| Companies bought on borrowed money fail to service debt SupportiveArgument1 #7133 There will be a steady flood of announcements of setbacks, restructurings and bankruptcies as companies that were bought with borrowed money, n the private equity boom 2003-07, turn out to be unable to service their debt. |
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Author: Mark Shuttleworth
Cited by: David Price 0:35 AM 10 October 2008 GMT
Citerank: (4) 7131Global insolvency / bankruptcyThe term “credit crunch” misleadingly suggests that the problem is merely one of confidence, that calm will return if liquidity is introduced to the system—when, in reality, the real issue is one of solvency and systemic bankruptcy.959C6EF, 7179Hold financial institution earnings in escrow for seven yearsFinancial institution earnings should only be recognised over a seven year period, and bonuses based on those earnings should be held in escrow until that seven year period is up.959C6EF, 7182Protect individual depositors in regulated banksDepositors in regulated banks should be protected by the governments that run the regulators.959C6EF, 128954Hold financial institution earnings in escrow for seven yearsFinancial institution earnings should only be recognised over a seven year period, and bonuses based on those earnings should be held in escrow until that seven year period is up.959C6EF
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| Excerpt / Summary "Mortgages are just the beginning. At real rates of interest, with real expectations of a reasonable rate of return, many of the deals which have been done since 2003 just do not make economic sense. Thus far, the spotlight has been on one piece of that problem - bad mortgage loans - but I think we’ll see the problem areas expanding rapidly to include a lot of the private equity deals which were done on the basis of free money between 2003-2007. I remember a fatuous statement by some private equity genius that “everybody’s rushing to do the first $100bn deal”. Well, the chickens are coming home to roost. Expect a steady flood of announcements of setbacks, restructurings and bankruptcies as companies that were bought with borrowed money turn out to be unable to service their debt." |