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Is America turning to financial communism?
29 May 2009
International Observer: Nick Hood from Begbies Global Network continues his look at insolvency trends abroad. This week he finds himself in New York.
Business travellers find themselves in many odd situations. Even so, attending a bankruptcy seminar in Midtown New York and hearing heartfelt complaints from top US attorneys and commercial lenders about the shock of finding a communist in charge of the White House must be close to most people’s ultimate surreal moment.
This mood of outrage has been prompted by the new US government’s cavalier re-writing of creditor rights for its proposed exit route from the crisis at Chrysler. The lenders have been strong-armed in the most overt political way into agreeing to a deal where the auto workers’ union not only gets super-priority for employee benefits over secured and other more senior creditors but also a potential equity stake in the new “Chrysler Fiat” entity.
Add to this explosive commercial mix a very recent settlement in another US bankruptcy, where lenders to a major shopping mall group have been persuaded by an aggressive bankruptcy judge to give up their individual security rights “for the greater good of the lender group”, and a trend begins to emerge.
The outcome is a deeply suspicious atmosphere where bankers are being encouraged (and not very gently) to get out and support business recovery. However, they are finding that the lending model they know, love and have exploited for decades is in the process of being re-designed for a strange new world that suddenly feels like something out of a Kafka novel.
The current commercial environment in the US certainly feels curious to an outside observer. An experienced real estate attorney recently told a journalist enquiring about the state of the property market in Manhattan that, when he looks out of his window on Fifth Avenue, “I don’t see real estate, I see leverage”. He added the philosophical thought that “lawyers are becoming specialists in smoke and mirrors in negotiations – it’s no longer about the art of the possible any more, it’s much more the art of the presentational”.
Investment guru Wilbur Ross articulated a predictably realistic view at the New York conference last week of the International Bar Association’s insolvency section. He remarked that the only people seeing signs of the end of the recession were those without any experience of solving business problems. He supported his view with a raft of statistics to confirm that the announcement of a V shape recovery was greatly exaggerated. Among the scariest was the thought that, if the 20 million Americans currently officially unemployed or simply no longer bothering to look for work were reducing their spending by just $500 a month, it was taking an eye-watering $120 billion a year out of the US economy.
Nobody really knows when the US economy will stabilise or how hard the landing will be. Certainly, the Chinese look like having a rather bigger say in its future than Messrs Obama, Geithner and Bernanke. In any case, nobody should mistake a flimsy stock market rally for any sort of new dawn.
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