Saturday, April 19, 2008
The Depression Chronicles – 1: Bankruptcies
As the country slides (or plunges?) into depression, happy talk continues from the Bush administration. I've tried to call your attention to a number of events I thought worthy of attention, but the volume of news reports chronicling one aspect or another of the decline is not only simply appalling but simply overwhelming.
There are a number of problems with media reports of this economic debacle—
- Many stories appear only in the business media, which are not read by the bitter people of Pennsylvania or anywhere else for that matter;
- Few stories attempt to tie economic events together;
- So much is going on in hedge funds and private-equity groups that remains secret (officially) even from Western governments that the activities of some of the most powerful players in the international economy are not known, much less reported.
I can't remedy these defects, but I hope to bring a little more focus on the scope of the devastation by creating a series that captures some of the highlights of the daily flow of disasters.
Today we begin with a story on bankruptcies from the point of view of those who should know—bankruptcy attorneys.
As reported by Niraj Chokshi,
The number of businesses filing for bankruptcy increased by 44 percent in 2007, according to the Administrative Office of the U.S. Courts. Last year, 28,322 businesses filed for bankruptcy, compared with 19,695 in 2006. While many speculate about how bad the economic downturn will be, bankruptcy lawyers say it's practically getting worse by the day.
"What used to really be a trickle -- one every two to three weeks -- is now closer to one a day. And it's a steady drumbeat of filings and a steady drumbeat of phone calls, of problematic situations," said Peter Gilhuly, a bankruptcy partner in Latham & Watkins' Los Angeles office. "I think we'll be in a full insolvency cycle six months from now, and it will continue for some time."
At last we're seeing a genuine trickle-down effect—but not the one the Republicans promised.
It's only the beginning—
All that work won't just keep bankruptcy attorneys busy, lawyers said. As the economy worsens, failing companies in a widening range of industries will keep several categories of lawyers busy.
Gilhuly and Engel said attorneys with derivatives experience can expect to be pulled into bankruptcy cases. Companies unable to refinance debt due at the end of the year and in 2009 will file for bankruptcy in the coming months, they said.
And do you still believe that the banking system is not under threat?—
With banks suffering as well, attorneys who specialize in banking rules are consulting more with bankruptcy lawyers at Latham, Gilhuly added.
Now why would a bank consult with a bankruptcy firm?
What began with real estate bankruptcies, then spread to retailers and now airlines will only grow, the lawyers said.
Cases will be increasingly complex, as big clients battle in court over relationships penned in more borrower-friendly times, Gilhuly said.
"It'll be fast-paced with sophisticated folks and battles over major money."
Those "borrower-friendly times" were brought to an end by a bank-friendly Republican Congress with the assistance of Hillary Clinton, an important leader of the Democratic co-conspirators.
It has been pointed out that to speak of "the economy" is misleading. In reality there are "economies." Measures of the overall economy such as Gross Domestic Product (GDP) mask winners and losers. Not all ships sink during a depression, and the bankruptcy attorneys' ship is just now sailing into port—laden with riches.
Good news about the economy (3/31/08)