Want to see what Financial Collapse looks like…..?

28 10 2013

Sourced from zerohedge and

Citi’s Matt King’ report recently showed when it comes to stepwise, quantum leap repricings of widely held credits, the revelation is usually a very painful, sudden and very dramatic one.  This can be seen nowhere better than in the default of Lehman brothers, where, while the firm’s equity was slow to admit defeat, it was nothing in comparison to the abject case study in denial that the Lehman bonds put in.

However, as can be seen in the chart below, when it finally came, and when bondholders realized they were screwed the morning of Monday, Septembr 15 when the Lehman bankruptcy filing was fact, the move from 80 cents on the dollar to under 10 cents took place in a heartbeat.

Lehman Repricing

It is the same kind of violent and anguished repricing that all unsecured creditors in the coming wave of heretofore “denialled” municipal bankruptcy filings will have to undergo.  Starting with Detroit, where, as Reuters reports, the recovery to pensioners, retirees and all other unsecured creditors will be…. 16 cents on the dollar!…  or less than what Greek bondholders got in the country’s latest (and certainly not final) bankruptcy.

From Reuters:

On Friday, city financial consultant Kenneth Buckfire said he did not have to recommend to Orr that pensions for the city’s retirees be cut as a way to help Detroit navigate through debts and liabilities that total $18.5 billion.

Buckfire said it was clear that the city did not have the funds to pay the unsecured pension payouts without cutting them.

“It was a function of the mathematics,” said Buckfire, who said he did not think it was necessary for him or anyone else to recommend pension cuts to Orr.

“Are you saying it was so self-evident that no one had to say it?” asked Claude Montgomery, attorney for a committee of retirees that was created by Rhodes.

“Yes,” Buckfire answered. 

Buckfire (what an appropriate name for this…!), a Detroit native and investment banker with restructuring experience, later told the court the city plans to pay unsecured creditors, including the city’s pensioners, 16 cents on the dollar. There are about 23,500 city retirees.

Creditors across all products, aided and abetted by the greatest credit bubble of all time blown by Benny and the Inkjets, will find the kind of violent repricings that Lehman showed take place whenever hope (or more rightly, confidence…) dies, increasingly more prevalent.   And since retirees and pensioners are ultimately creditors, this is perhaps the fastest, if certainly most brutal way, to make sure that the United Welfare States of America is finally on a path of sustainability.The only question is how will those same retirees who have just undergone an 84 cent haircut take it. One hopes: peacefully.  Because among those whose incentive to work effectively has just been cut to zero, is also the local police force.  In which case if hope once again fails, it is perhaps better not to contemplate the consequences.




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