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  • Jim Costa

Jim’s Daily Rant. All Eyes Are Upon Texas But Should Be On Evergrande.

Bankruptcy Liquidation can take around a year to play out. First you have a yard sale then you have to divide up the creditors into different groups. For instance, there may be a first mortgage on an asset. That party must be paid in full before funds can go to a second mortgage holder on the same property. So there is a payout order on various classes before any remaining funds goes to everyday slobs (unsecured creditors). So it can be a tedious process.

Keep in mind that a year ago China said non-Chinese creditors would get the shut-out. I don’t know if this is still to occur, although illegal.

But this is what I do know. If analysts do some snooping, they might find out if parties they are doing business with have investments with Evergrande. So if I were a banker I would get a signed statement from a larger borrower that they are not involved with Evergrande before I lent them a large loan, just to cover my ass. This is how large of a threat to the financial world Evergrande is in its bankrupt state.

But getting back to everyday slobs, we don’t know what our pension fund’s exposure is, or our investment in a hedge fund or if the insurance firm we work for is invested in Evergrande exposing our future job. Us everyday slobs are mostly in the dark. You may have looked at your portfolio and didn't see Evergrande on it, but you may have an investment there that is vested in Evergrande. Scary isn't it?

So the canary in the mine will be the collapse of big banks that are cut off from borrowing from other big banks. Lending big banks will ask about the borrowing bank’s investments as well as their off book derivatives exposure.

So forget about the Texas show, keep your eyes on Evergrande and the big banks over the next few weeks.

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