HALP

[ewt]

From timeplease and Charlie Stross,

"Finally, can some rich, beer-drinking Belgian entrepreneur please buy Liefmans Breweries, which were unfortunately declared bankrupt last Friday? It's a cash flow glitch, due to bugs in a new bottling line and scheduled duty payments; the brewery should be long-term viable as a business."

Comments

[hairyears.livejournal.com]

Unfortunately, modern-day banking regulations make banks net consumers of liquidity in times of financial stress - or in plain English, they aren't allowed to provide bridging loans when a borrower's biggest customer fails to pay up, or some financial commitment falls due.

Like, for example, needing to roll over an existing loan with that very bank. Or - all too common this month - the bonds the company issued five years ago fall due and they must place a new issue into a frozen market.

These are very common scenarios in a recession, and the 'regulatory capital' rules that allegedly make banks safer act as a dangerous destabilising influence in a recession. Yes, it's 'safe' that that every individual bank is forced to hold reserves, and that there's a cap on the amount of money it can risk - but when default rates rise and companies hit cashflow problems, that's the very moment that credit needs to be available. And the rules say that the risk has risen and you should be cutting back on your exposure.

If you can get hold of todays Financial Times, there's a slew of articles on qualified disclosure - warnings as to whether the 'Going Concern' statement in the accounts might hide a looming refinancing date, or some similar financial resilience issue. It's the same point: could this company survive a cashflow crisis?

[beingjdc.livejournal.com]

Your bonus question would be, as of November 2007, which five major investment banks' holdings in Level 3 mark-to-magic assets were greater than their total equity?

[hairyears.livejournal.com]

What, there were only three?

Seriously, I'm not allowed to answer that.

[beingjdc.livejournal.com]

Am I allowed to? Specifically can I say which one had $88 billion in Level 3, as against an equity base of $35 billion?

[hairyears.livejournal.com]

Ah, but that's in the public domain!

Even so, I can't comment.