The publisher the The Philadelphia Inquirer and the Philadelphia Daily News has filed Chapter 11
Blog Archives
Bankruptcy Watch – Philadelphia Newspapers, LLC
Monday, February 23rd, 2009Bankruptcy Watch – SFCG
Monday, February 23rd, 2009SFCG is a large lender in Japan, and as of last July owed CitiGroup about a billion dollars
Why 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.
How to fix the economy in a week
Saturday, February 21st, 2009Back at the beginning of this problem, the first thing Hank Paulson proposed (probably at the request of Tim Geithner) was to bump up the FDIC coverage limit to $250,000 per account. George Bush and John McCain quickly jumped on board. This was exactly the WRONG thing to do and was a horrible mistake.
The result was an immediate outflow of money from the stock market which led to its immediate freefall – and then to make things worse they started adding in FDIC insurance to non-bank accounts like mutual fund money market accounts. This is like writing insurance policies after the hurricane has already destroyed New Orleans, and with the same outcome.
They believed we are all cowards, and maybe the new Attorney General has a point.
My proposed solution:
“90 days from today, your FDIC coverage will drop to $20,000 per person (not per account) and that is a lifetime limit. Once your money has been “saved” by the FDIC, that amount is deducted from your remaining $20k. Amounts in CDs with a maturity of 1 year or more remain at $100,000 per PERSON coverage.”
Right now, huge piles of money are sitting in short term deposits. Because they could vanish at any minute, banks can’t do anything useful with the money.
This would force people to do one of the following:
- move the money into tangible assets – real estate, gold, cars, inventories
- put their money back into the stock market – which would likely go up 20% the first week, and group psychology would do the rest
- move the money into longer term CDs – which would give the banks a comfort zone that they could start buying commercial paper, fund construction loans, etc… and “unlock” the credit market
- Pay off debt
- People will question how their bank is investing money, not chase the highest yields from the weakest banks
- Reduce demand for short term Treasury notes, allowing interest rates to return to a more normal range
This entire mess happened because we encouraged most of the money in the economy to surge into the one place where it does no good – short term safe havens. We need people betting on the future, not fearing it.
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.
Madoff faked trades for 13 years?
Friday, February 20th, 2009Bloomberg reports that Bernie Madoff made no trades at all to buy the securities that people believed they had in their “accounts” – for the past 13 years. (which goes back to before George Bush took office….)
This makes almost no sense. Every trade at Nasdaq has a buying firm and a selling firm, and each trade is reported to the Clearing Corporation (not part of Nasdaq) in close to real time – so that the back office of the firms can reconcile any differences and arrange for transfer of the stocks if they are in certificate firm.
I believe that Madoff had no certificates for 13 years, and it may be possible his investment firm held no stocks – but it is impossible that there weren’t trades reported to the Clearing Corp from the Madoff broker/dealer firm unless the Clearing Corp itself was in on the ponzi scheme. I don’t think the SEC still has a handle on what was going on.
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.