Exclusive outtakes from industry leaders
“Bankruptcies, they fall out of the sky, as we’ve all seen in the last two or three weeks,” Rob McMahon, managing director for restructuring at GE corporate lending, told the Reuters Restructuring Summit in New York this week.
The credit crunch has triggered Lehman’s bankruptcy and the $85 billion U.S. government rescue of American International Group.
At the Reuters Restructuring Summit, journalists at Reuters offices in New York and London are talking to bankruptcy industry insiders about who will be the next to fall.
What do YOU think is the next sector, or company, at risk for going bankrupt, and why?
The worst financial crisis since the Great Depression has everyone looking for a fall guy, especially when the U.S. tax payer has to foot the bill.
While Main Street loves to blame fat cat executives asleep at the wheel as they collected multimillion-dollar bonuses, or lax regulation by government officials, turnaround specialist Wilbur Ross suggests we all look in the mirror. And oh yeah — don’t count on the history-making bailout plan to be a magic pill.
In fact, Ross warns that none of the moves announced by the U.S. Federal government — from the rescue of insurer AIG and mortgage giants Fannie Mae and Freddie Mac to the $700 billion financial bailout proposed to aid the mortgage market – actually address the true problem on Main Street: It’s no easier now to for Middle America to meet their mortgage payments. And the failure to pay housing bills is what caused this whole crisis to begin with.
It all paints a rather dire forecast for the rest of this year and well into 2009. For his part, Ross said he sees a current recession in the U.S. lasting through 2009. If you’re willing to stomach more bad news and find out just how we got here — click on here
“…the government will bail you out, if you are stupid but medium sized, you die,” said Wilbur Ross at the Reuters Restructuring Summit. ”That’s going to encourage some very bad behavior by some big institutions.”
Ross, known as ‘the bankruptcy king,’ said he was disturbed by what he called ad-hoc government decisions about which firms to rescue.
Last year the lending business was as frothy as a head on a Guinness beer and many financial firms spent a little too long hanging out at the bar.
Now, says Rob McMahon, managing director for restructuring, financial firms are looking around and trying to figure out exactly what happened, and who can still stand.
“It’s kind of like the drunken sailors. They left the boat to take their weekend leave and now they went back to the boat and they are all talking about what they did and they are realizing after sobering up, “Ok what did you do what did I do? Ok. Oh you are 25 times levered? Yeah really, you think that’s bad? Man i’m 35 times levered.”
Financial firms increased leverage – or debt – in recent years as money became very cheap, and they relaxed lending rules for themselves and their customers.
Now comes the tough part. Figuring out who had so much to drink that they’ll need to check into the financial equivalent of the Betty Ford Center – bankruptcy protection.
To hear the audio clip, please click here