Friday, January 13, 2012


J. P. Morgan & Co. released their results for the fourth quarter this morning; they stank.  No surprise there but what was a real surprise was that their chairman, Jamie Dimon blamed it all on Europe.  Now remember a few months back when The World's Greatest Banker since some Medici proclaimed that Europe was a problem for the Europeans and not us, a view that was greated as pure insightful genius by none other than Jim Kramer?  Well, Jamie, if you liked how that worked out for ya you should just love what may be coming down the road as a result of today's events in Euroland.

The sun rose to reports that S & P was going to downgrade everybody except Germany.  As of this writing nothing official has been released but the French have admitted to a downgrade as have the Italians but no one is sure as to whether the downgrades are one or two (or more) notches.  A drop to AA+ for France would be one thing; to AA quite another as double drops at that level are quite unusual.  One thing that is sure is that the price of poker just went up for everybody and the size of the Euro bail-out fund certainly got more expensive on a greatly reduced amount.  However, if Massimo is correct and everything now has been placed on the shoulders of the ECB, the actual effect going forward my well be less than what had been assumed just a few short months ago.  I don't know.

While markets were absorbing this piece of news, came word out of Athens--from the creditor side of all places--that talks on the Greek restructuring had been suspended and no date for resumption had been agreed.  The spokesperson was very open on the reason.  No agreement had yet been reached as to the pricing of the restructured debt which is another way of saying the cost to he creditors was too great for them to agree to a "voluntary" restructuring or as they are now calling it, an orderly default.  As we have often mentioned, this round of sovereign restructurings is a good deal different than those of the past inasmuch as the creditors, a diffuse lot, whose goals are different and who are not easily subjected to pressure from official sources as were the banks in times past.   Call them by their real names:  HEDGE FUNDS.  Now they can be forced into a restructuring by, as we have explained before, the Greek Parliament changing the law and imposing a collateral action clause on the debt agreements enabling the Greeks to force a restructuring with any percentage of the creditors agreeing that is needed.  Just count noses boys and pass the law inserting the number!  This little jewel was dreamed up some time ago by the afore-mention Cleery, Gottleib and used successfully against creditors who were stupid enough to lend money subject to local law and jurisdiction...which is just about everybody today.  As I told you, Cleery is very good.  

Not that the Hedge Funds will care mind you.  You see, if this happens, you are faced with a real, honest-to-God default and that triggers all of the insurance policies or credit default swaps--remember those little guys--that are out there, and---yep, you guessed it--nobody has a real handle on how many, how much, or for that matter issued by whom  there are.  One thing for sure, however, the Hedge guys own them and will expect to be paid.  Now as these items are generally not on the balance sheet it may turn out that institutions with a direct exposure may have indirect exposure as well.  If Oliver Hardy were still around he might be heard to say, "Now isn't this a fine kettle of fish you got us into, Stanley!"   Greek fish stew Jamie, you should know about that.  Hey, have a GREAT weekend!

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