Tag Archives: Bankruptcy

The Big Government Show Must Go On, by MN Gordon

Posted on February 10, 2019 | Leave a comment

President Trump wasn’t going to ruin his State of the Union address by mentioning America’s inconsequential national debt. From MN Gordon at economic prism.com:

Another week.  Another week of distractions.  On Tuesday, for instance, was the great State of the Union Address.  To this, many opinions and observations have been offered.  Here, we’ll contribute several of our own…

President Trump is a showman of stout ego.  How he must have relished the run-up to Tuesday’s primetime address with impatient anticipation.  What a disappointment it must have been to look out from the podium of the House of Representatives at the 116th Congress and see the greatest assemblage of political crooks, lowlifes, and losers in living memory staring back at him.

But the show must go on…disappointments and all.  For life’s full of disappointments.  The many botched opportunities.  The countless hours wasted on bids for ridiculous jobs.  Super Bowl Sunday.  Duds, dissatisfactions, and disappointments come a dime a dozen.

Words are also the source of many disappointments.  Words that shouldn’t have been said.  Words that should have been said.

So, too, words, and the absence of words, can be distractions.  And within a sequence of words there are sometimes obvious omissions.

For example, nowhere within the 82 minute State of the Union Address was there a single word of the country’s burgeoning $1 trillion budget deficit.  Nowhere was there a word of the great $22 trillion national debt default that’s bearing down upon us like a savage hurricane along the Gulf Coast.  Nowhere was there mention of the $122 trillion in unfunded liabilities, which includes the sacred cows of social security and Medicare.

What Gives?

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The Coming Bankruptcy of the American Empire, by Hunter DeRensis

Posted on November 27, 2018 | Leave a comment

Any entity that continuously spends more than it takes in will go bankrupt. That includes the American empire. From Hunter DeRensis at mises.org:

The chickens are coming home to roost. It’s only a question of when.

Herbert Stein was chair of the Council of Economic Advisors under Presidents Richard Nixon and Gerald Ford and is the father of the more well known Ben Stein. In 1976, he propounded what he called “Stein’s Law”: if something cannot go on forever, it will stop. Stein was referring to economic trends, but the same law applies just as much to foreign policy and the concept of empire.

Stein’s Law at first glance might seem like a banal platitude. But we should be fully cognizant of its implications: an unsustainable system must have an end. The American empire is internally flawed, a fact that anti-imperialists both left and right should appreciate.

The United States’ national debt is approaching $22 trillion with a current federal budget deficit of over $800 billion. As Senator Rand Paul often points out, bankruptcy is the Sword of Damocles hanging perilously close to Uncle Sam’s neck. Outside of a handful of libertarian gadflies in Congress such as Paul, there is no serious political movement to curb the country’s wayward spending. It would take some upset of multiple times greater magnitude than Donald Trump’s 2016 victory to alter this course.

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A more likely reason Rahm Emanuel dropped out: the Chicago time bomb, by Ted Dabrowski and John Klingner

Posted on September 11, 2018 | Leave a comment

Sooner or later Chicago will go bankrupt, and it’s certainly a plausible supposition that Rahm Emanuel wanted to get the hell out before it does. From Ted Dabrowski and John Klingner at wirepoints.com:

We may never know why Rahm Emanuel decided to drop out of the Chicago mayoral race. But the media is certainly giving him a pass. They say he simply dropped out for fear of losing. But there’s a far more likely reason than that.

Emanuel is smart, and the smart reason for leaving is glaring: He doesn’t want to risk becoming “mayor bankruptcy.” Chicago is a ticking time bomb and Emanuel is jumping ship just in case it goes off.

Don’t dismiss that scenario too quickly. Despite his lofty intentions when he first took office, Emanuel has failed miserably to reform the city’s finances. Now the risk of insolvency is rising.

Chicago’s financials are dire and the city has no plan and no reserves to survive an inevitable recession. In fact, the city has barely kept its head above the water despite a decade of national economic growth. Chicago Public Schools was already at the brink of bankruptcy just one year ago. Continue reading →

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Janus v AFSCME and the truth about Illinois pensions in one graphic, by Ted Dabrowski and John Klingner

Posted on July 10, 2018 | 3 comments

Here’s the short answer to why Illinois is broke: promised pension benefits have skyrocketed and tax revenues and incomes have not. From Ted Dabrowski and John Klingner at wirepoints.com:

One graphic perfectly captures the absurdity of Illinois pensions over the past three decades.

It’s what Justice Samuel Alito described as Illinois’ “generous public-employee retirement packages” when writing for the majority in the Janus v. AFSCME decision. “Illinois’ pension funds are underfunded by $129 billion as a result of generous public-employee retirement packages” he wrote.

Alito didn’t use the graphic below, but he could have because it makes his point.

In 1987, pension promises made to active workers and retirees in the state’s five state-run pension plans totaled just $18 billion. By 2016, they had ballooned to $208 billion.

That’s a cumulative 1,067 percent increase.

Contrast that to the state’s budget (general fund revenues) which was up just 236 percent over the same time period. Or household incomes, which were up just 127 percent. Or inflation, up just 111 percent.

Promised pension benefits have blown past any ability of the state, the economy or taxpayers to pay for them.

Read the report: Illinois state pensions: Overpromised, not underfunded

Wirepoints released a report on these booming benefits earlier this year, and while it received strong coverage online nationally, Illinois’ traditional media didn’t want to touch it. The findings interfere with the narrative that’s repeatedly promoted by public sector unions and politicians – that the crisis is all the taxpayers’ fault for failing to put in enough money towards pensions.

The report proved a lack of dollars wasn’t the issue. Illinois pension assets – buoyed by taxpayer contributions – also grew far faster than the same economic indicators in the graphic above. But taxpayer contributions could never keep up with the state’s explosive growth in promised benefits.

Overpromising is the real culprit of the pension crisis. Freezing and reversing that growth in promised benefits is the fair, and only, way to fix things.

The above graphic gives taxpayers every right to demand concessions from their public servants. The Janus ruling will hopefully give them more power to demand them.

And union members have a strong incentive to come to the bargaining table. After all, it’s their retirements that are teetering on the edge of insolvency in a state just one notch from junk status.

But If the unions won’t deal, Illinois should go ahead and freeze salaries, cut the subjects of collective bargaining, move to defined contribution plans, reduce headcounts and work with the feds on a form of state bankruptcy. With the constitution currently preventing any changes to pension benefits, those are the only levers taxpayers have to save this state from collapse.

http://www.wirepoints.com/janus-v-afscme-and-the-truth-about-illinois-pensions-in-one-graphic-wirepoints-original/

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“Tesla, without any doubt, is on the verge of bankruptcy.” By Simon Black

Posted on March 26, 2018 | Leave a comment

Tesla’s stock market valuation disagrees with Simon Black, but SLL wouldn’t bet against him. From Simon Black at sovereignman.com:

Just a few days ago, shareholders of Tesla approved an almost comical pay package for their cult leader CEO Elon Musk that could potentially put $50 BILLION in his pocket over the next decade.

Let’s put this figure in perspective: at $5 billion per year, Musk would make more than every single CEO in the S&P 500. COMBINED.

In other words, if you add up the salaries of all the CEOs of the 500 largest companies in America, it would still be less than the $5 billion per year that Mr. Musk stands to earn.

That’s pretty astounding given that Tesla’s own 2017 4th quarter financial report (page 24) states that Elon “does not devote his full time and attention to Tesla”.

Or more importantly, that under Musk’s leadership, Tesla’s chronic financial incontinence has racked up more than $4.97 billion in operating losses for its shareholders.

Or that the company has been under SEC investigation (without bothering to disclose this fact to shareholders).

Yet they saw fit to reward him with the largest CEO pay package in the history of the world.

This is precisely the type of behavior that is only seen during periods of extreme irrationality when financial markets are at their peak… and poised for a serious correction.

I’ll close this brief letter today quoting John Thompson, Chicago-based value investor and Chief Investment Officer of Vilas Capital Management.

Thompson is one of the few hedge fund managers who has consistently outperformed the market, and his fund is betting big against Tesla. What follows are some passages about Tesla from Thompson’s recent investor updates:

I think Tesla is going to crash in the next 3-6 months. . .

. . . partially due to their incompetence in making and delivering the Model 3, partially due to falling demand for the Model S and X, partially due to the extreme valuation, partially due to their horrendous financesthat will imminently require a huge capital raise, partially due to a likely downgrade of their credit rating by Moody’s from B- to CCC (default likely) which should scare their parts suppliers into requiring cash on delivery (a death knell), partially due to the market’s recent falling appetite for risk, and partially due to our suspicions of fraudulent accounting activities, evidenced by 85 SEC letters/investigations and two top finance people leaving in the last month. . .

To continue reading: “Tesla, without any doubt, is on the verge of bankruptcy.”

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On Closer Inspection, Debt of Bankrupt Spanish Construction Firm Grows Four-Fold, by Don Quijones

Posted on February 17, 2018 | Leave a comment

You often don’t know how indebted a struggling company is until it files for bankruptcy and creditors come crawling out of the woodwork. From Don Quijones at wolfstreet.com:

Spain appears to have a brand-new Abengoa — the imploded energy giant whose fabulous accounting tricks pushed creditors into a black hole — on its hands: Isolux was until recently a fairly large privately owned infrastructure company with operations spanning the globe.

When the group declared bankruptcy last July, its cash flow in Spain was barely enough to cover a month’s operating costs. The group had a a total workforce of 3,884 and 119 infrastructure projects under development of which 39 were still operational and the remaining 90 had been halted.

The company tried to reduce its debt addiction through agreements with investment funds but they fell through. It also made two attempts to go public, in Brazil and Spain. Both failed.

The bankruptcy proceedings affected seven subsidiaries. At the time, the company stated that it owed €405 million to suppliers, that its total financial debt — including those companies not included under the Spanish Insolvency Act filing — was €1.3 billion, of which €557 million was associated with project financing, and that the total deficit on the group’s balance sheet was about €800 million.

Turns out, according to the bankruptcy receivers, the shortfall is actually €3.8 billion — four-and-a-half times the company’s original estimate — and the group’s total debt, at €5.7 billion, is over €4 billion more than the amount stated by the company 10 months ago.

This amount does not include the group’s dual or contingent liabilities. The receiver’s report concludes that the current situation will probably culminate in the liquidation of the entire group.

How did all this come to pass? According to the receiver’s report, the collapse of the real estate bubble in Spain and the drastic reduction in public work tenders during the crisis led Isolux to massively expand its international operations, as many large Spanish companies did in the aftermath of the housing bubble collapse.

To continue reading: On Closer Inspection, Debt of Bankrupt Spanish Construction Firm Grows Four-Fold

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What’s the Chance of Iconic GE Going Bankrupt? by Leonard Hyman and Willian Tilles

Posted on February 5, 2018 | Leave a comment

The possibility of a GE bankruptcy isn’t that far-fetched, considering the company came pretty close during the last financial crisis. From Leonard Hyman and Willian Tilles at wolfstreet.com:

Three titans of invention dominated the dawn of the electric age: Thomas Edison, the founder of General Electric, Werner von Siemens, whose industrial conglomerate still bears his name, and George Westinghouse, inventor of compressed-air railroad brakes, and more importantly, the man who made alternating current the electric industry standard.

Toshiba-owned Westinghouse already filed chapter 11 bankruptcy. In less dramatic fashion, Berlin-based Siemens Corp. has been struggling mightily with downturns in its major business lines, particularly power generation. Meanwhile Boston-based GE not only has to deal with declining profits at a number of its businesses but also with largely self-inflicted financial missteps.

Of these three corporate entities, GE’s fate seems the most uncertain. Siemens may have already “turned the corner” so to speak, even talking smack about its Boston-based trans-Atlantic rival on its last conference call with financial analysts. And Westinghouse recently exited financial reorganization with a new, large private equity parent, Brookfield Energy Partners, and presumably more modest expectations.

GE’s shares are down almost 75% from their all-time highs in Sept. 2000 despite a raging bull market over the last 8 years.

GE’s underlying problem is the immutability of debt. That is, corporate managements have a relatively free accounting hand with respect to writing down asset values when things go “pear-shaped.” However, all the debt from these financially ill-fated ventures typically remains. In GE’s case the assets of GE Capital were approximately $157 billion at the end of 3Q 2017, and we suspect much of this is supported by debt rather than equity.

If we subtract GE’s “goodwill” – goodwill is an accounting entry that parks expenses temporarily on the balance sheet as an asset to be expensed on a later date – from equity (like Buffett says to do),  we get a negative $40 billion. Back up and think about it. An almost $400 billion conglomerate with $40 billion in negative equity.

To continue reading: What’s the Chance of Iconic GE Going Bankrupt?

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