appears to be managing many problems that will soon grow more acute in the U.S. and Europe, like the slow growth or contraction of the working age population and the loss of manufacturing jobs to low-wage competition abroad. But just because Japan has managed to navigate the economic minefield that is a post-industrial, aging society doesn’t mean that the United States will be able to easily.

According to political scientists Frances McCall Rosenbluth & Michael F. Thies, Japan has undergone a political transformation over the past thirty years that began with electoral reform in 1994, and continued with deep reforms to the country’s pension system in 2004. That change to the law, which guaranteed that the value of pension payments would fall relative to private-sector wages, has helped Japanese government debt to grow much less quickly than it otherwise would have. It has also led to growing poverty among Japan’s pensioners, whose struggles were illustrated poigintely by the self-immolation of an impoverished pensioner in the summer of 2015.

The American political system has shown that it is nowhere near ready to impose these sorts of sacrifices on workers who have spent decades paying in to Social Security and Medicare. The Republican Party, which holds all the power in Washington, refuses to accept that as the population ages, government spending as a share of the economy must rise if retirees aren’t forced to accept a lower quality of life. Indeed, it can’t even bring itself to raise the debt ceiling proportionately to allow debt to be issued to pay for spending the GOP itself agreed to in its latest budget. Instead of raising the debt ceiling, it will be “suspended” until March of 2019.

There has long been a healthy constituency for anti-debt and spending politics in the United States. And though the constituency for spending on Social Security and Medicare is greater, the fact that the U.S. Congress must vote every couple of years to authorize the issuance of new debt to pay for programs authorized by past Congresses means that the Japanization of the U.S. economy will be fraught with default risk.

Indeed, when S&P downgraded U.S. debt in 2011, it was do to the nature of the U.S. political system, which proved too willing to consider defaulting on U.S. government obligations for the ratings agency’s taste. The standoff showed that “America's governance and policymaking becoming less stable, less effective, and less predictable,” than previously thought, and this trend has only continued in the intervening seven years.

Japan��s economic present proves that an economy like the United States could continue to provide a growing standard of living for most of its citizens even with government debt levels much higher than it does today. But the Japanese experience also shows that getting there requires learning hard truths about the role of government in an aging society, and undergoing difficult reforms that will be hard on retirees. There is no evidence that the U.S. political system is prepared to learn these truths or ask for these sacrifices. In the meantime, there will be ample opportunities every year or two for anti-debt fanatics in Congress to roil Treasury markets with threats of default, increasing the chances of an unnecessary debt crisis right here in the U.S.

Christopher Matthews is a writer who splits his time between New York City and Accra, Ghana, with an interest in the intersection of markets, the economy, and public policy. He previously held staff positions at Axios, Fortune Magazine, and Time Magazine, and has been published in Forbes and Debtwire.

On the surface, El Aissami seemed like a less than ideal choice, primarily because he’s an OFAC-designated narco trafficker. That made bondholders understandably nervous about flying to Caracas to meet with him. Besides the fact that meeting with people who stand accused of overseeing the shipment of, according to the U.S. Treasury, “over 1,000 kilograms” of cocaine is an inherently dangerous proposition under any circumstances, the OFAC designation put corporate officers who deal with El Aissami at risk of millions in fines and up to 30 years in prison (again, according to the Treasury department).

That said, here’s where the media coverage was, to my mind, a little unfair. Reuters wrote that El Aissami “has no known experience in debt negotiations.” Really, Reuters? Is it realistic to say that someone who moves thousands of kilos has “no known experience in debt negotiations?” As I put it earlier this month in the post linked here at the outset, “it’s probably not a stretch to say that when it comes to debt “negotiations”, El Aissami has more experience than all of Wall Street combined.”

But what are you gonna do, right? The #fakenews media will do what the #fakenews media does; which in this case is “lie” about the negotiating skills of drug lord.

Well over the express reservations of pretty much everyone, Venezuela went ahead with plans to hold a creditor meeting in Caracas this week and as Bloomberg recounts, it was “an odd spectacle.” To wit:

Venezuela rolled out a literal red carpet for investors coming to debt restructuring talks in the capital Monday, welcoming them to a sprawling government office building downtown that was flanked by national guards carrying assault rifles and riot shields.

[...]

The meeting began just after 2 p.m. at the Palacio Blanco, a neo-classical building across the street from the presidential palace in a neighborhood that’s known to be particularly dangerous at night. Attendees were being served, juice, arepas and cachapas -- corn pancakes -- and at least one person who planned to take part in the meetings walked out after seeing name tags for El Aissami and Zerpa, according to people familiar with the matter.

So, in something right of a Chappelle Show sketch about Prince, Venezuela brought bondholders to the capital, put out an actual red carpet at a palace, led them to a meeting room the entrance to which was adorned with a giant picture of Hugo Chavez and then served everyone actual pancakes.

Guests were also given what Reuters described as “colorful gift-bags made out of recycled materials and containing Venezuelan chocolates and coffee.”

And although the power of corn pancakes and juice is legendary when it comes to pacifying people who are owed billions of dollars and who have traveled in some cases thousands of miles to hear about how they might go about collecting, the meeting did not go well.

For one thing, only about 100 people reportedly showed up. That’s “just” 300 less than Venezuelan officials claimed had RSVP’d. So that’s 300 people who missed the pancakes and free chocolate and who also missed maybe getting robbed of that same chocolate later by the starving citizens who probably reside in what Bloomberg described as “the particularly dangerous neighborhood” across the street from the palace.

Beyond that, some attendees apparently left as soon as they realized that El Aissami was indeed going to be there. “At least one [creditor] hightailed it out after realizing that two government officials sanctioned by the U.S. were in attendance, fearful of violating rules governing interactions with them,” Bloomberg details, in a separate piece documenting the “festivities.”

El Aissami was joined by a colorful cast of characters including Finance Minister Simon Zerpa (a political scientist who is also under U.S. sanctions), Oil Minister Eulogio del Pino, PDVSA President Nelson Martinez and planning vice president Ricardo Menendez (a geography professor).

No one but El Aissami spoke and based on the accounts I’ve read, no one but El Aissami was even allowed to speak, including (and probably especially) the creditors. El Aissami stayed for all of 30 minutes (one assumes he had more pressing “business” matters to attend to) and apparently spent the entire time lambasting everyone from Citi, to Deutsche Bank, to Euroclear, to U.S. financial authorities, with the latter’s actions being - according to the accused drug lord - “worse than the Holy Inquisition.”

“There was no offer, no terms, no strategy, nothing,” one bondholder told Reuters, while another called the farce “a missed opportunity.”

Meanwhile, S&P has now declared PDVSA in selective default after the state oil company failed to make coupon payments on its 2027 and 2037 notes within the 30 calendar day grace period. That just a day after the ratings agency cut Venezuela to SD. Earlier today, PDVSA would claim it made interest payments for the 2027s.

It’s worth noting that Venezuela does not generally share the media’s assessment of how Monday’s pancake brunch went. “[It was] a resounding success,” the Information Ministry said in a statement.

See there? It all depends on how you look at things.

On the bright side, Wednesday did bring some “good” news for Caracas. Russia has now agreed to restructure some $3.15 billion in Venezuelan debt. Turns out Vladimir Putin is a more sympathetic ear when it comes to restructuring requests from “good” folks like El Aissami.

Maduro’s choice of OFAC-designated drug trafficker Tareck El Aissami as lead negotiator makes restructuring a non-starter for investors.

As it turns out, the best way to gain an audience with bondholders isn't to put a cocaine kingpin in charge of the negotiations.

To let the U.S. Treasury tell it, El Aissami was moving thousands of kilos and has ties to traffickers from Mexico to Colombia.

Of course he's hardly alone when it comes to being both a Venezuelan government official and a blow trafficker and this certainly wouldn't be the first time the words "bonds", "bankers," "billions", and "blow" were used in the same story, but asking bondholders to come to Caracas for a pow wow with a sanctioned narco looks like it might be a bridge too far.

"Nobody will want to go near something that could be an OFAC violation," Gramercy Funds' CIO Robert Koenigsberger told Bloomberg this week, adding that "if the Venezuelans say, ‘We want to talk over the restructuring with you,’ I’d say, ‘I’m not letting you in the building.’ I like sleeping in my own bed at night."

Right. And see that's where this gets sticky for bondholders, because according to the Treasury Department, dealing with El Aissami could land a corporate officer in prison for 30 years and that's after paying up to $5 million dollars in "I talked to drug lord" fines.

Also, it's worth noting that this isn't exactly the kind of guy who you want to run afoul of. For instance, at one point while studying criminology and law (which is hilariously ironic) in the 90s at Mérida’s University of the Andes, El Aissami strong-armed student elections by showing up to events with armed gangs.

After college, El Aissami would take up with Chávez as a vice minister, before becoming the country’s interior and justice minister in 2008. And that's where the fun really begins. Consider this from The New York Times:

When a prison riot shook the country in 2011, Mr. El Aissami responded by ceding more control to the restive gang leaders in an effort to end the rebellion, said Jeremy McDermott, director of InSight Crime, a research organization.

According to Mr. McDermott, who interviewed people linked to the prison system, the government began relaxing control over the prisons, which allowed gang leaders to take over.

This may have prevented more riots, but it fueled the growth of powerful organized crime rings, known as the pranes, that flourish behind bars and continue to haunt Venezuela today.

“It was one of the key moments in the development of the pranes,” Mr. McDermott said of Mr. El Aissami’s tenure as interior and justice minister.

In 2012, after four years at the ministry, Mr. Chávez appointed Mr. El Aissami governor of Aragua, a coastal state adjoining Caracas. But people interviewed there say that the influence of gangs began to grow shortly after his arrival.

Rodrigo Campos, an opposition politician from the state, says he blames Mr. El Aissami for allowing criminal groups to expand while focusing primarily on cracking down on political opponents. “He was permissive of everything that happened,” he said.

By the time Mr. El Aissami left the governorship to become vice president, the state was among the most dangerous in the nation.

With apologies to what I'm sure is a long list of victims, that is hilarious.

As you can see, it's not entirely clear that Maduro is serious about restructuring this debt because nobody in their right mind is going to be eager to fly down to Caracas and meet with this crazy bastard.

“This commission will lay the groundwork for true and transparent dialogue between the government and bondholders,” El Aissami said last week, in a televised address.

Yes, "true and transparent dialogue" - with a cocaine cowboy who, as Reuters dryly notes, "has no known experience in debt negotiations."

To be fair to El Aissami, Reuters is probably mischaracterizing this. There is no way that someone who has moved thousands of kilos of coke has "no experience in debt negotiations." In fact, it's probably not a stretch to say that when it comes to debt "negotiations", El Aissami has more experience than all of Wall Street combined. And I'd be willing to bet he drives a hard fucking bargain.

For their part, Deutsche Bank is not optimistic. To wit, from a new note:

Venezuela – Willingness finally crumbles; prepare for a messy default. Bonds markets reacted swiftly to the "historical" announcement of “restructuring and refinancing” (sic) made by President Maduro on Thursday night, with prices converging to around 30 cents on the dollar (with a couple of exceptions). In our view, the payment for the 17s being made is most likely the last principal payment investors would see out of the Venezuela complex. This is a watershed moment as far as Venezuelan bonds are concerned. Going forward, market will focus more on the recovery value and legal issues, as the long-feared "end game" has drawn near.

But who knows. Maybe El Aissami can negotiate a kilos-for-debt swap.

Assuming everyone gets a decent price at roughly $25k/key, El Aissami would need to come up with something like 2.4 million kilos to make everyone whole.

Catch more Heisenberg over at Heisenberg Report.

Long story short: the thing probably isn’t going anywhere anytime soon.

Chair Janet Yellen and other top officials have claimed for some time that they are eager to begin reducing their nearly $4 trillion in U.S. government and mortgage debt. And while this may be true at the margin, there is plenty of reason to believe that a balance sheet of a size that would have been unthinkable before the financial crisis will be with the Fed well after many current FedHeads have left the bank.

The truth is that though many of them may make noises about reducing the size of the balance sheet, a sizable and probably a majority of Fed officials believe that the monstrosity of U.S. government and mortgage debt is here to stay — indeed, most of them schooled in the modern central banking theories believe a rather large balance sheet is now an essential part of monetary policy (as usual, the cool kids in Tokyo have been at the leading edge of this trend since the 90s.) More than one Fed official has indicated that even a “normal” balance sheet as they currently envision it could total about $2 trillion worth of government and/or housing debt.

Holding a sizable balance sheet gives Janet Yellen & Co. a variety of policy options as they aim to dilute the economic punch bowl over the coming year or two, and an additional lever to old-fashioned, ho-hum interest rates certainly proved useful when their goal was to boost the economy after the Aughts Collapse.

And Fed policymakers have real trepidation about reducing the balance sheet, even from its current level. No one - really - has any actual idea about how big of an impact such a move would have on the economy. The Fed has been operating in uncharted waters since it first embarked on its asset buying campaign, and there is no uniform understanding if hundred of billions of dollars pouring off their balance sheet will actually be a “background event” for financial markets.

So they will move with caution — even more than they’re currently broadcasting — for fear of accidentally tightening financial conditions beyond where they hoped. Additionally, any hints of a slowdown or a (mathematically overdue) recession would almost certainly mean shelving any sort of major reduction in their asset holdings. Unless the entire developed world economy suddenly emerges from the deflationary pressures of the last decade, the financial considerations at play still ultimately point to the Fed remaining the owner of trillions upon trillions of U.S. financial assets.

However, there is one major risk related to the balance sheet that may be compelling enough for the Fed to show major progress toward moving away from a balance sheet dependent policy approach: politics. Quantitative easing has proved a fruitful vector for the resurgent populist movements on both sides of the American political aisle, as anyone who has ever watched Rep. Sean “Real World” Duffy stop getting nice and start getting real in a monetary policy hearing can tell you.

The real nightmare scenario for the bank, though, is that an economic crash leaves large losses sitting on its balance sheet and dries up the annual payments it makes to the U.S. Treasury each year. We’ll find out soon enough if the bank is more worried about inducing an economic crash, or holding the political bag if one occurs and offering its political opponents a real chance to seriously rein in its uniform control over monetary policy.

Robb Soukup is a freelance journalist who previously covered the banking sector and The Fed for S&P Global Market Intelligence.

So when Donald Trump starts to talk about the sh!t that Jack Lew is actually working on, like management of America's debt, Jack Lew is going to just ignore Trump's clownboy "I love to play with my debt in my tiny hands" shenanigans.

For instance, when Trump says "I would borrow, knowing that if the economy crashed, you could make a deal," and then backs it up by telling voters that our government can never default because we literally print money (duh), Jack Lew is not going to take that bait.

And Jack Lew proved that Jack Lew is a serious guy when pressed on Trump's comments yesterday in Puerto Rico where he is working on, like, a real debt crisis right now.

According to the FT, the Treasury Secretary demurred from responding by saying that he wasn't commenting on "anything that anyone is saying on the campaign trail” because while it might be hot in San Juan, Jack Lew packed his big boy pants.

But... sometimes even Jack Lew can't let Trump's brain droppings just sit there on the floor:

As someone who for the last three plus years has been responsible for managing our federal debt, we have the deepest most liquid market in the world for US treasuries and that’s based on the fact that for our entire history it has been a very high priority to treat the servicing of our debt as a responsibility that we have to take very, very seriously.

Again, Jack Lew is NOT commenting on Donald Trump, you guys, so don't even ask.

FT