Wednesday, July 1, 2015

THE ECONOMIC DEMISE OF PUERTO RICO

Puerto Rico's present economic situation is the end result of  bad government   administrations, rampant corruption, and outrageous corporate and individual greed!. 
It would never had reached this level had somebody in Washington listened.  Is it too late now? MJ

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Will Puerto Rico Cause An Inadvertent “Black Swan” Derivatives Melt-Down?
IRD (Investment Research Dynamics)
June 30, 2015

I really had not been paying much attention to the Puerto Rico debt situation.  After all, $72 billion in debt that might go bad – big deal.  The Fed can print up $72 billion in credit lines with the push of a button.But a friend of mine happened to mention to me that MBIA’s stock was down over 23% and Assured Guaranty’s stock was down over 13%.  That woke me up.
MBI guarantees $4.5 billion in par amount of Puerto Rico muni paper.  As of it’s latest 10-Q (March 31, 2015), MBI showed a book value of $3.9 billion. Puerto Rico alone could more than wipe out MBI’s net worth.  
But this story isn’t just about MBI.  It’s about the companies that, along with MBIA, provide “insurance” for bonds and derivatives.  These firms have assumed potential liabilities that dwarf their ability to cover them.  Not just in the worst case scenario.  I believe Puerto Rico’s financial demise could trigger the dreaded financial nuclear daisy chain of counterparty defaults.
I believe it is highly probable that the crashing stocks of MBIA, AMBAC and AGO are the alarm bells of a black swan landing.  And, of course, no one has been talking about them until today.  Although these firms are somewhat obscure and small compared to the size of the majority of financial companies, they are highly leveraged with massive off-balance-sheet liabilities for which they have zero hope of covering in the event of even relatively small bond defaults.   In other words, these firms are the ones most likely to set off the next financial collapse triggered by their counterparty defaults.