Tag Archives: Insolvency

Evergrande Bonds Halted Amid Liquidation Panic As Contagion Spreads To Other Chinese Junk, by Tyler Durden

Posted on September 6, 2021 | Leave a comment

Evergrande is a giant property development company in China and financially it is on its last gasps before it is underwater. If it goes under the reverberations will be global. From Tyler Durden at zerohedge.com:

With algos busy chasing upward momentum in futures and global stocks, the biggest – if largely ignored story – remain the ongoing collapse of “China’s Lehman“, the $300+ billion China Evergrande, where following our earlier reports (see below) that a bank run  emerged among creditors of the biggest and most indebted Chinese developer as its bonds were no longer eligible collateral in the repo market after a ratings downgrade, on Monday the rout went from bad to catastrophic as various Evergrande bonds crashed amid a liquidation frenzy, prompting China’s stock exchanges to halt trade.

The Shanghai Stock Exchange said in a statement that it had temporarily suspended trading in China Evergrande Group’s 6.98% July 2022 corporate bond following “abnormal fluctuations.” The exchange had also suspended trading in the bond on Friday.

Shanghai exchange data showed the bonds sliding more than 25% to a low of 40.18 yuan after the resumption of trade on Monday afternoon. The company’s 5.9% May 2023 Shenzhen-traded bond , which was also suspended, fell more than 35% after trading resumed. China Chengxin International Credit Rating Co (CCXI) downgraded Evergrande and its onshore bonds to AA from AAA on Thursday, and placed the company and its bonds on a watchlist for further downgrades, effectively freezing the company out of the repo market.

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How Empires End, by Jeff Thomas

Posted on April 19, 2021 | 1 comment

Insolvency has probably felled more empires than foreign invaders have. From Jeff Thomas at internationalman.com:

How Empires End

“Experience hath shewn, that even under the best forms of government those entrusted with power have, in time, and by slow operations, perverted it into tyranny.” – Thomas Jefferson

Histories are generally written by academics. They, quite naturally, tend to focus on the main events: the wars and the struggles between leaders and their opponents (both external and internal). Whilst these are interesting stories to read, academics, by their very nature, often overlook the underlying causes for an empire’s decline.

Today, as in any era, most people are primarily interested in the “news”—the daily information regarding the world’s political leaders and their struggles with one another to obtain, retain, and expand their power. When the history is written about the era we are passing through, it will reflect, in large measure, a rehash of the news. As the media of the day tend to overlook the fact that present events are merely symptoms of an overall decline, so historians tend to focus on major events, rather than the “slow operations” that have been the underlying causes.

The Persian Empire

When, as a boy, I was “educated” about the decline and fall of the Persian Empire, I learned of the final takeover by Alexander the Great but was never told that, in its decline, Persian taxes became heavier and more oppressive, leading to economic depression and revolts, which, in turn led to even heavier taxes and increased repression. Increasingly, kings hoarded gold and silver, keeping it out of circulation from the community. This hamstrung the market, as monetary circulation was insufficient to conduct business. By the time Alexander came along, Persia, weakened by warfare and internal economic strife, was a shell of an empire and was relatively easy to defeat.

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Has Anyone Told the ECB Yet it’s Bankrupt? by Tom Luongo

Posted on March 17, 2020 | 1 comment

European bonds were not a “safe haven” asset last week while equity markets were cratering, which suggests that the world’s creditors are finally rediscovering sovereign risk.  From Tom Luongo at tomluongo.me:

“The problem with socialism is eventually you run out of other people’s money.”

— Margaret Thatcher

For months myself and very few others have been warning about the problems in Europe. That the real problem isn’t in the U.S., though it’s certainly a mess, it is in Europe.

It’s why I focused so hard on Brexit. Would the U.K. actually get out of the EU before it all came crashing down around the deaf and now stunned Brussels technocrats?

A U.K. outside of the EU meant localizing a major problem on the backs of those that 1) engineered it and 2) cheered it as they literally stole hundreds of billions of pounds from them.

But while everyone has been focused on the melting equity markets and what the high priests of monetary wizardry at the central banks were going to do, did anyone notice the complete collapse of European bonds last week?

I could go on with this but I think you get the point.

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The Covid-19 Dominoes Fall: The World Is Insolvent, by Charles Hugh Smith

Posted on March 16, 2020 | 1 comment

If your assets deflate and your debt doesn’t, your net worth declines and if the process continues, you’re insolvent. From Charles Hugh Smith at oftwominds.com:

Subtract their immense debts and they have negative net worth, and therefore the market value of their stock is zero.

To understand why the financial dominoes toppled by the Covid-19 pandemic lead to global insolvency, let’s start with a household example. The point of this exercise is to distinguish between the market value of assets and net worth, which is what’s left after debts are subtracted from the market value of assets.

Let’s say the household has done very well for itself and owns assets worth $1 million: a home, a family business, 401K retirement accounts and a portfolio of stocks and other investments.

The household also has $500,000 in debts: home mortgage, auto loans, student loans and credit card balances.

The household net worth is thus $1,000,000 minus $500,000 = $500,000.

Let’s say a typical financial crisis and recession occur, and the household’s assets fall 30%. 30% of $1 million is $300,000, so the the market value of the household’s assets falls to $700,000.

Deduct the $500,000 in debts and the household’s net worth has fallen to $200,000. The point here is debts remain regardless of what happens to the market value of assets owned by the household.

Then the speculative asset bubbles re-inflate, and the household takes on more debt in the euphoric expansion of confidence to buy a larger house, expand the family business and enjoy life more.

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Unicorns & Non-Unicorns Hung Out to Dry: As SoftBank Licks its Wounds, Startup Funding Fizzles, Shutdowns & Layoffs Spread, by Wolf Richter

Posted on February 25, 2020 | 1 comment

Wolf Richter surveys the weird, weird world of Silicon Valley finance. From Richter at wolfstreet.com:

The out-of-money moment is here. The party is over. But it sure was fund, so to speak, while it lasted.

It’s now a near daily litany: Startups, once assured to be fed endless cash to burn, are laying off people or are shutting down entirely as funding for them dries up, and as exits for investors get tough after the recent IPO fiascos, including Casper, Lyft, and Uber, and the messily scuttled IPO of WeWorkthat has pulled the rug out from under SoftBank.

San Francisco startup Starsky Robotics, which tried to develop autonomous-with-remote-human-control-trucking technology, and which had raised over $20 million in four rounds, has laid off the majority of its engineers and office staff after investors backed out of a funding round late last year. A potential buyer with deep pockets has not yet emerged either, senior VP Paul Schlegel, whose last day was January 31, told FreightWaves.

But it’s not the autonomous-driving industry overall that appears to be cutting back: According to Schlegel, 85% of the laid-off engineers have been hired by Google’s Waymo, GM’s Cruise, TuSimple (which has raised nearly $300 million, including from UPS), and others. It’s just that this company ran out of funds and investors refused to throw more money at it.

Then there are the cutbacks and layoffs among startups in the consumer DNA testing space, which has gotten tangled up in all kinds of privacy scandals, and now a drop in demand, but which received billions of dollars in funding over the years.

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Chinese Bank On Verge Of Collapse After Sudden Bank Run, by Tyler Durden

Posted on November 1, 2019 | 1 comment

The Chinese banking system is yet another of a multitude of worrisome situations that have the potential to fully ignite the next global financial crisis. From Tyler Durden at zerohedge.com:

First it was Baoshang Bank , then it was Bank of Jinzhou, then, two months ago, China’s Heng Feng Bank with 1.4 trillion yuan in assets, quietly failed and was just as quietly nationalized. Today, a fourth prominent Chinese bank was on the verge of collapse under the weight of its bad loans, only this time the failure was far less quiet, as depositors of the rural lender swarmed the bank’s retail outlets, demanding their money in an angry demonstration of what Beijing is terrified of the most: a bank run.

Local business leaders, political cadres and banking executives rallied Thursday at the main branch of Henan Yichuan Rural Commercial Bank, just outside the central Chinese city of Luoyang, where they stood one by one before a microphone to pledge their backing for the bank, as smiling employees brandished wads of cash before television cameras to demonstrate just how much cash, literally, the bank had.

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It’s official: the Federal Reserve is insolvent, by Simon Black

Posted on December 18, 2018 | Leave a comment

By mark-to-market accounting, or as it’s sometimes known, honest accounting, the Fed’s losses on its bond portfolio are greater than it’s capital. In other words, it’s broke. From Simon Black at sovereignman.com:

In the year 1157, the Republic of Venice was in the midst of war and in desperate need of funds.

It wasn’t the first time in history that a government needed to borrow money to fight a war. But the Venetians came up with an innovative idea:

Every citizen who loaned money to the government was to receive an official paper certificate guaranteeing that the state would make interest payments.

Those certificates could then be transferred to other people… and the government would make payments to whoever held the certificate at the time.

In this way, the loan that an investor made to the government essentially became an asset– one that he could sell to another investor in the future.

This was the first real government bond. And the idea ultimately created a robust market of investors who would buy and sell these securities.

When a government’s fortunes changed and its ability to make interest payments was in doubt, the price of the bond fell. When confidence was high, bond prices rose.

It’s not much different today. Governments still borrow money by issuing bonds, and those bonds trade in a robust marketplace where countless investors buy and sell on a daily basis.

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Posted in Banking, Currencies, Debt, Economy, Financial markets, Governments, History, Investing, Money

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Social Security Fails, by John Stossel

Posted on August 17, 2018 | 2 comments

Within most of our lifetimes, on present course Social Security will be unable to meet its obligations. From John Stossel at theburningplatform.com:

Social Security is running out of money.

You may not believe that, but it’s a fact.

That FICA money taken from your paycheck was not saved for you in a “trust fund.” Politicians misled us. They spent every penny the moment it came in.

This started as soon as they created Social Security. They assumed that FICA payments from young workers would cover the cost of sending checks to older people. After all, at the time, most Americans died before they reached 65.

Now, however, people keep living longer. There just aren’t enough young people to cover my Social Security checks.

So Social Security is going broke. This year, the program went into the red for the first time.

Presidents routinely promise to fix this problem.

George W. Bush said he’d “strengthen and save” Social Security. Barack Obama said he’d “safeguard” it, and Donald Trump said that he’ll “save” it.

But none has done anything to save it.

“There is a plan out there to save it, but it requires some tough choices,” says Heritage Foundation budget analyst Romina Boccia.

Heritage proposes cutting payments to rich people and raising the retirement age to 70.

Good luck with that. Seniors vote. Most vote against politicians who suggest cutting benefits.

This summer, interviewing people for my new video about Social Security’s coming bankruptcy, was the first time I had heard the majority of such a group say they were aware there is a problem. One said, “We’re already at a trillion dollars (deficit) … (I)t’s almost like a big Ponzi scheme.”

Actually, more like a pyramid scheme. Ponzi schemes secretly take your money. But the Social Security trick is written into the law — there for anyone who bothers to look.

Social Security isn’t the only hard choice ahead of us. Medicare will run out of money in just eight years. At that point, benefits will automatically be cut. Social Security hits its wall in 15 years.

Amazingly, as we approach this disaster, Democrats say — spend even more.

To continue reading: Social Security Fails

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Social Security requires a bailout that’s 60x greater than the 2008 emergency bank bailout, by Simon Black

Posted on August 12, 2017 | 3 comments

By official measures Social Security is going broke, and those measures incorporate overly optimistic assumptions. From Simon Black at sovereignman.com:

A few weeks ago the Board of Trustees of Social Security sent a formal letter to the United States Senate and House of Representatives to issue a dire warning: Social Security is running out of money.

Given that tens of millions of Americans depend on this public pension program as their sole source of retirement income, you’d think this would have been front page news…

… and that every newspaper in the country would have reprinted this ominous projection out of a basic journalistic duty to keep the public informed about an issue that will affect nearly everyone.

But that didn’t happen.

The story was hardly picked up.

It’s astonishing how little attention this issue receives considering it will end up being one of the biggest financial crises in US history.

That’s not hyperbole either– the numbers are very clear.

The US government itself calculates that the long-term Social Security shortfall exceeds $46 TRILLION.

In other words, in order to be able to pay the benefits they’ve promised, Social Security needs a $46 trillion bailout.

Fat chance.

That amount is over TWICE the national debt, and nearly THREE times the size of the entire US economy.

Moreover, it’s nearly SIXTY times the size of the bailout that the banking system received back in 2008.

So this is a pretty big deal.

More importantly, even though the Social Security Trustees acknowledge that the fund is running out of money, their projections are still wildly optimistic.

In order to build their long-term financial models, Social Security’s administrators have to make certain assumptions about the future.

What will interest rates be in the future?
What will the population growth rate be?
How high (or low) will inflation be?

These variables can dramatically impact the outcome for Social Security.

To continue reading: Social Security requires a bailout that’s 60x greater than the 2008 emergency bank bailout

 

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Social Security Will Be Paying Out More Than It Receives In Just Five Years, by Mac Slavo

Posted on July 20, 2017 | 1 comment

One interesting fact: Social Security taxes have been raised more than twenty times since the program’s inception and it’s still going broke. There’s a lesson there for those who think the solution to governments’ fiscal woes is raising taxes. From Mac Slavo at shtfplan.com:

When social security was first implemented in the 1930’s, America was a very different country. Especially in regards to demographics. The average life expectancy was roughly 18 years younger than it is now, and birth rates were a bit higher than they are now. By the 1950’s, the fertility rate was twice as high as it is in the 21st century.

In other words, for the first few decades, social security seemed very sustainable. Most people would only live long enough to benefit from it for a few years, and there was an abundance of young workers who could pay into the system. Those days are long gone. As birth rates plummet and people live longer, (which otherwise should be considered a positive development) social security’s future is looking more and more bleak.

No matter how you slice it, it doesn’t seem possible to keep social security funded. In fact, social security is going to start paying out more money than it receives in just a few short years. It may even be insolvent before the baby boomer generation dies off.

According to the Social Security Board of Trustees, the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds will be depleted in 2034.

When this happens, only 77 percent of benefits will be payable. That estimate is no change from last year’s estimate.

In addition, the Disability Insurance trust fund will be depleted in 2028, which is an improvement from last year’s estimate of 2023. Once that fund is depleted, 93 percent of benefits will be paid.

Right now, Social Security continues to take in through revenue more than it pays it through benefits, which is expected to continue until 2022. Once Social Security begins to pay out more than it takes in, it will be forced to liquidate the assets held by the trust funds.

In 2016, Social Security generated $957 billion in income. It only paid out $922 billion including $911 billion in benefits to 61 million beneficiaries.

To continue reading: Social Security Will Be Paying Out More Than It Receives In Just Five Years

 

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