Happy holidays, everyone. Bankruptcy season is upon us!
Well, it’s about to be, anyway.
As anyone with an economic pulse knows, Corzine-led MF Global hit the bankruptcy/reorganization wall Monday, ending the Goldman-experiment-that-never-was. In short, MF Global “filed for bankruptcy protection as it seeks to reorganize after making bets on European sovereign debt,” thereby making MF Global the first victim of many-to-come.
Now, of course (and as a few chosen have been arguing for many, many months now) the world sits on the precipice on the largest disintegration of a political union since the dismantling of the Soviet Union. Much like its Communist brethren, the E.U. was born out of a strong political will and even stronger economic ignorance, a disjointed union that was both passionately constructed, yet dismally-executed. Indeed, historically, and at times throughout its narrow history, the E.U. appeared on the political scene like a drunken, thoughtless German soldier-on-leave in Eastern Europe and the Mediterranean carelessly adding countries and political bedmates who even at first glance appeared to be questionable additions to its economic black-book. It was a geo-political shore leave that lasted too long and in which most the world believed. So now comes the inevitable hangover and collapse.
MF Global’s bankruptcy – the 5th largest financial one in American corporate history – kicks off what’s sure to be a multi-year, multi-firm (and nation) bankruptstravaganza, all due to the impending collapse of the European Union (and the financial world’s faith in sovereign debt). Before delving too deeply into these consequences, let’s first look at the financial SIGNS the E.U. is headed for a major political reshuffling:
- Portugal: The European Central Bank recently reported that M1 deposits in Portugal have fallen at an annualized rate of 21pc over the past 6 months, with the steepest drop hitting in September.
- Spain: Spain’s borrowing costs soared on Tuesday to their highest levels since record highs in August,
- Italy: On Tuesday, Italian 10-year yields rose 10 basis points, to 6.19%.
- Ireland: This short-lived Celtic Tiger, having kept quiet throughout the entire Greek debacle, will soon be loudly and aggressively demanding from the E.U. the same pay-back deal Greece pouted – er, negotiated – its way into.
- EFSF: And let’s not forget the EFSF’s 440B Euro amount set-aside to be put to work during a financial crisis such as this one…Current estimates suggest the total financial restructuring costs of the E.U. could total well more than 1 Trillion Euro.
Given the above-listed-facts, then it’s finally become obvious to the world’s markets that there exists no magic policy bullet in the E.U.’s economic gun to solve this crisis; furthermore, MF Global’s exposure to the Euro market, and consequent bankruptcy, has starkly illustrated almost no financial institution (or individual) will be immune from the devastating effects of the E.U.’s impending collapse.
With the E.U. and global economy teetering on the brink of absolute insolvency and disaster, we’re about to see a possible retrenchment of the world’s markets not seen in decades (or, you know, at least 2008). MF Global may be this cycle’s first big bankruptcy. But it won’t be the last.
(Hint, hint, take a look at Spain’s regional banks….).
Disclosure: Bernard Dan, former CEO of MF Global, sits on the board of ACM Partners.
Margaret Bogenrief is a partner with ACM Partners, a boutique crisis management and distressed investing firm serving companies and municipalities in financial distress. She can be reached at [email protected]
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