Nick Hood: Wall Street worries about crypto-Communism

Begbies Traynor's Nick Hood explains why bankers and lawyers are getting nervous in the Big Apple.

Last Updated: 31 Aug 2010

Business travellers find themselves in many strange situations. But sitting in a room in midtown-New York packed with top US attorneys and commercial lenders, listening to heartfelt complaints about there being a communist in charge of the White House, is right up there in the top ten surreal moments.

The prompt for this bizarre scenario was the new US Government’s cavalier treatment of creditor rights in its proposed solution to the crisis at Chrysler. Lenders are being strong-armed in the most overtly political way into capitulating, and all to facilitate a deal where the auto workers’ union suddenly finds itself not just with super-priority over much more senior creditors, but also with a potential equity stake in the new ‘Chrysler Fiat’ entity.

You can then add to this explosive commercial mix a very recent settlement in another US bankruptcy case, where lenders to a major shopping mall group have been strong-armed by an aggressive bankruptcy judge into giving up their individual security rights ‘for the greater good of the lender group’.

The result of all this is a deeply suspicious atmosphere. Bankers are being encouraged (not very gently) to get out and support business recovery. But at the same time they are wondering if the lending model they know and love (and have exploited for decades) is being re-assembled for a curious new world that suddenly seems very like something straight out of Kafka.

It is certainly a strange commercial environment right now in the US. An experienced real estate attorney recently told a journalist enquiring about the state of the property market in Manhattan that when he looks out of his window on Fifth Avenue: ‘I don’t see real estate, I see leverage’ (i.e. debt, not assets). And as a result, his own role in the process had changed: ‘Lawyers are becoming specialists in smoke and mirrors in negotiations,’ he said. ‘It’s not about the art of the possible any more; it’s much more the art of the presentational.’

At a New York conference last week, investment guru Wilbur Ross also had a downbeat take on life. He remarked that the only people seeing signs of the end of the recession were those without any experience of solving business problems. He supported his view with a raft of statistics to prove that talk of a V-shaped recovery was greatly exaggerated. Perhaps the scariest thought was that if the 20m Americans currently officially unemployed or simply no longer seeking work reduce their spending by just $500 a month, it would take $120bn a year out of the US economy.

Nobody really knows where the US economy is heading – although the Chinese will certainly have a rather bigger say in its future than Messrs. Obama, Geithner and Bernanke. But nobody should mistake a stock market rally based on false optimism for a new dawn.

We wanted to know how the rest of the world was being affected by the financial turmoil. So we asked Nick Hood, a partner and insolvency practitioner at accountancy Begbies Traynor, to provide MT with some occasional snapshots from his frequent travels. This is the third offering from our roving contributor (click here to read Nick’s thoughts on Poland's attempts to stave off recession and Austria gearing up for an insolvency rush).

In today's bulletin:

FSA planning for worst recession in 60 years
Psst, wanna buy a car maker? Vauxhall jobs in balance as GM talks stall
Nestle encourages staff to take a long walk
Editor's blog: Recession puts wind in bean sales
Nick Hood: Wall Street worries about crypto-Communism

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