Why?
Three Things It’s Not
- It’s not for business expansion.
- It’s not for buybacks.
- It’s not to pay dividends
Two Possibilities
Companies are tapping credit lines now because they might not be able to do so later.
Companies need money to pay upcoming bills.
Mike “Mish” Shedlock
It appears the virus has been successful used by Wall Street.
??? A COUP, ACCOMPLISHED ??
Wonder who Blackrock picks as recipients of the $4.5 Trillion…Mmaybe some of these folks already know?
I believe the stimulus bill allows corporations to borrow money to keep employees on the payroll while they are not working. Subsequently, the federal government will pick up the tab and pay off the debt. That assurance of payment is why banks are very willing to lend.
It’s an important mechanism to maintain the myths of American capitalism. Benefit comes from the private sector, not the government. And people who work for a living are the ones who will primarily benefit, not people who refuse to work for minimum wage.
Much of our welfare system: unemployment insurance, pensions and 401ks, medical insurance, earned income tax credit, etc… is based on that concept.
Are these corporations borrowing at near zero or at the usual 2-3% rate? Loading up on cash in a potentially deflationary environment could be smart and they may as well feed at the trough while it’s still there.
I suppose the next order of business is to focus on M&A opportunities to see if they can become TBTF. Otherwise, maybe they could be gobbled up by somebody bigger and score a golden parachute on the way out. When you’re sitting in the c-suite, corporate America rules!
Anybody paying ANY rate must have something wrong with their company/personal history.
The loans will show up at 0% interest and cash on corporate balance sheets. In fact many of these loans will turn into tax carveouts in the form of tax credits or rebates. This will force the Fed to monetize more of the national debt and deficit. Modern monetary theory by another name. Monetization.
Do these loans include the SBA “loans” to small business? Those became available Friday, and they are funded within 10 minutes of the application, supposedly. I’m sure sure banks have lines to make the applications.
I don’t see air traffic in holding patterns anymore… we used to have 20-30 planes an hour flying in circles to land at DTW. Went up to view planes in the sky in our area and there are no holding patterns. They fly straight in and others fly straight out. Every one of those planes that are now parked have become a huge drain on airlines.
Watch the zoomy planes …https://flightaware.com/live/airport/KORD
I just read a non bank called Kabbage has suspended all lines of credit indefinitely.
Never heard of them before, but it sounds like a small town bank that hasn’t been getting their kabbage from the tier 1 banks. That has been the norm for 12 years now.
Ahhhh… Basically a payday loan company that operates through Paypal via automatic paymentand/or theft. https://www.reviewopedia.com/kabbage-com-reviews
There are a lot of companies out there that specialize in high-interest loans to companies that aren’t creditworthy enough for traditional lending. Most of them work by taking a portion of the company’s credit card receipts. I think of them as the payday loan equivalent for companies. With companies shut down, there is no flow of credit card receipts for them to latch on to.
A rule of thumb I never saw violated: Your Line of Credit is only good as long as you can prove that you don’t need it.
I’d bet a lot of CFOs are starting to think they’re going to need it.
Another reliable indicator of suppliers in trouble was when they started factoring receivables. I wonder how that’s looking.
We could make a real entertaining made for TV series out of something like that. Take the CEOs of those corporations that used their cash flow to buy back stock and force them in an arena like Roman gladiators to fight for the last ounce of credit lines. I’d actually pay for cable TV to see that one.
It’s really very simple…
If you’re uncertain about the future, but have the ability to borrow a shitload of money, why not do it?
The smart play would be to borrow it and then do nothing with it. If it all blows over, you pay it off, and if not, you may not have to.
Personally, I don’t do debt and I am not going to start now even if it think I might get “free money”. My partners will be taking advantage of the PPP however. And I don’t begrudge them that – I see it as an opportunity to get back some of the tax money we’ve all been paying.
Borrow money to pay bills now, but how will the new loan be repaid? Eventually the money runs out, and bond holders become shareholders.
If these are the Coronavirus SBA loans, they don’t need to be paid off. They are forgiven, if you use them to play employees, rent, mortgages, and utilities.
Hard to make payroll when sales fall off a cliff.
True, but luckily for you demand for sausage will always be high in Chicago.
I honestly heard someone touting a debt jubilee where everyone’s debt is wiped clean.
Shame on me for being frugal and avoiding debt.
You know what the Liberals will argue? They’ll say things like “do you want a riot?”
Talk about strawman arguments. That’s why I simply despise most Liberals.
For people like us who live frugally, it’s obviously unfair, but no way they’ll acknowledge it.
It’s always right wingers talking about threats of riots, civil unrest, and then using that as an excuse to hoard weapons.
Just ask trumplings what they’ll do when Dear Leader loses the election. The answer is : riot.
Don’t worry, there’s a special place in hell for these “conservatives” as well.
According to the dictionary, conservative means: holding to traditional attitudes and values and cautious about change or innovation, typically in relation to politics or religion.
Describes me pretty well. Doesn’t say anywhere that you have to belong to the Republican morons.
My position in the end remains the same. This country deserves its doom, and I’ll be cheering for it.
I have the same basic attitude and am an Independant. Thanks for putting this “you’re either with us or against us” attitude to rest.
The leeching classes have been increasingly loud about cheering for a “debt jubilee” for years now.
Nothing suits bankster trash, and other leeching Fed beneficiaries with preferential access to credit, better, than being able to simply write off all the debt they have been gouging on without any repercussion. Meaning, effectively having someone else saddled with the cost, just in a lightly obfuscated fashion.
Without having a fair and proper bankruptcy process at the same time reclaim the “assets” and property they unfairly got to expropriate from others, because of preferential access to that credit.
Every single time you hear someone exalting debt jubilees, you are either looking at someone who is nothing but a despicable leech cheering for The Fed to help him take something from others without having to pay for it; or you are looking at an economically 100% illiterate, complete dolt; who has been suckered and indoctrinated so badly, he genuinely believes leeches being assisted in robbing productive people, is somehow a good thing.
Even more than that, shame on you for not having access to the Fed window. You must be a commoner!
You are spot on and I feel the same, never forgive loans to corporations or Big Business,Help the average Schlep who is 70% of the economy instead…