SFCG is a large lender in Japan, and as of last July owed CitiGroup about a billion dollars
Archive for the ‘Bankruptcy Watch’ Category
Bankruptcy Watch – SFCG
Monday, February 23rd, 2009Why bank nationalization must happen
Monday, February 23rd, 2009We can argue about how we got here, or where we need to be in the future, but some sort of federal government control of banks is going to happen.
Here is why – the premise of our banking system since 1933 has been that there are banks that are “too big to fail“. These banks are the last defense against total economic collapse.
The FDIC by itself – does not have enough money to stop the failure of one major “too big to fail” bank. The premise of the FDIC is that there will always be another bigger bank that can swallow a failed bank, and with some FDIC funds thrown in, the larger bank will take over the accounts and keep doing business as normal. The only way to rescue a “too big to fail” bank is for the US Treasury to come up with the money.
Here’s the problem. Corporations keep their working capital in these banks. They feel safe doing that because everyone has agreed that these banks are Too Big to Fail, and the US Treasury will dive in front of the bus before it would let them fail.
Those corporate funds in Too Big to Fail banks are NOT insured by the FDIC. Imagine for a moment if the FDIC seized a bank where Wal*mart has its working cash parked. Wal*Mart is just a theoretical example – but one to worry about because it is so big and considered one of the healthier retailers at the moment. As of their last SEC filing, Wal*mart had $5.9 billion sitting in “cash” (somewhere). Wal*Mart’s sales are about $1 Billion per day. They owe $44 Billion to their suppliers, commercial paper borrowing and unpaid bills (like wages earned, but not paid until pay day).
When you buy something at Wal*mart, that cash (or credit/debit card transaction) is going immediately to a bank somewhere. A portion of it is set aside to pay the people working there on payday – the rest is going off to pay a supplier who has been waiting 2 or 3 months to get paid or to pay back the commercial paper used to buy the inventory sitting on their shelves.
Imagine if the FDIC seizes the bank and tells Wal*Mart – “sorry, your funds weren’t insured. File a claim with the FDIC (or bankruptcy court) and you may get some of your money back in a year or so”. Paychecks could bounce, payments to suppliers will stop, pushing many of those companies into their own cash flow problems and probable bankruptcy. Nothing would set off a general panic of the population faster than a closed major retailer or seeing empty shelves.
Here is some more background material on Wal*Mart.
Bankruptcy Watch – Journal Register
Sunday, February 22nd, 2009The Journal Register newspaper company produces the New Haven (CT) Register, Oakland (MI) Press, and 18 other daily newspapers, and 159 non-daily publications. One of the reasons newspapers are in trouble is the decline in ad revenue from car companies. Perhaps they thought that warning the public about the dangers of driving cars causing climate change would not affect them.
This is a prepackaged bankruptcy, with JP Morgan/Chase bundling the creditors interests – so chances are good the bankruptcy will not last long.
Bankruptcy Watch – Qimonda North America
Sunday, February 22nd, 2009Qimonda is a large manufacturer of DRAM chips, the memory chips used in most computers. The world has an oversupply of DRAM chips as the economy slows.
Bankruptcy watch – John Laing Homes
Friday, February 20th, 2009Last I heard, there are currently 19,000,000 empty homes in the United States. I think we can stop building new homes for a while, unless we expect 100 million Mexicans to flood over the border some time soon.
Two curious things about this story – the AP “slugged” the story as Bangalore, so apparently the AP has “outsourced” editing stories about the United States to cheap labor in India. Perhaps the more interesting thing is that this company making homes in the United States is owned by Dubai.
Dodd says “Short Term” nationalization is necessary
Friday, February 20th, 2009Senator Chris Dodd, head of the US Senate Banking Committee (who has not yet produced copies of his sweetheart mortgage deal with Countrywide Mortgage) says that “Short Term” Nationalization of Bank of America and CitiGroup may be necessary. Bloomberg Story
Remember that once the government gives itself “temporary” powers, it never gives it back voluntarily. US Treasury dictator Timothy Geithner will release details of this plan “next week”, unless of course he’s too busy saving the automobile industry.
So why not Chapter 11 for GM?
Friday, February 20th, 2009The Wall Street Journal lays out the case for GM to let the bankruptcy process resolve their issues here
This is exactly why the bankruptcy law was created in the first place. It allows a company with an unviable business model to either do the things it needs to do to fix itself, or be sold off or dismantled in way that protects the interests of the people who are owed money or who have purchased the company’s products in the past.
Having worked inside GM (not as an employee), the thing that I think the Harvard Law Professor is missing is the “cost” of cutting loose those “legacy” costs of the promises to the UAW workers. Many of the people in the UAW are third generation auto workers. Reducing the pensions and retiree benefits to a current worker’s father and grandfather will lead to sabotage, aggression, violence and deliberately defective products. I can’t see a GM filled with angry UAW workers surviving, and I doubt Toyota wants to buy additional assembly plant capacity and the “legacy” that GM leaves behind.
TheStreet.com seems to be thinking the same thing.
Bankruptcy Watch – Saab
Friday, February 20th, 2009Svedish car maker Saab (owned by GM) has sought protection from creditors. GM had previously intended to sell Saab, but apparently has decided to jettison it.
Drove my Chevy to the levee….
Thursday, January 1st, 2009It’s been coming for 6 months, so few people are going to be surprised. That doesn’t mean it won’t be unpleasant.
June 1st is Bankruptcy Day for Generous Motors. Germany and Canada are making last minute adjustments to spin off Opal. Hummer is probably going to China. Saturn is probably kaput. The “good” GM is going to start making cars that nobody will buy (unless forced to by the Obama administration, which is entirely probable).
All of the companies in the auto supply business (unless they do big business with Ford) are going to be selling off their parts for spare parts and going under.
The UAW won one “concession” that one plant that will make 160,000 tiny cars a year will stay in the U.S. and not move to China.
Companies that are owed money by G.M. will now be compelled to write off their accounts receivable. Depending on just how thoroughly Mr Geithner has “backstopped” American Business, that might cause other companies (like radio companies) to topple.
While interest rates eased on Friday, the U.S. dollar lost significant value. You can fend off one or the other, but not both.
“Bye, bye, Miss American Pie… drove my Chevy to the levee and the levee was dry… singing this will be the day G.M. died….”