Month: July 2016

Is this even allowed? It appears S&P has joined the cynical, skeptical ranks of fiction-peddlers and has axed its economic outlook for the US economy.

“All told, we expect the repercussions from Brexit to weigh somewhat on U.S. GDP,” says S&P’s U.S. Chief Economist Beth Ann Bovino. “Combining this with lower-than-expected first quarter growth leads to the lowering of our forecast for growth this year and next.”

Furthermore, while S&P is dovish on 2016…

The Fed will now likely stay on the sidelines until the December FOMC meeting then will likely raise rates by 25 basis points

They go full hawkish on The Fed’s next few years…

• S&P SEES FED RAISING RATES 3 TIMES IN ’17, 3 MORE TIMES IN ’18

As S&P details,

We expect growth of about 2.0% this year following 2.4% in 2015. During 2017-2018, we expect real GDP growth to average about 2.3%. This growth rate is supported by an ongoing improvement in both the housing sector and the labor market, with steady job gains putting unemployment at 4.7% in May.

 

The decline in shale energy investment stemming from lower global oil prices has weighed on both investment and near-term growth. However, that should reverse eventually given the removal of the export ban on U.S. oil exports. In addition, we expect continued competitiveness gains in manufacturing because of competitive labor costs and the lower cost of natural gas stemming from increased shale gas production. Also, deleveraging in the U.S. household sector is more advanced than it is for European sovereigns, and the U.S. banking system has bolstered its financial strength more through raising capital than deleveraging.

 

We also expect the moderation in fiscal drag at the federal, state, and local government levels (together, the general government) in 2014 and 2015 to continue to support growth given some near-term relaxation of the sequester caps following the Bipartisan Budget Act of 2015 (BBA2015).

Will the ratings agency get sued again?

Of course, S&P is still above consensus for 2016…

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Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Before this week, 14-year-old Ella Fishbough had never been in trouble at school.

 

The cheerful, curly-haired eighth-grader’s undoing came when she learned that a male friend was having a bad day. As consolation, Ella put her arms around him in a hug.

 

“It was literally for a second,” the eighth-grader told Click Orlando. But that moment earned her a morning in detention — as well as a blemish on her formerly spotless disciplinary record.

 

It is at each principal’s discretion to determine what kind of touching is inappropriate. According to WFTV Orlando, hugging was banned altogether at Jackson Heights this year, in addition to holding hands, linking arms and kissing.

 

– From last year’s post: Nanny States of America – Parents Arrested for Letting Kids Play on Beach, Girl Given Detention for Hugging Friend

So this really happened. Via Philly.com:

On June 16, police were called to an unlikely scene: an end-of-the-year class party at the William P. Tatem Elementary School in Collingswood.

 

A third grader had made a comment about the brownies being served to the class. After another student exclaimed that the remark was “racist,” the school called the Collingswood Police Department, according to the mother of the boy who made the comment.

 

The boy’s father was contacted by Collingswood police later in the day. Police said the incident had been referred to the New Jersey Division of Child Protection and Permanency. The student stayed home for his last day of third grade.

 

Dos Santos said that her son was “traumatized,” and that she hopes to send him to a different Collingswood public school in the fall.

 

“I’m not comfortable with the administration [at Tatem]. I don’t trust them and neither does my child,” she said. “He was intimidated, obviously. There was a police officer with a gun in the holster talking to my son, saying, ‘Tell me what you said.’ He didn’t have anybody on his side.”

 

The incident, which has sparked outrage among some parents, was one of several in the last month when Collingswood police have been called to look into school incidents that parents think hardly merit criminal investigation.

 

Superintendent Scott Oswald estimated that on some occasions over the last month, officers may have been called to as many as five incidents per day in the district of 1,875 students.

 

This has created concern among parents in the 14,000-resident borough, who have phoned their elected officials, met with Mayor James Maley, blasted social-media message boards, and even launched a petition calling on the Camden County Prosecutor’s Office to “stop mandated criminal investigation of elementary school students.”

 

The increased police involvement follows a May 25 meeting among the Collingswood Police Department, school officials, and representatives from the Camden County Prosecutor’s Office, where school officials and police both said they were told to report to police any incidents that could be considered criminal, including what Police Chief Kevin Carey called anything “as minor as a simple name-calling incident that the school would typically handle internally.”

 

The police and schools were also advised that they should report “just about every incident” to the New Jersey Division of Child Protection and Permanency, Carey said.

 

Previously, the school district, following the state’s Memorandum of Agreement Between Education and Law Enforcement Officials, had only reported incidents it deemed serious, like those involving weapons, drugs, or sexual misconduct. Both Carey and School Board President David Routzahn described the protocol set forth after that May meeting as a significant change in procedure.

 

Several parents said they consider the recent police involvement not only ridiculous but harmful.

 

Megan Irwin, who has two daughters who have attended Collingswood public schools and who teaches first grade in Pennsauken, said the police had been called to deal with behavior the schools could easily have handled.

 

“Some of it is just typical little-kid behavior,” Irwin said. “Never in my years of teaching have I ever felt uncomfortable handling a situation or felt like I didn’t know how to handle a situation.”

As an elementary school teacher, isn’t dealing with these sort of incidents a key part of the job? Why are school administrators taking such tasks away from where they belong, with the teachers?

And Pam Gessert, a Collingswood resident who works as a school counselor in Burlington County, said that because teachers have the best relationships with students, they are most qualified to determine what happened in a particular incident.

Let’s discuss how ridiculous this is from a couple of angles. First off, we don’t even know what the kid said, and if it was in fact racially offensive. According to the article, “another student exclaimed that the remark was racist,” so what was actually said? Did the teacher actually hear the comment? It’s possible one kid merely decided to call it racist knowing the other kid would get in trouble. I’m not saying this is what happened, but it’s happened before.

For example, recall the case of Ethan Chaplin as highlighted in the 2014 post, New Jersey Threatens to Take 13-Year-Old Student From His Father Due to “Non-Conforming Behavior”:

This is the story of Ethan Chaplin, who back in April was twirling a pencil in his seventh grade classroom in Vernon, NJ. One of the class bullies saw an opportunity to be a jerk and yelled: “He’s making gun motions, send him to juvie.”

Rather than demonstrating any sort of common sense, the teacher apparently had a panic attack and reported him, which resulted in a two-day suspension.

 

Amazingly, the saga manages to get even worse. Just today, we find out that New Jersey is threatening to take Ethan away from his father. Incredibly, the state is claiming that the prior psychological evaluation wasn’t sufficient and more testing needs to be done. Since his father Michael is pushing back, the loss of custodianship has been threatened. Absolutely insane.

It’s interesting that both these incidents occurred in New Jersey, but I digress. The sort of thing that happened to Ethan Chaplin is bound to happen when kids recognize that adults will have a panic attack if anyone purportedly says something racist or twirls a pencil in a threatening manner. That’s what little kids do from time to time, but let’s move on.

Let’s assume this nine year old did indeed make a racially charged comment about a brownie. Why in the world should the police ever be involved in something like this. Teachers are now so scared about losing their jobs if they don’t call 911 for every little incident, they are forced to treat toddlers like prison inmates.

It’s absolutely mind-boggling that this could actually happen. Did the school administrators not think about the kind of long-term psychological damage this sort of thing might do to the children? The only lesson these kids learned is that for everyday mischief little kids have engaged in since the beginning of time, a person with a gun, badge and ability to lock you away in a cell is just a phone call away. All because a nine year old made a comment about a brownie.

Any society that puts up with this crap for long is doomed to irrelevance.

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On Monday evening US Attorney General Loretta Lynch conveniently just happened to meet up with Bill Clinton for a private meeting on her plane on a Phoenix airport tarmac.

Despite Lynch promising everyone that the only things that were discussed were Bill's golf game and grandchildren, conservative watchdog Judicial Watch requested that the DOJ's Office of the Inspector General investigate the meeting. As The Hill reports, pressure is intensifying on Attorney General Loretta Lynch to hand off oversight of the federal investigation connected to Hillary Clinton’s private email server…

Calls for Lynch to step aside — which had already been simmering for months — appeared primed to boil over Thursday following the attorney general’s unscheduled, private meeting with Clinton’s husband, former President Bill Clinton.

 

“Considering the ongoing criminal investigation of Hillary Clinton, this secret meeting between the Attorney General and Bill Clinton shows an astounding lack of judgment by Loretta Lynch,” House Majority Whip Steve Scalise (R-La.) said in a statement on Thursday calling for Lynch to recuse herself.

 

“Given the culture of unaccountability in the Obama Administration, it is unlikely that Attorney General Lynch will heed the growing calls for her resignation,” he said. “But at a minimum, Lynch should immediately recuse herself from the Justice Department's criminal investigation into Hillary Clinton’s unlawful activities, and appoint a special prosecutor to handle the case, so the American people can know the truth about this secret meeting and finally rest assured the criminal investigation of Hillary Clinton is being conducted fully and impartially, without even the appearance of corruption.”

And, now, as AP reports, a Justice Department official said that Loretta Lynch intends to accept whatever recommendation career prosecutors and federal agents make in the investigation into Hillary Clinton's use of a private email server.

"The Attorney General expects to receive and accept the determinations and findings of the Department's career prosecutors and investigators, as well as the FBI Director," the official said, speaking on condition of anonymity because of the ongoing probe.

 

Lynch was expected to discuss the matter further at a summit Friday in Aspen, Colorado.

 

This revelation comes amid a controversy surrounding an impromptu private discussion that Lynch had aboard her plane on the tarmac at a Phoenix airport on Monday with Clinton's husband, former President Bill Clinton. That get-together has been criticized as inappropriate by Republicans and some Democrats at a time when the Justice Department has been investigating whether classified information was mishandled through Clinton's exclusive use of a private email server while she was secretary of state.

 

Lynch told reporters that she did and Bill Clinton did not discuss the email investigation during the encounter.

 

The announcement also appeared intended to assuage concerns, particularly among Republicans, that Lynch — a Democratic appointee — might overrule recommendations from the agents and prosecutors who have worked on the case. Disputes on charging decisions between the FBI and the Justice Department are not uncommon, particularly in national security cases, though many legal experts see any criminal prosecution in this matter as exceedingly unlikely.

 

Decisions on whether to charge anyone in the case will be made by "career prosecutors and investigators who have been handling this matter since its inception" and reviewed by senior lawyers at the department and the FBI director, and Lynch will then accept whatever recommendation comes, the official said.

* * *

So by releasing this statement does that mean that Lynch routinely overrides other case recommendations from the FBI and DOJ staff? Also, based on the fact that the FBI may very well leak the facts of the case if the DOJ doesn't follow its recommendation, we will be able to learn whether or not Lynch is telling the truth. We won't hold our breath.

"I did not have email-probe-relations with that man"

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Silver is up over 11% in the last 6 days (the most since Aug 2013) since Britons decided to leave the sinking ship, pushing the white metal above the key $19.50 level – back to its highest since September 2014. Gold has been in great demand also, heading for its 5th straight weekly gain after its best start to a year since 1980 as one analyst noted “gold will remain one of the major beneficiaries in the current backdrop, as heightened volatility and lingering uncertainty will keep investors’ risk appetite in check.” Silver’s recent surge has seen it play catch up to gold, now back at its ‘richest’ to gold since September 2014.

As Reuters reports,

“It seems that investors are pushing both equities and gold higher simultaneously. One of these will eventually have to give, but for the moment, they each seem to be trading on their own dynamics,” said INTL FCStone analyst Edward Meir.

 

ANZ analyst Daniel Hynes said bullion’s upward rise was just a continuation of its movement following the Brexit vote.

 

“The shock has actually passed but expectations of a rate hike by the U.S. Federal Reserve for the short term has actually fallen quite significantly in combination with the apparent loosening of the monetary policy in Europe driving investor demand,” he added.

 

Societe Generale on Thursday raised its gold price forecasts on fears over the ongoing political, financial and economic fallout of Britain’s vote last week to leave the European Union.

 

“Looking ahead, it seems that gold will remain one of the major beneficiaries in the current backdrop, as heightened volatility and lingering uncertainty will keep investors’ risk appetite in check,” the bank said in a note.

With Silver catching up to Gold’s run…With Silver bursting above $19.50 for the first time since Sept 2014 (before the end of QE3)

 

“Gold has been on an uptrend and silver tends to catch up,” said Brian Lan, managing director at Singapore-based gold dealer GoldSilver Central.

Leaving Gold at its ‘cheaspest’ to silver since September 2014…

 

And finally, it’s not just gold and silver, platinum and palladium both rose to their highest since mid-May and were up 1.1 percent and 0.5 percent respectively.

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Submitted by Michael Shedlock via MishTalk.com,

Voters are angry. Donald Trump, Marine Le Pen, Nigel Farage, UKIP, and the AfD party in Germany have all been accused of stirring up anger and hatred.

But anger is not the problem. None of those individuals or political parties are the problem.

Protectionism and isolation culminating in the Brexit vote in the UK, and the nomination of Donald Trump in the US are not the problem.

What is the problem? Why the anger?

Shrinking Middle Class

The above chart from the Wall Street Journal article IMF’s Grim Long-Term U.S. Outlook in Six Charts.

People Angry Because

1. Banks were bailed out and they weren’t
2. Middle class is shrinking
3. President Bush’s Bankruptcy Reform Act of 2005 made kids with student loans debt slaves for life.
4. Warmongering by the Bush and Obama administrators alike made billions for defense contractors at the expense of everyone but the contractors and their employees.

Instead of blowing up the world, making enemies in the process, and creating ISIS in the process, wouldn’t we have been better off building US infrastructure?

Social Anger

The above chart explains rising social anger perfectly. However, that chart does not portray the real problem.

Income inequality, the shrinking middle class, angry voters, and the rise of extreme political parties are all symptoms of the real problem: Central banks and their inflationary policies.

Productivity

Fed Chair Janet Yellen is very concerned about falling productivity. A chart from the same article shows the concern.

Productivity Will Rise Again – Will the Fed Like the Result?

Autonomous cars, truck, and buses are coming. Millions of jobs will vanish by 2024 if not sooner. Productivity will soar.

The loss of millions of truck driving jobs will be a catastrophe to those who cannot do anything else, but will be a boon to everyone else who pays lower prices.

The Fed will get productivity, but will the Fed like the result when it comes?

Central Banks Insist on Inflation in Deflationary World

The big problem is central banks insists on inflation in a deflationary world.

Even the BIS says routine price deflation is not damaging (See Historical Perspective on CPI Deflations: How Damaging are They?)

Productivity enhancements are inherently price deflationary. More goods produced at less cost should mean falling prices unless demand from population growth more than makes up for productivity gains.

Few could afford big flat panel TVs when they first came out. Everyone has them now. Improvements on top-end cars eventually make their way into every car. The same applies to cell phones and technology in general.

If price deflation was a problem, it sure does not show up in sales of flat panel screens.

The things that have risen most in price are the places where the Fed and Congress meddled the most: The Fed with financial assets, and Congress with health care, education, and affordable housing.

Central Banks – The Real Problem

In the wake of the Great Financial Crisis, central banks launched round after round of QE. Bernanke praised his own efforts for the wealth effect. The result was yet another massive bubble.

The only winners were the banks, the brokers, and the already wealthy. Asset prices inflated, but who has the assets? The poor?

Minimum wages hikes cannot possibly help. Nor can negative interest rates in the Eurozone and Japan. Both will make matters worse.

Much of corporate financing is already used for stock buybacks at insane prices. Lower interest rates fuel asset prices, not investment. Wage hikes sure don’t encourage mores stores.

People are angry, but they protest the wrong things.

Whom to Blame?

1. Socialists in France and Spain who cannot find a job need to point a finger straight at socialist work rules that inhibit firing. If corporations cannot get rid of employees, the only solution corporations have is to not hire employees in the first place.
2. US students mired in debt should blame Congress, public unions, and themselves for going deep into debt in pursuit of useless degrees.
3. Most importantly, people should picket the Fed (central banks in general) for insisting on the extremely misguided policy of 2% inflation in a deflationary world.

The first chart speaks for itself.

Central banks systematically destroyed the middle class via monetary inflation even as they insist there is not enough price inflation.

— Mike Shedlock (@MishGEA) June 30, 2016

 

Worse yet, central banks, led by the Fed, have blown another bubble in the absurd attempt to defeat routine price deflation.

This is the third major bubble in fifteen years. The result will be yet another round of asset price deflation, a crisis largely of central banks own making.

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The new normal sure is strange: with the S&P flirting with all time highs, not to mention staging another dramatic V-shaped comeback from the post-Brexit crash which saw S&P futures trade limit down a week ago, investors keep on selling. According to Lipper data, U.S.-based stock mutual funds, which are held by retail mom-and-pop investors, posted cash withdrawals of $2.8 billion over the weekly period ended Wednesday; this was the 16th consecutive week of outflows.

All stock funds, including ETFs, posted an even wider $6.8 billion outflow last week to mark their biggest withdrawals since early May, while taxable bond funds posted $2.6 billion in outflows after raking in $2.5 billion the prior week. The perpetual question of who is buying remains especially after BofA reported earlier this week that its “smart money” clients sold US stocks for the third consecutive week and in 21 of the past 22 weeks, led by institutional clients’ sales.

The money went into low-risk money market funds which attracted $25.1 billion in new cash in the week ended June 29 after Britain voted to leave the European Union data from Thomson Reuters’ Lipper service showed on Thursday. In addition commodities and precious metals funds, as well as funds that specialize in safe-haven U.S. Treasuries, attracted their biggest inflows since February.

Lipper research analyst Pat Keon said U.S.-domiciled mutual funds took in $18.9 billion in net new money for the fund-flows week ended Wednesday, but the large net inflow number is almost entirely attributable to money market funds “as investors put money on the sidelines to wait out the uncertainty caused by the Brexit leave vote.” Municipal bond funds, also considered low-risk, contributed to the overall inflows with their 39th straight week of gains, at $649 million, Keon said. Taxable bond funds posted withdrawals of $4.1 billion and equity funds had outflows of $2.8 billion, Keon added.

“As would be expected, non-domestic equity funds accounted for the lion’s share of the net outflows at negative $2.5 billion among equity funds while for taxable bond funds investors fled from below investment-grade funds in a risk-off strategy in response to Brexit,” Keon said.

As Bank of America’s Michael Hartnett adds, Monday was “redemption day” which saw global equity fund redemptions of $9.5 billion. This was the 7th largest day of redemptions in past 10 years.

Harnett also looks at global fund flows, and finds that weekly flows showed the largest global equity outflows ($20.7bn) since Aug’15 (CNY devaluation) and largest European equity outflows ($5.3bn) since Oct’14 (end-QE3).

Still, retail may turn around and come back quickly into equity markets as Wall Street rolled to a third straight day of gains on Thursday. Stock markets have erased the bulk of their losses in the wake of Britain’s shock vote a week ago to leave the European Union that had set off the worst two-day decline for Wall Street in 10 months. “We’re reversing the ‘Brexit’ as it becomes evident that it was more of a political vote and decision than an economic decision,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

As it turns out, at least for the US and UK stock markets, all the relentless fearmongering was dead wrong, with the S&P set to surpass 2,100 again while the FTSE 100 Index rose 0.3%, after recovering from its post-Brexit slump to reach its highest level since August on Thursday. It is 6.3 percent higher on the week, on course for its best performance since 2011. So much for the Brexit apocalypse so widely predicted by the “experts.”

 

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As expected, Puerto Rico will default on about $2 billion in debt payments Friday, including $780 million in constitutionally-backed general obligation bonds, as governor Alejandro Garcia Padilla has issued an executive order authorizing the suspension of payments. In addition, Garcia Padilla also declared states of emergency at the island’s biggest public pension – the Commonwealth’s Employee Retirement System – which is more than 99% underfunded, as well as the University of Puerto Rico and other agencies Reuters reports. The default will mark the first time a US territory has failed to pay on its general obligation bonds.

“Under these circumstances, these executive orders protect the limited resources available to the agencies listed in these orders and prevents that these can be seized by creditors, leaving Puerto Ricans without basic services,” Garcia Padilla’s administration said in a statement.

The suspension of payments comes just as the Senate rushed a bill to President Obama that was signed on Thursday, and the bill will now allow Puerto Rico to access a bankruptcy-like debt restructuring process for its roughly $70 billion in debt. As Bloomberg explains, the next phase will now be for the US appointed control board to begin the restructuring negotiation process. The step allows Garcia Padilla to use cash that would otherwise go to investors to avert cuts to schools, policing and health care that Garcia Padilla said would extract a heavy toll on the island where nearly half of the 3.5 million residents live in poverty.

While creditors will now be left to battle it out in the courts, the default will leave large insurers of Puerto Rico’s bonds on the hook for payments. As CNBC reports, Assured Guaranty, Ambac and National, a wholly owned subsidiary of MBIA, collectively have more than $800 million in exposure to the total payments due Friday. Assured Guaranty and MBIA back $196.5 million and $173 million in GO bonds respectively. Ambac’s largest exposure are $41.7 million in rum tax bonds and $38.6 million on the Public Building Authority GO-guaranteed securities.

As Bloomberg notes, the prospect of an orderly resolution has seen the S&P Puerto Rico bond index rise for the past 23 days, the longest winning streak since 2012. GOs with an 8% coupon and maturing 2035 traded Thursday at an average 66.8 cents on the dollar according to Bloomberg.

Bloomberg provides a breakdown of what is due Friday July 1:

General-obligations: About $816 million of principal and interest. Puerto Rico’s constitution stipulates that the government must repay general obligations before other expenses. Garcia Padilla said on Wednesday that the island won’t pay general obligations because there isn’t enough money to cover essential services and pay investors. The commonwealth has $13 billion of general obligations and a default on the securities would be the first payment failure from a state-level borrower on its direct debt since Arkansas in 1933.

 

Puerto Rico Electric Power Authority: $420 million of principal and interest. The island’s main electricity provider, called Prepa, will avoid defaulting Friday after it reached an agreement with its creditors. Bondholders and insurers will buy bonds from Prepa in a similar arrangement to how the utility averted defaulting on Jan. 1.

 

Puerto Rico Highways & Transportation Authority: $220 million of principal and interest. The highway agency repays its debt with gas-tax receipts and toll revenue. The authority is expected to pay investors on July 1 from reserve funds already held by the bond trustee, according to S&P Global Ratings. Future payment are uncertain because Puerto Rico has redirected a portion of the agency’s revenue to the general fund. HTA has $6.4 billion of bonds and notes outstanding.

 

Puerto Rico Public Buildings Authority: $207 million of principal and interest. The bonds are repaid with rents that public agencies pay for their office buildings and are guaranteed by the commonwealth. The authority has about $4 billion of bonds outstanding.

 

Puerto Rico Aqueduct and Sewer Authority: $135 million of principal and interest. Island lawmakers are working on legislation intended to allow the water agency to raise money by issuing debt through a newly created entity. If it can’t, the authority has said it may redirect funds used to pay debt to cover overdue bills to contractors and suppliers. It has $4 billion of bonds outstanding.

 

Puerto Rico Infrastructure Financing Authority: $78 million of principal and interest. Called Prifa, the agency has sold the island’s rum-tax bonds. Bond anticipation notes maturing July 1 are expected to default after Puerto Rico said it would instead use the revenue that normally repays Prifa debt to cover essential services instead. Prifa also defaulted on a Jan. 1 interest payment. It has $1.9 billion of bonds outstanding.

 

Puerto Rico Convention Center District Authority: $20.8 million of principal and interest. The authority has reserve funds with its bond trustee to make the July 1 payment, but those funds could dry up for the next payment due Jan. 1 because Puerto Rico is redirecting its revenue, according to S&P. The agency uses hotel-room tax receipts to repay debt. It has $397.7 million of bonds outstanding.

 

Puerto Rico Pension-Obligation Bonds: $13.9 million of interest. The taxable debt was sold to bolster the island’s nearly depleted pension fund. The bonds are repaid from contributions that the commonwealth and municipalities make to the retirement system. It has $2.9 billion of bonds outstanding.

 

Government Development Bank for Puerto Rico: $9.1 million of interest. The bank has restricted withdrawals unless they are used for essential services. The bank defaulted May 1 on nearly $400 million that was due. It has $5.1 billion of debt outstanding.

 

Puerto Rico Public Finance Corp.: $4 million of principal. Since August the agency has failed to pay investors and was the first Puerto Rico agency to default after the legislature failed to appropriate needed funds. It has $1.1 billion of debt outstanding.

“I want to let the people of Puerto Rico know that although there are still some tough work that we’re going to have to do to dig Puerto Rico out of the hole that it’s in, this indicates how committed my administration is to making sure that they get the help they need.” Obama told reports before signing the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA). As for Puerto Rico, the only lesson that the commonwealth has learned is that if it gets too leveraged, it can just discharge the debts through a quasi-bailout and all will be well

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