The failure of the financial and credit markets is not just a cause for pain and suffering among bankers and investors. It is having real consequences for business owners and workers, as more and more businesses are unable to get the credit lines and other loans from their lenders that they need to continue their operations, pay suppliers and finance their payrolls. And the inevitable result is that more and more US businesses are going out of business or filing for bankruptcy as this article from that radical leftist mag The Economist makes clear:
Sharper Image filed for bankruptcy protection in February, and has since been liquidating itself, getting even lower prices for its assets than it had hoped. Several other well-known retailers have since gone bust. Steve & Barry’s, a casualwear retailer that is a core tenant of numerous shopping malls, terrified commercial-property investors when it entered bankruptcy protection in July. It emerged in August with new private-equity owners and a plan to close 103 of its 276 stores. Linens ’n Things filed in May, and at first hoped to reorganise itself and leave bankruptcy. After the collapse of a planned sale to Cerberus, a private-equity firm, it now plans to liquidate itself, with closing-down sales due to start at its remaining stores on October 16th.
These failures have contributed to a rise in bankruptcy filings in 2008 that is showing every sign of accelerating. Even before September’s record-breaking financial-sector bankruptcy of Lehman Brothers, with assets of well over $600 billion, and the technical bankruptcy of Washington Mutual en route to its acquisition by JPMorgan Chase, there had already been more bankruptcies this year than in 2007. By May corporate borrowers had defaulted on 28 high-yield bonds (formerly and perhaps again to be known as “junk”), compared with 21 such defaults in the whole of 2007, according to a recent report by the corporate-renewal group at Bain & Company, a consultancy.
For every store closing, for every company liquidating its assets, for every bankruptcy filed, there are suppliers who don’t get paid, and who thus become the next business faced with insolvency. And there are countless employees who lose their jobs and their health care benefits and can’t meet their mortgage payments.
It becomes a vicious cycle, as more and more people fear for their jobs and drastically curb their spending, which leads to more stores being closed for lack of sales and more layoffs for manufacturers and suppliers. The companies who transport all these goods start to lose business as consumer buying dries up. And the people who provide services find that their clients can’t or won’t pay their bills. Bankruptcy lawyers and collection firms are busy, sure, but they can’t sustain an entire economy. They are getting rich off those who still have the cash to buy up properties and inventories and other business assets at rock bottom prices. In effect, we are entering what I call the Vulture stage of our economic meltdown. And it could last for a very, very long time.
And I don’t think more tax cuts for the rich can fix this, do you?
