The Great Debt Unwind: Business Bankruptcies Soar 38%
Post by Newsroom Superstation95.com - Oct 09, 2016 Something funny happened on the way to the bank: In August, commercial and industrial loans outstanding at all banks in the US fell for the first time month-to-month since October 2010, which had marked the end of the collapse of credit during the Financial Crisis. In October 2008, the absolute peak of the prior credit bubble, there were $1.59 trillion commercial and industrial loans outstanding. As the Great Recession chewed into the economy, C&I loans plunged. Many of them were cleansed from bank balance sheets via charge-offs. But then the Fed decided what the US needed was more debt to fix the problem of too much debt, thus kicking off what would become the greatest credit bubble in US history. By July 2016, C&I loans had surged to $2.064 trillion, 30% above their prior bubble peak. But in August, something stopped working: C&I loans actually fell 0.3% to $2.058 trillion, according to the Federal Reserve Board of Governors. That translates into an annualized decline of 3.8%, after an uninterrupted six-year spree of often double-digit annualized increases. Note that first month-to-month dip since October 2010: It’s still too early to tell how significant this dip is. It’s just the first one. It could have occurred because companies borrow less because they need less money as there’s less demand, and expansion is no longer on the table. Or it could have occurred because banks are beginning to tighten their lending standards, with one hand on the money spigot. And all this is occurring while banks write off more nonperforming loans (and thus remove them from the C&I balances) that have resulted from mounting defaults and bankruptcies by their customers. The ugliest credit stories in terms of bonds, according to Standard & Poor’s Distress Ratio, are the doom-and-gloom categories of “Energy” and “Metals, Mining, and Steel.” Next down the line are two consumer-facing industries: brick-and-mortar retailers and restaurants. But these metrics by credit ratings agencies are based on companies that are big enough to be rated by the ratings agencies and that are able to borrow in the capital markets by issuing bonds. The 18.9 million small businesses in the US and many of the 182,000 medium size businesses don’t qualify for that special treatment. They can only borrow from banks and other sources. And they’re not included in those metrics. But when they go bankrupt, they are included in the overall commercial bankruptcy numbers, and those numbers are getting uglier by the month. In September, US commercial bankruptcy filings soared 38% from a year ago to 3,072, the 11th month in a row of year-over-year increases, according to the American Bankruptcy Institute. For the first nine months of 2016, commercial bankruptcy filings jumped 28% compared to the same period in 2015, to 28,789. Most of those are not the bankruptcies we hear about in the financial media. Most of them are small businesses that go that painful route – painful for their creditors too – in the shadows of the hoopla on Wall Street. By comparison, just over 100 oil and gas companies in the US and Canada have gone bankrupt since the beginning of 2015. About a dozen retail chains have filed over the past year, along with about 12 restaurant companies, representing 14 chains. Commercial bankruptcy filings skyrocketed during the Financial Crisis and peaked in March 2010 at 9,004. Then they fell on a year-over-year basis. In March 2013, the year-over-year decline in filings reached 1,577. Filings continued to fall, but at a slower and slower pace, until November 2015, when for the first time since March 2010, bankruptcy filings rose year-over-year. That was the turning point. Note that there is no “plateauing”: In September this year, bankruptcies exceed those from a year ago by 855 filings – the 38% jump. March and May saw similar year-over-year increases. So this looks like it’s the beginning of a new and long trend that is not going to fit into the rosy scenario. Rising bankruptcies are an indicator that the “credit cycle” has ended. The Fed’s policy of easy credit has encouraged businesses to borrow – those that could. But by now, this six-year debt binge has created an ominous debt overhang that is suffocating these businesses as they find themselves, against all promises, mired in an economy that’s nothing like the escape-velocity hype that had emanated from Wall Street, the Fed, and the government. Restaurants are experiencing a wage of bankruptcies that rivals that of 2009-2010, with “very challenging” sales trends.
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Here's Where The Next Bank Deposit "Bail-In" Will Strike...
ZeroHedge.com Oct 10, 2016 2:00 AM Submitted by Nick Giambruno via InternationalMan.com, One shot from a pistol pierced the night right before Antonio Bedin collapsed, dead. Antonio, a 67 year-old retired Italian, had just committed suicide. He was plagued by health problems and by the loss of his savings. Last year, four small Italian banks became insolvent and immediately needed capital. They turned to a bail-in. Antonio was one of thousands of small savers who were wiped out. Antonio lost everything. Then he shot himself. He wasn’t alone. There was another pensioner who hung himself at his home near Rome after he lost more than $100,000. Their stories became national news sensations. It generated intense anger at the bail-ins. A bail-in is when a bank recapitalizes itself by tapping its creditors, including depositors. Most people think of the money they deposit into the bank as a personal asset they own. But that’s not true. Once a deposit is made at the bank, it’s no longer your property. It’s the bank’s. What you own is a promise from the bank to repay. It’s an unsecured liability. That’s a very different thing from owning physical cash stuffed under your mattress. Money deposited into the bank technically makes you a creditor of the bank. You’re liable to get burned from a bail-in should the bank get into trouble. People in Cyprus had to find this out the hard way in early 2013. People awoke on an otherwise normal Saturday morning to the shock that the money in their bank accounts had been taken by a bail-in to recapitalize the banks. Not surprisingly, many Italians aren’t just waiting around to get “Cyprused.” I recently spent weeks on the ground in Italy investigating the ongoing banking crisis. I spoke with a prominent lawyer who told me that most Italians are now distrustful of the banks. They’re keeping a substantial portion of their savings in cash under their mattresses. They’re also buying lots of gold. I’ve been to Italy numerous times over the years. But this time, I saw something new. There were signs everywhere advertising gold bullion, like the one below. I think it indicates a strong demand for gold and a strong distrust of the banks. It seems to me like a slow motion bank run is already happening. This is the last thing Italy’s banking system needs. It’s further bleeding the capital in the banking system. I only see the situation getting worse… Italians are rightly afraid of bail-ins. That fear is leading them to withdraw their savings as cash and also to buy gold. This further drains the banks’ capital, making it more likely they’ll need to do a bail-in to remain solvent, which fuels even more withdrawals. It’s like a self-fulfilling prophecy. This means that the chances are good that a large number of unsuspecting Italian savers are going to get wiped out. The thought of potentially many more old, struggling pensioners committing suicide because they got wiped out from bail-ins has enormous emotional power in Italy. It’s like political nitroglycerin. It would have a catalyzing political effect. Bottom line, if Italians get Cyprused before the referendum later this year it’s a virtual certainty it will fail. That’s the unenviable conundrum the current, pro-EU Italian government is facing. They can stall and save the banks through a bail-in, or they can let the whole house of cards come down. Either option is political suicide. It’s hard to imagine that the frustrated Italian populace won’t vote to give the establishment the finger in the referendum, and humiliate the pro-EU government. Prime Minister Matteo Renzi has promised to resign if that happens. If he does, the anti-euro, populist Five Star Movement will almost certainly come to power. They’ve promised to promptly hold another referendum. This one would be on whether Italy should leave the euro and go back to its old currency, the lira. If Italy—the third-largest member of the eurozone—leaves, it will have the psychological effect of someone yelling “Fire!” in a crowded theater. Other countries will quickly head for the exit, and return to their national currencies. Economic ties and integration are what hold the EU together. Think of the currency as the economic glue. Without the euro, economic ties will weaken, and the whole project could unravel. It would be a deathblow to the EU, the world’s largest economy… And it would explode into a global stock market crash like the world has never seen. The Financial Times recently put it this way: An Italian exit from the single currency would trigger the total collapse of the eurozone within a very short period. It would probably lead to the most violent economic shock in history, dwarfing the Lehman Brothers bankruptcy in 2008 and the 1929 Wall Street crash. That’s how important the upcoming referendum in Italy is. It would be the first domino to fall in the collapse of the EU. Not surprisingly, the unsavory George Soros is keenly aware of what’s going on. He recently said, in reference to the Brexit and events in Italy, “Now the catastrophic scenario that many feared has materialized, making the disintegration of the EU practically irreversible.” Soros Fund Management has been picking up gold assets and placing bets that stocks will crash. He’s positioning to make big profits from the coming crisis. And I think we should, too. That’s exactly why I recently spent weeks on the ground in Italy. There are potentially severe consequences in the currency and stock markets. Three Reasons Why The Banking System Is Rigged Against You ZeroHedge.com Oct 1, 2016 2:45 PM Submitted by Simon Black via SovereignMan.com, If there were ever any doubt about how completely RIGGED the banking system is against depositors, allow me to introduce the following: Exhibit A: Governments are working to make banks LESS safe Yesterday an unelected bureaucrat that no one has ever heard of made a stunning announcement that has sweeping implications for anyone with a bank account. Dombrovskis is Europe’s top financial services official, so he controls bank regulations in the European Union. He issued a stern warning to global bank regulators yesterday that he is prepared to reject any further plans they might have to tighten bank capital requirements. This might sound rather dry, but it’s incredibly important. “Bank capital” is the most critical component of any bank balance sheet. Capital is like a bank’s rainy day fund; when things start to go bad, a bank’s capital provides a margin of safety to ensure that their depositors’ funds are safe. Strong banks have ample capital and are able to withstand crises. Weak banks with low levels of capital collapse. And that’s precisely what happened in 2008. Most banks across the west had very low levels of capital. They had spent years making appallingly stupid ‘no money down’ loans with 0% teaser interest rates to borrowers with pitiful credit. When that bubble burst, the banks lost billions of dollars. And it turned out that most of the banks at the time had razor thin levels of capital. If you’re wondering why, the answer is quite simple: the less capital a bank maintains, the more money it can invest… so poorly capitalized banks tend to make more money. Lehman Brothers was quite profitable. But the bank infamously had capital worth just 3% of its total assets… meaning that if Lehman’s investments fell by just 3%, they would be wiped out. Lehman’s investments fell by a lot more than 3%… so the bank’s capital was totally insufficient to weather the storm. The bank folded, and a huge crisis erupted. Regulators vowed to never let that happen again. And in the years since, the Basel Committee on Banking Supervision, the primary global bank regulator, has been pushing banks to increase their capital levels higher. European banks in particular still have pitiful balance sheets. Their investment portfolios are stuffed full of negative-yielding bonds issued by bankrupt European governments. And their capital levels are still so low with many of them that there are whispers of taxpayer funded bailouts, from Italy’s Monte dei Paschi to Germany’s global titan Deutsche Bank. But despite these pitiful bank fundamentals, Dombrovskis is rejecting the Basel Committee’s latest push to make banks safer. According to the Financial Times, Dombrovskis is specifically complaining that the Basel proposals might lead to a “significant” increase in the amount of capital that banks would maintain. … so in other words, the head of European financial services thinks it’s a bad idea for banks to have an extra margin of safety. Bank profits are being prioritized over depositor safety, even at a time when so many of the banks are seeking taxpayer-funded bailouts. In the eyes of the bureaucracy, bank profits come before depositor safety… which makes it completely obvious how rigged the system is against you. * * * Exhibit B: The Volker Rule farce In another effort to make banks safer, the US government passed the Volker Rule as part of their new post-crisis financial regulation. The Volker Rule forces banks to sell their riskiest assets, i.e. the stuff they shouldn’t have been buying to begin with, especially with their depositors’ savings. Problem is, those risky assets aren’t worth very much, and the banks are having a hard time finding a buyer willing to pay them 100 cents on the dollar. So rather than take the loss, banks in the US keep requesting extension after extension. They’ve already had six years to offload their assets. Now the deadline has been extended all the way to 2022. Yet in the meantime, the banks get to continue holding those assets on their balance sheet at 100 cents on the dollar, even though they’re clearly not worth a fraction of that. The whole thing is a giant scam designed to conceal obvious bank losses… a neat little arrangement between the political elite and banking elite. * * * Exhibit C: No one from Wells Fargo is going to jail Wells Fargo is getting a very public slap on the wrist for falsifying customer bank accounts in its efforts to meet their sales goals. And in addition to the embarrassment they’ll probably pay a series of steep damages, most of which will go to the government and class action lawyers. But don’t hold your breath for any senior executives to be criminally indicted. If you or I engaged in what Wells Fargo did, we’d already be turning big rocks into little rocks wearing a DayGlo orange jumpsuit. There’s a word for what they did. It’s called fraud. And the people at the top were either part of the scam, or they were too stupid to recognize an obvious crime. Once again, it’s proof of a system that’s totally rigged in favor of the banking elite… literally at your expense. * * * Modern banking is truly bizarre. They’ve created a system whereby we entrust our hard-earned savings to institutions that never miss an opportunity to abuse that trust. In making a deposit at a bank, we become merely an unsecured creditor. And in exchange for taking on that counterparty risk they provide almost zero transparency in what they’re doing with the money. Even still, they work in partnership with their friends in government (where a very swift revolving door exists) to legally conceal their true financial condition. Your reward for all this risk? A whopping 0.1%, if you’re lucky. Why take the chance? Think about withdrawing at least a portion of your savings. Gold and physical cash are great alternatives. EDITORIAL NOTE: Don't forget silver! |
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