Tuesday, April 28, 2009

More Apocalypse-- real life version

WSJ is reporting that Citigroup and Bank of America earned poor marks on the stress tests and are in danger of being insolvent, needing to raise billions in capital. Both banks are protesting the results, naturally. (I think we business school educators must ingrain it in econ/finance majors to protest their grades as unfair or biased).

Floyd Norris in the NY Times is reporting that defaulting on loans (bonds) in the next couple years will lead to a potentially disastrous wave of bankruptcies.

Moody’s reports that leveraged companies need to refinance $26 billion in loans this year, $44 billion in 2010 and $120 billion in 2011. If credit markets remain tight, we could see lots of defaults even among companies that are doing well enough to make their interest payments.

The bond market started to look like the subprime market and Norris expects the same results. Under no circumstances is this a good thing.

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