Sunday, June 26, 2016

Which Firm(S) Went Bust In Brexit?

Submitted by IWB, on June 26th, 2016
Given the volatility and the rapidity of the post-Brexit market turn-around, it’s not too early to wonder which firms got caught completely upside down by the move and are now busted.
We can be very confident that the authorities are going to be working very, very hard to engineer a rescue here, my bet is on Sunday night, or rather very early Monday morning, around 2:00 est we’ll see a lot of futures buying by “somebody.”
What I am most interested in, though, is how Monday closes.
In this article by Chris Hedges I found the quotes from Michael Hudson to be helpful in gauging what exactly happened with Brexit:
Jun 24, 2016
“A lot of banks in America and Europe that held their money in Great Britain just lost 9 percent at current exchange rates,” said economist Michael Hudson when I reached him in New York by phone.“They have probably not hedged it. There have probably been large Wall Street institutions that made bets believing that Britain would remain in the European Union. There are firms and banks, I suspect, which have lost hundreds of billions of dollars. There is talk of another Lehman Brothers. We don’t yet know who it will be.”
The Democratic Party, by rescuing Wall Street, will be unmasked as the handmaidens of the financial elite.
“I expect Obama to do whatever he is told to do by Wall Street,” Hudson said. “He has turned over management of the economy to his campaign contributors from Goldman Sachs and Chase Manhattan. He does not have views of his own, other than self-promotion. He wants his presidential library. He wants to have a big foundation like the Clintons. Most of the population will oppose a bailout, of course, and he will cry all the way to the bank.”
Economies built on scaffolds of debt eventually collapse. There comes a moment when the service of the debt, as we see in Greece, becomes unsustainable. More and more draconian austerity measures are imposed on a captive public to pay banks and bondholders until these measures reach an intolerable level. The people revolt. The system crashes. This is what happened in Britain.
The war against international finance, and the array of intergovernmental systems and institutions used to enforce the predatory beast of global speculation, has begun. The question is, who will win? Will it be the banks, which intend to continue to pillage economies? Or will it be popular movements that will rise up to cancel debt and reinstate economic and political sovereignty?
Hudson sees the crisis in Europe as, in part, spawned by the U.S. intervention in the Middle East and the Ukraine.
“If there is anyone who is responsible for the Brexit, it is Hillary Clinton and Barack Obama,” he said. “They destroyed Libya. They turned over Libyan weapons to [Islamic State], al-Qaida and [Nusra Front]. It was their war in Syria, where many of these weapons ended up, which created the massive exodus of refugees into Europe. This exodus exacerbated nationalism and anti-immigrant sentiment. Clinton and Obama are also responsible for a huge exodus of Ukrainians.
This is all a response to American war policy in the Middle East and the Ukraine. In central Europe, with the expansion of NATO, Washington is meanwhile demanding that governments spend billions on weapons rather than on recovering the economy.”
Yep, I think it’s probably fair to say that if you don’t want to have a refugee problem then you shouldn’t create refugees.  There’s no question about the idea that refugee concerns drove some of the vote.  Not all of it by any means, but certainly some.
It is also fair to begin to speculate on who it was that lost hundreds of billions of dollars.  My bet is on several of those insurance and financial companies I listed above.
I suspect they are the issuers of a lot of derivatives such as CDS and interest rate swaps.  Somebody had to be on the wrong side of the derivative moves because those are a zero sum game.  Unless the wins and losses were perfectly and evenly distributed there will be winners and losers.  Of course, the derivatives are not evenly distributed, which only amplifies the gains and losses into hotspots.
And that’s the question of the day; did anybody lose big enough to go bust and begin the counter-party domino game?
I’ll bet there have been a couple of sleepless nights in a number of financial centers and that the central bank bat phones are in constant use.