The Future. In the biggest wave of bankruptcy declarations by large companies since 2008, Vice Media and six other firms just filed for bankruptcy in a 48-hour span. These collapses may cause others — and could have dire consequences for the global financial system.
The rate depression
The Fed’s rate hike program has made debts much harder — and sometimes impossible — to pay off.
- Companies often buy debt when interest rates are low, on the assumption that they’ll profit in the long term when rates increase and force debtors to pay more.
- But if rates jump too much or too quickly, debtors might default on those loans, going bankrupt instead of paying them back in full.
- That’s what happened to the seven firms in the recent bankruptcy wave, all of which had more than $50 million of liabilities each. Vice had over $1 billion.
This is especially bad for banks, which are already under serious strain ever since SVB’s crash caused a rash of bank failures and led investors to relocate money to other investment vehicles.