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.
Moody’s and other analysts all expect defaults to increase significantly in the next year. As they do, more banks are likely to go down, too.