(Prematurely) Grading The Bailout


In the wake of the worst single day performance on the Euro stage in recent memory for the Dollar, you might sit up and take notice. Of course, an injection of $700 billion is going to impact the dollar however you do it, so I say ignore the European foreign exchange nerds all together. Still, some are tempted to read this as a mandate on the bailout and (by extension) those doing the bailing.
I guess we should expect to see certain congressional democrats, fresh from the scrapyard holding shards of their favorite legislative wreck skyward in hopes the heavenly bailout magnet will pick them up, citing with authority the nuances of global foreign exchange to belittle Hank and his brethren in the hopes the might get some scraps that will keep their mouths busy with chewing.
That's not to say we turn our nose up at changes designed to increase transparency, make the bailout financially painful enough to try and encourage firms to use it as a last resort, rather than a wheelbarrow of money for the taking, allow the Treasury to keep warrants in the bailees (not to be confused with the Baileys, Hank, take it easy). But when we start slipping into stimulus programs (which tend to be pretty useless even when you just write checks to taxpayers), price controls on executive pay, and the kitchen sink, well, someone should point to yesterday's market performance and note that, while index futures seem to have the market set for a flat open this morning, the clock is ticking.
All this presupposes that Hank knows what he is doing, and that throwing cash at the problem will fix it. It seems pretty clear that, in order to do any good, the Treasury is going to have to buy assets at significantly overvalued prices. Perhaps, in fact, this is why transparency is still an issue. If, as the UK has been prone to do in similar circumstances, purchases or borrowings are shielded, there isn't any new pricing data to trigger mark-to-market write-downs. Hmmmmm.
Will it help? That, I think, is far from certain. Time will tell. And you can always short the indexes (for now).


This Is Really Only The "Second" Greek Bailout?

If you're into Greece you've probably already read all about it and if you're not I can't make you. But in brief: Greece is fixed and we will NEVER HEAR ABOUT ANY PROBLEMS EVER AGAIN. In less brief: (1) Some folks stayed up all night and produced a statement. (2) Greece's private creditors will be offered the long-anticipated opportunity to voluntarily exchange their old bonds for new bonds, which will for the most part be the same as the old bonds except for minor differences including but not limited to a greatly extended maturity (to 2042), a 53.5% reduced face amount, and a 3.6% blended interest rate. (3) If they don't voluntarily exchange, which they will because - hilariously - they've already taken accounting writedowns (and also because I guess it's better than a disorderly default), private holders will get CAC'ed, which may or may not be as bad as it sounds, but in any case at least CDS will pay out, unless it doesn't. (4) Also the public sector will do various helpful, confusing things. (5) In exchange for this, Greece will enact horrible austerity, and because no one believes that Greece will actually do that, there will be escrow accounts and what Reuters ominously calls "permanent surveillance by an increased European presence on the ground." (6) Everyone is pretty sure we'll be doing this again in six months and, look, just fair warning, I will not be writing about it then, because feh. We haven't had a serious international bankruptcy, which this pretty much is, since I started paying attention to the financial markets, two months ago, so I mostly think about insolvency from a US bankruptcy law perspective. One thing that happens in bankruptcy is that, like, really really roughly speaking, the creditors stop being creditors and become the owners. This isn't always the case but the basic playbook of US bankruptcy law is: