Excerptcize

Posts Tagged ‘credit collapse’

CBC and The New York Post both have stories up at their sites discussing the potential future of Intrawest, the company that owns the Whistler-Blackcomb ski resort that will play host to the alpine events during the 2010 Olympics. The whole scenario is a somewhat confusing mix of creditors and debt holders, so you should just go and read either of the articles, but there seems to me to be two different elements to this story. The first angle is the leveraged buyout of Intrawest that occurred in 2006 by the hedge fund Fortress Investment Group. This purchase was highly leveraged, and wouldn’t you know it, the Lehman Brothers happen to be one of the creditors in that deal (you remember the Lehman Brothers, right?) Fortress recently missed a $524 million payment on the debt incurred during the purchase of Intrawest. As Lehman is currently restructuring under bankruptcy protection, they are looking for funds wherever they can find it to make good on the more $1ooo billion creditor claims against them. As such, they have indicated that they could foreclose against Intrawest as early as February 19th (right in the middle of the games) and begin to auction of it’s assets (including Whistler-Blackcomb.)

Further to Fortress’s tangling with Lehman Brothers, the hedge fund has also been sparring with VANOC/the Canadian Government. According to the New York Post,

VANOC guaranteed that it would make Intrawest whole for the time that its events take place at its resorts. But now, according to a source, Canadian officials are threatening to pull that roughly $50 million guarantee. That, the source said, has compelled [Fortress fund manager Wesley] Edens to privately say he has a legal right to keep the Games from taking place at Whistler.

There’s nothing like a sexy story about the possibility of Olympic events not taking place! I do think that it is important to give credence to what Bill Singer, a securities lawyer in New York had to say to the CBC:

I can’t imagine that it will ultimately mean much, because I would assume between [Canadian] government interest and the Olympic Committee there would be something that would be accomplished just to forestall [this.]

For their part, Intrawest had this to say:

We have a 2002 agreement with VANOC to host the Winter Olympics and have every confidence that VANOC will honour its financial commitments. Intrawest is looking forward to a successful Olympic Games.

The word ‘bankruptcy’ is a loaded one in the English language, and it carries even more weight these days in light of the past few years of economic turmoil. It is easy to forget that well established procedures are in place for navigating corporate entities through bankruptcy protection, and more often than not they emerge from protection as a viable company. And while this story is an interesting one that deserves to be followed, I too, in my extremely limited understanding of financial wizardry would not expect this current story to prevent a successful games from happening.

• GE Ice Plaza [/caption] Just over two months ago, after a nearly 10 year absence, outdoor skating returned to Robson Square. In my own humble opinion it has been nothing but a spectacular success; on every occasion I've...
• Canada's Flag Bearer: Clara Hughes (Updated) The CBC has a story up indicating that later today, Clara Hughes will be named as Canada's flag bearer in the Opening Ceremonies of the upcoming Winter Games. There could not be a more appropriate...

• Who Pays for the Olympics? Every 4 years the media tells us which Summer Olympics athlete we should fall in love with.  This year, as in 2004, we are to...
• Will the Winter Olympics 2010 Be Good for the Canadian Dollar and Canadian Economy? Between February 12 and 28, 2010, all eyes around the world will be on Vancouver, BC, Canada for the 2010 XXI Winter Olympic Games.  More...

I’ll have more to say on this later today, but it looks like  all of the tax cuts that Prime Minister Harper and Finance Minister Jim Flaherty have enacted during their tenure (4 years in February!) have come home to roost. What prize have our fine feathered friends brought us? Why it’s nothing less than a forecast return to structural budgetary deficits. A brief historical view of Canada’s budgetary balance and debt in visual form:

*Figures from The Department of Finances Fiscal Reference Tables

What you’ll notice is that for the first half or so of this graph outlays were consistently higher than revenues, ie. we consistently had yearly deficits, hence that ballooning green area, which is the Accumulated Deficit (Debt). For many years we had deficits, so that debt line just kept going up and up. But then things changed. You can see that around 1997 revenues started to exceed outlays. We went from consistently having a deficit (a ‘structural deficit’) to having a surplus. We even used some of that surplus to pay down the debt (the green line going down.) If you’ve actually looked at the above graphic, one of the most important pieces of information is what is not on it, and that is any data from 2009. That’s the time period where all economic graphs you look at have a daunting cliff dive.(Update: I have replaced the original graph in this post with a more accurate one that also includes projections through 2014.) Now look at the most recent points for 2008-9. Revenues have been significantly down in this period. During this same time the government has enacted a series of ‘stimulative’ measures, something I happen to agree with, that equals higher expenditures in 2009 than what has been the trend. That means we are back in a deficit situation. And the Parliamentary Budget Officer says that is going to continue for at least the next four years. That does not jive with Mr. Harper and Flaherty’s assessment of having a balanced budget by that point in time. More to come. I have read that Mr. Flaherty believes that we will be returning to balanced budgets shortly (trying to find a source of this still) and that “the government says it won’t increase taxes or cut provincial transfers to balance the budget.” Clearly when we are facing structural budgetary shortfalls we should decide ahead of time against using one of the two possible mechanisms for fixing this situation. And for some inane reason, ever time I hear this reported on the choices are phrased as either there can be tax increases or cuts in spending. I’ll have to teach those Conservatives a lesson their mothers and fathers should have already taken care of; using both strategies.

• It's Budget Week! It has been a big week from a political standpoint; Parliament reconvened with a Speech from the Throne on Wednesday and Federal Finance Minister Jim Flaherty tabled his governments latest federal budget on Thursday. Before...
• Supreme Court Holds Off From Setting New Precedent, For Now [/caption] Friday was an extremely busy day and things did not all go Stephen Harper's way. The Supreme Court, in a unanimous decision, held in part an appeal brought forth by the Prime Minister in...

• A Simpler Way To Budget. Because we are away camping this week, the following is a guest post from Mike over at Four Pillars. If you like what you see...
• How to deal with financial fear At this time in our economy there are a lot of people facing some very scary situations. Job loss, foreclosure, retirement accounts loosing large chunks,...

Felix Salmon, economics blogger for Reuters had this post up a few days ago:

Mike Mandel has four nominees for his “Economic Statistic of the Decade” award, including home prices (obvs), Chinese growth, and global trade. But the most startling one, for me, is US household borrowing:

I like the time frame that Mike has chosen here, since it shows not only the huge increase in borrowing during the credit boom and the stomach-churning plunge thereafter, but also, for much of the 1990s, what “normal” should look like.

Mike notes that the data for this chart includes domestic hedge funds, so it shouldn’t be taken entirely at face value. But it’s the best visual representation I’ve seen of the credit boom and bust.

There’s also a nice riposte in comments to someone whining about the current decade not being over yet:

There is one full year remaining in the decade that consists of the first ten years of the 21st century. There are no more years remaining in the decade that consists of the ten years beginning with 2-0-0. Each of them is “the current decade” (as is the decade that consists of the years 2007 through 2016). It turns out that the overwhelming majority of the population finds it most appealing to review the history of a decade defined as the set of years with the same three initial digits, and they are in no way wrong to do so.

Exactly. Enjoy this new decade. And borrow sensibly! I’ll see if I can’t find the same data for Canadian households. I imagine it is only somewhat more prudent…

• Medal Hopes Mounting For Canada [/caption] In just over an hour the womens mogul competition's final round will begin. At the conclusion of the event Canada stands an extremely strong chance of winning it's first Olympic gold medal, both of...
• Prostitution and Pragmatics On Monday, November 23rd the Vancouver Public Library played host to a public forum held by FIRST, a coalition of feminists whose purpose is to 'support the rights of sex industry workers advocate for the...

• The Fascinating World Behind Credit Cards And Fraud Detection These days all you ever hear about is how evil credit card companies are.  They jack up fees, cut your credit limit, and change your...
• Tips To Survive The Credit Crunch Today's article is written by guest blogger Trisha Wagner. Does the economy have you feeling down?  It takes a boat load of positive attitude to...