Sunday, October 16, 2011

Bonds Unite Us in Trust: So Long as We Let Them


This quote is from an article that emphasizes the impacts of current bankruptcy filings may decrease consumer and investor confidence, and acknowledging all sorts of factors that helped or not helped the failing businesses cope.


"In fact, predicting a bankruptcy wave at all is a tricky task, experts say. It could depend on several unknowns: how much money banks and other institutions are willing to lend troubled companies, whether the economy lands in a double-dip recession and what happens in the European debt crisis.
The sovereign debt crisis in Europe could be the most important X factor. Even the experts who say that a bankruptcy crisis is not coming because current low interest rates make it easy for companies to get cash to finance their way out of trouble, say that the euro zone's problems could trigger defaults here. "It is possible that one or two sovereign debt defaults would increase the pressure we'd feel in the US credit market. Then we might see an environment like we had in 2008," said Peter Fitzsimmons, president for North America for turnaround advisory firm AlixPartners LLP.
Chapter 11 filings are picking up, bankruptcy data show. Ten companies with at least $100 million in assets filed for bankruptcy in September, the most since 17 filed in April, which was the busiest month since 2009, according to Bankruptcydata.com"


Another point the article makes is that lenders have shown uncertainty towards lending to troubled companies, and such discernment has been one of the factors towards the increasing numerous bankruptcy filings. It is quite a plausible reason to be sure, but there are rarely such absolutes when it comes to causes to events.

However, another article that does not undermine our situation of numerous bankruptcy filings at all but does seem to present a viable option for investors that may be available in Great Britain, to gain a larger yield than the banks in America. This quote sums it up:


"Foreign banks are tapping investor demand by selling top-rated bonds with yields over benchmarks that are as much as eight times wider than those on US deals. The amount of outstanding bonds packaging US assets such as credit-card bills, auto leases and student loans fell 9 per cent to $1.85 trillion in the first nine months of this year, according to the Securities Industry & Financial Markets Association, or Sifma."

Although, this relatively new development does not change the fact that most of the European countries do have a problem with the euro system that may have recurring effects on the U.S. sooner or later, as in agreement with another point that the first article I have cited makes. In related news, this other article by telegraph.co.uk that describes the U.S. 's frustration (as well as the Anglo-Saxon states and India) over possibly inadequate implementations of Europe's Grand Plan that seems, according to U.S. Treasury Secretary Tim Geithner, that


'They clearly have more work to do on strategy and details, ... In financial crises, it is more risky to act gradually and incrementally than to act with bold force.'


His proposal to "use the ECB as a guarantor of eurozone sovereign bonds was dismissed out of hand" according to diplomats. If I did not know much about this article's author, I would say that this article's evidence was subtly or borderline biased in favor of American nationalistic opinion and could allow for some more insight on the reasons the other foreign countries and dignitaries reacted the way they have done in terms of interests they have on hand.

Geithner, Great Britain's banks, and those discerning investors letting troubled businesses go all seem to have a common idea in mind: bonds are only credible if we let them be so. So there. I'd welcome anything that proves me wrong so long as it is the truth of the matter, as close as it gets without getting caught up in absolutes.

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