Global Financial Crisis (Was: Subprime Meltdown)

[ewmayer]

British household debt is highest in history

British household debt is highest in history

British households are now more indebted than those of any other major country in recorded history, it has emerged.

Families in the UK now owe a record 173pc of their incomes in debts, official figures have shown. The ratio of debt to income is higher than any other country in the Group of Seven leading industrialised economies, and is sharply higher than the 129pc of incomes it was five years ago.

The figures, published by the Office for National Statistics as part of its National Accounts, underline the scale of the coming slowdown facing the UK, economists warned yesterday.

Michael Saunders of Citigroup warned that - at 173pc of household incomes - the debt burden is higher even than Japan's when it peaked in 1990, before more than a decade of deflation.

"Not only are we the highest in the G7, we are the highest a G7 country has ever seen," he said.
advertisement

It came as the City warned Britain to prepare itself for a possible recession after the official economic growth rate dropped to the slowest in three years and consumer confidence came close to its lowest since the mid-1970s.

"Possible" recession - dream on, folks. Recession is 100% certain at this point - the only point of debate is just how deep and protracted it will be. I just love the way the talking heads find ever-more creative ways to talk their way around the dreaded "R" word - several examples from remainder of the above article:

Jonathan Loynes, of Capital Economics, said: "With growth already so weak in the first quarter before the full effects of the credit crunch and housing downturn had been felt, the economy looks set to slow significantly further over coming quarters."

"We now expect GDP growth to slow to just 0.5pc in 2009, with a very real chance of a technical recession."

Philip Shaw of Investec said: "Although we take the view that the economy will avoid a recession, our confidence is ebbing."

At this point it's not the "R" word that folks should be fearing - it's the "D" word, as in "Dow and S&P 500 see biggest losses for the month of June since the Great Depression" and "GM touches near 54-year low." Hey, maybe the ever-optimistic eggsperts are "technically correct" - maybe we'll skip the recession and plunge straight into a depression. [Note that the GM share price comparison is *not* adjusted for inflation - in inflation-adjusted terms, the shares are in fact worth far less than they were at their depression-era lows. "But they are keeping their dividend payments".]

The above was written yesterday - and hot off the presses today, for all the "we might avoid recession in the good old U.S. of K." buffoons:

Reuters: U.K. June Manufacturing Contracts Most Since 2001

Bloomberg: U.K. Annual House Prices Declined by Most Since 1992

No "consumer spending" your way out of this one, lads and lasses.



Robert Shiller now shilling for a government bailout

For which Mr. Shedlock rightfully takes him to the metphorical "Shedlock woodshed". The quote is actually one of the reader comments on Mish's article which I thought very on point and well-said:

Shiller's Keynesian Claptrap

It's all he's got. It's all they all have. If they were to suggest anything else but another "stimulus package" then they would be admitting that everything they ever wrote or said or taught or presumed about economics is simply wrong.

Of course, it IS all wrong, but you won't get them to admit it. They are retreating into the bunkers behind a withering covering barrage of stimulus plans, bailout plans, regulatory reforms, etc, which are all intended to prove that none of this is the fault of the Fed, or the Congress, or the economic elites.

The Federal Reserve is approaching its one hundredth birthday. I cannot see how the last one hundred years have been more economically "stable" than the previous one hundred years. It seems quite clear that the Federal Reserve has failed in its central purpose of preventing panics, nor is it able to speed recovery from them. It is not surprising that it now seeks a regulatory role for itself; if you are a failure at one task, it is wise to assume another.

[Update: GM announced "better than expected" sales today - sales down "only" 18% in June, compared to Ford's 28% plunge. That led to some wild price action in the stock [see daily chart below], which jumped from sub-$11 to $12.5 in a matter of minutes after the initial sales announcement. This was followed by several quick cycles of profit taking and further runup to nearly $13, at which point someone apparently pointed out to the herd of Greater Fools that the only reason GM sales weren't at least as dismal as Ford's was because of GM's end-of-month desperation 6-day no-interest-for-6-years sale, which drove up unit sales but caused GM to *lose* thousands of dollars on every vehicle sold. Gosh, maybe higher sales are not so good if you're selling at a loss. Whodathunkit?]

[ewmayer]

Starbucks to close 600 stores

Starbucks (SBUX) can’t catch a break. The coffee retailer says it will close 600 stores, about 8.5% of its 7,100 total stores, an expansion of the 100-store closing target it had previously announced.

"That's a whole latte store closings." Guess that ambitious "Sell fresh-brewed SBUX coffee on eBay" growth initiative ran into some technical snags. Compare that to their nutty dot-com-bubble-like expansion plan under their previous CEO:

[CEO-since-January Howard] Schultz is trying to undo the exuberant expansion effort of his predecessor [Jim] Donald who wanted to triple the number of stores to 40,000 with half in the U.S. and the rest abroad.

In human terms, the store shutterings will result in over 10,000 workers being laid off.


PIMCO's Bill Gross just published an open letter to "next president of the U.S." Obama: he alas uses the not-really-a-word "presumptiveness" [perhaps from hearing all the descriptions of Obama as the "presumptive democratic party nominee"] instead of "presumptuousness" right in his opening:

Thought I would jot down this little note to President Obama.
It’s a little presumptive of course; first that he’ll even be President (he will)
and second that he’d read it (he won’t). But presumptiveness is an inherent
requirement of an investment manager and so I shall proceed.

Dear President Obama:

You have inherited a mess. Your predecessor, fixated on emulating a former Republican icon from a far different economic era, chose to emphasize tax cuts for the rich and excessive consumption for all Americans. He promoted deregulation and free markets when, in fact, the markets and their institutions needed tough love. Over eight years, he failed to put forth a coherent energy policy. He needlessly invaded Iraq and lowered worldwide esteem for this nation as a symbol of freedom and benevolence.

Gross makes good points about the kind of fiscal irresponsibility that got us here, but then proposes to fix the mess by way of - more fiscal irresponsibility, on a grand, New Deal type of scale. What he apparently fails to realize is that it was not the New Deal which finally dragged America out of the Great Depression - it was World War 2 and the massive spike in industrial output [accompanied by significant consumer belt-tightening, on a scale which would appall the profligate modern American consumerBot] which accompanied the war effort. Well, guess what? We're not exactly in a position to fight another WW2, because you see [quoting one of the silly French Knights from Monty Python and the Holy Grail], "We already got one ... yes, it's very nice." Actually, it's not at all nice, but it is very expensive, with a cost [in inflation-adjusted terms] approaching that of the U.S. involvement in WW2. Going deeper into debt is simply not the solution, because to do so requires some poor foreign government-schlub entity to actually buy our increasingly worthless Treasury paper, and they are already very loath to do so. Sorry, Bill, throwing $500 billion [or even $500 trillion] of freshly-printed money is not gonna solve the problem. If it were capable of doing so, Zimbabwe would be an economic superpower. [That's a very interesting WSJ article in that link there, BTW - the German company that's been printing Zimbabwe's boatloads of blank currency paper has a storied history of providing for the currency-printing needs of hyperinflationary regimes.]


And on a much-needed lighter note - in my post of yesterday about the SF bay area retiree featured in a "woe is me" Mercury News article, complete with picture gallery showing the many luxurious material trappings of his "impoverished" lifestyle, I re-read the paper version of the article last night and noticed something amusing about one of the photos, copied below. It's of him and his wife in [what is apparently] their living room. Check out "what's on TV". I swear, you just can't script it any better than this.

[xilman]

Originally Posted by ewmayer

And on a much-needed lighter note - in my post of yesterday about the SF bay area retiree featured in a "woe is me" Mercury News article, complete with picture gallery showing the many luxurious material trappings of his "impoverished" lifestyle, I re-read the paper version of the article last night and noticed something amusing about one of the photos, copied below. It's of him and his wife in [what is apparently] their living room. Check out "what's on TV". I swear, you just can't script it any better than this.

Sorry, but I appear to be missing some cultural reference.

Please explain, with spoiler tags or by PM if you wish, for the benefit of ultramontane barbarians such as myself.

Paul

[ewmayer]

Originally Posted by xilman

Sorry, but I appear to be missing some cultural reference.

Please explain, with spoiler tags or by PM if you wish, for the benefit of ultramontane barbarians such as myself.

It's harder to make out in the JPG version than in the full-sized newspaper copy, but let me know if you can make out what the TV screenshot shows being advertised.

It's a credit card advert.

The "couldn't script it any better" comment relates the "What's on TV" product with the fact that the current economic crisis is a direct result of years and years of reckless credit expansion.

[xilman]

Originally Posted by ewmayer

It's harder to make out in the JPG version than in the full-sized newspaper copy, but let me know if you can make out what the TV screenshot shows being advertised.

Thanks. With the benefit of your spoiler I can just about believe your claim (not that I doubt it's true!) but the JPG isn't really good enough to decide, IMO, without that benefit.


Paul

[Uncwilly]

Is it from the Bank of Hoven?

[ewmayer]

This story is also on page 1 of today's Wall Street Journal, but my online search popped up a link to the coverage of the story in The Australian, so let's go with that - always good to get the International perspective on these things:

Paulson Proposes Governemnt "SWAT Team" to Aid Orderly Unwinding of Failed Financial Institutions

July 04, 2008

TREASURY Secretary Henry Paulson believes the near-collapse of Bear Stearns highlights the need for a formal procedure that allows large, nonbank financial institutions to fail without wreaking havoc on the broader financial markets and the US economy.

Taking aim at the mindset that some financial institutions are too big to fail, Mr Paulson said Wall Street could not expect the Government to step in and lend money or support every time there was a crisis. That perception existed, he said in a speech in London, because the Government was limited in its ability to help unwind the complicated trading relations, debts and obligations of a financial firm, which if unwound all at once could ripple throughout the financial system.

"We need to create a resolution process that ensures the financial system can withstand the failure of a large, complex financial firm," Mr Paulson said.

The bigger and more complex an institution is, the harder it is to unwind quickly. Issues include the trading positions a bank has with other firms and the collateral it has pledged for loans and other assets. In March, the Government stepped in to prevent the bankruptcy of Bear Stearns due to concerns about what impact its failure would have on the broader financial markets and the economy.

"To address the perception that some institutions are too big to fail, we must improve the tools at our disposal for facilitating the orderly failure of a large, complex financial institution," Mr Paulson said.

The details of what such a process might look like are being discussed but among the ideas being floated are establishing a special "SWAT" team within the Government to help dispose of assets, or creating an exchange where assets could be auctioned or sold. Federal Deposit Insurance Corporation chairman Sheila Bair has called for a receivership program that could help wind down troubled investment banks.

Mr Paulson said the bar for having the Government step in to help facilitate an orderly failure should be high, such as a bankruptcy filing.

"Any commitment of government support should be an extraordinary event that requires the engagement of the executive branch," he said.

Development of such a process, whatever form it takes, would require congressional approval and is not expected anytime soon.

"This will be an enormous, complex legislative undertaking," a person familiar with the matter said.

The obvious conclusion is: Paulson surely wouldn't be proposing such a massive undertaking unless he thought further Bear-Stearns-like implosions likely, and he also surely knows that Congress is going to be all over another attempt to backstop such a firm on the U.S. taxpayer dime - Congress would likely insist on approving any future bailouts, and the timescales involved for congress to actually do anything would be much too large to be of practical use. The Fed-orchestrated bailout of Bear may have been extralegal, but it did have the key advantage that since it was done essentially by decree, it happened quickly enough to avert a bankruptcy filing by Bear, which would have been immensely complex and would have had a good chance of causing a market panic due to the emergency unwinding of tens of billions of dollars in trading positions.

But as the article notes, any such reform will likely take years to be put in place - much too late to be of use in the failures which are nearly inevitable in the coming year. Still, as long as any eventual scheme doesn't include language to the effect of "Goldman Sachs is hereby designated as the U.S. Government's Failed-Investment-Bank Liquidator of Choice...", this seems like a sensible proposal. Of course, there have been innumerable proposals which started out sensible and ended up unrecognizable after the legislature and the special interests got through with them, so I suggest not holding your breath here. I'm also extremely leery of any proposal which would have the effect of giving the Treasury or the Fed more power, given how badly they've screwed things up in the past decade, on nearly every front of real importance.


Arson Rate Surges Across U.S. for Foreclosed Homes Lost to Subprime Crisis

The biggest surge of mortgage defaults in seven decades coincides with an increase in blazes in foreclosed properties led by states with the most repossessed homes, according to fire safety officials in Nevada, Massachusetts and Ohio.

"NAR spokesman says, 'Market for Foreclosed Properties is on Fire!'" [Well, not really - but it's the kind of counterfactual spin the NAR is famous for.]


Toll's Senior Unsecured Debt Is Cut to Junk by Moody's on Housing Collapse: Toll Brothers Inc., the largest U.S. luxury homebuilder, had its credit rating cut to junk by Moody's Investors Service as weak demand deepens the housing recession.


And on a more-amusing end-of-week-style note [tomorrow is a holiday here in the U.S.], it appears that Americans aren't *only* using their Government bribe money - erm, I means stimulus check rebate thingies - to pay for gas for the Hummer:

Nation Buys Porn With Stimulus Package

President Bush's economic stimulus package, which appears so far to have been ineffective in stroking the economy to life, is giving an unexpected raise to the porn industry.

From an Adult Internet Market Research Company press release:

An independent market-research firm, AIMRCo (Adult Internet Market Research Company), has discovered that many websites focused on adult or erotic material have experienced an upswing in sales in the recent weeks since checks have appeared in millions of Americans' mailboxes across the country.

According to Kirk Mishkin, Head Research Consultant for AIMRCo, "Many of the sites we surveyed have reported 20-30% growth in membership rates since mid-May when the checks were first sent out, and typically the summer is a slow period for this market."

Haw, haw, you said "20-30% growth in member".

[jasonp]

Originally Posted by ewmayer

Arson Rate Surges Across U.S. for Foreclosed Homes Lost to Subprime Crisis

Not just arson...

[ewmayer]

Freddie, Fannie Plunge on Speculation Firms May Need to Raise $75 Billion: Freddie Mac and Fannie Mae plunged in New York Stock Exchange composite trading on concern the two largest mortgage-finance companies may need to raise more capital.

Saw this comment on the Yahoo Finance message board for Freddie Mac, whose share price has lost over 80% year-over-year and whose solvency is questionable. My reprinting it does not constitute 100% endorsement, but it does echo my personal "we need to stop pretending that selling each other overpriced real estate is economic production, and that going into debt is economic growth" sentiment:

The GSE's^* are set up as hybrid social programs and businesses. I've got nothing against either but as an investment, seeking to eventually return money to shareholders, you have to question the ability of the business to be profitable. In some sense, these groups epitomize modern thinking about the role of business in society and an inability to distinguish production from masturbation. If you are investing here, your hope is that the govt or someone continues to prop up the charity side of the business. Maybe "too big to fail" went the way of the dinosaurs but "too embarassing [sic] to fail" will never go away in the lemming colony.

Capitalism succeeded at improving quality of life because the motivation for profit- by serving the needs of others ( producing stuff ) with as few resources as possible was rewarded. Jobs were created because they were absolutely needed to meet customer demand. And, sure lots mild weather and favorable land donated from the Indians didn't hurt anything.

Once the lemmings have a pot of wealth to redistribute, they demonize this dehumanizing efficiency and start demanding jobs as rights, irrespective of what they create. Instead of honest statement of facts, many of which are insulting compared to what your ego tells you, fantasy takes over. Of course, this is not sustainable but the secular zealots eat up the comforting lie, instead of all that stuff about flattery killing wisdom, original sin, and a talking ass.

It should be interesting to watch how this evolves but I'm not sure how it ranks as an investment. Look for high-value products from a company that can attract employees who want to produce.

[GSE = "government-sponsored enterprise". This means that Fannie Mae and Freddie Mac are privately owned, but receive support from the Federal Government, by way of credit lines with the US Treasury, a monopoly [or more precisely, a non-competitive share-the-pie duopoly] on the conforming-loan market, and implicit U.S. government guarantee of their $3 trillion-plus loan portfolios.]

GM Says Hummer Only U.S. Brand Under `Strategic Review' for Sale, Shutdown: General Motors Corp. said Hummer is the only one of its eight U.S. brands being formally reviewed for a possible sale or shutdown as the automaker's domestic market share falls to an 83-year low.

"Strategic Review" ... a.k.a. "fiddling while Detroit burns". I have this mental picture of GM execs in their corporate Führerbunker, moving the brightly=colored miniature pennants and plastic car pieces around the Fantasy Automotive Industry War board as the company collapses around them due to their greed and shortsightedness. It would be amusing if there weren't so many real people's livelihoods on the line [not all of which are of the overpriced-underskilled-high-school-dropout-who-joined-the-UAW variety], and if a massive taxpayer bailout weren't the likely endgame scenario. As one Wall Street Journal analyst perspicaciously noted last week, the only reason GM is suddenly blathering about how great and revolutionary and eco-friendly their Chevy Volt concept car is going to be is not because it's a viable technology which they can actually sell at a competitive price, but rather because it allows them to position themselves as "The Future of American Green Auto Tech", which is a requirement to make the eventual taxpayer bailout palatable to the U.S. government. Nobody wants to bail out "Gas Guzzlers R Us", but "The Future of American Green Auto Tech" - well, that is an entirely different proposition.


U.S. Government Economic Statistics Funny-Numbering Update: Interesting article on e-commerce stats from Business Week:

Businessweek: How Strong Is the U.S. Consumer?: The way America measures Web commerce may be painting an overly rosy picture of the economy

July 3, 2008
by Michael Mandel

High gas prices, falling home prices, rising unemployment: Nothing seems to stop the U.S. consumer from spending. Retail sales—even after taking out gas stations and fuel dealers—were up 1.3% in the first quarter over the previous year, with a similar gain in April and May.

One source of consumer strength has been e-commerce. Online spending accounted for roughly 36% of the increase in nonenergy retail sales in the first quarter, compared with a year earlier. Without Net shopping, retail sales would look much weaker.

Yet before we toast U.S. consumer resilience, there's a worry. In a note on its Web site, the Census Bureau, which collects the retail sales data, reports: "Sales made to a customer in a foreign country through a U.S. web site are included in the estimates."

Whoa! That means a resident of Paris, Hong Kong, or Riyadh can make a purchase on a U.S. e-commerce site (say, Amazon.com or Apple.com) and it may show up in the U.S. retail sales data. That's not a problem for the retailers—they get their money anyway—but it raises serious questions about how we're assessing U.S. consumer spending.

In fact, the current growth in retail sales, to some degree, represents the strength of foreign buying rather than that of the U.S. consumer. The combination of globalization and the Internet is outrunning the statistical system's ability to track the domestic economy.

[cheesehead]

Originally Posted by ewmayer

U.S. Government Economic Statistics Funny-Numbering Update: Interesting article on e-commerce stats from Business Week:

Businessweek: How Strong Is the U.S. Consumer?: The way America measures Web commerce may be painting an overly rosy picture of the economy

(* sigh *) This isn't really a matter of funny-numbering; it's a matter of forgetting-what-the-words-mean IMO.

Originally Posted by Michael Mandel, in Businessweek

Nothing seems to stop the U.S. consumer from spending.

Nothing wrong yet -- grammatically or spelling-wise, that is.

Retail sales

Note, Mr. Mandel, that that is "retail sales", not "consumer purchases". While closely connected, they are not synonyms, especially if you prefix each phrase with "U.S."

were up 1.3% in the first quarter over the previous year, with a similar gain in April and May.

One source of consumer strength

Remember, Mr. Mandel, that you have not yet presented us a measure of (U.S.) consumer strength, only a measure of (U.S.) retail sales strength.

Online spending accounted for roughly 36% of the increase in nonenergy retail sales in the first quarter, compared with a year earlier.

Okay, that illustrates part of the close association between consumer spending and retail sales. But we can not presume "U.S. online spending" unless the measure actually separates U.S. from non-U.S. spenders.

"Online" refers to the cyberworld, not the geographic United States.

Also, the presumption that "retail sales" means "U.S. retail sales" starts crumbling when part of those sales are online. How many at-first-glance-U.S. online sites actually are for a non-U.S. retailer?

Without Net shopping, retail sales would look much weaker.

How much weaker would U.S. retailers' sales look if non-U.S. were strained out?

Yet before we toast U.S. consumer resilience, there's a worry. In a note on its Web site, the Census Bureau, which collects the retail sales data, reports: "Sales made to a customer in a foreign country through a U.S. web site are included in the estimates."

Correct: they are retail sales estimates, not domestic consumer spending estimates. What's the worry?

Whoa! That means a resident of Paris, Hong Kong, or Riyadh can make a purchase on a U.S. e-commerce site (say, Amazon.com or Apple.com) and it may show up in the U.S. retail sales data.

Correct: they are U.S. retail sales data, not U.S. consumer spending data.

Whose horse needs whoaing here?

That's not a problem for the retailers

Of course not. The Census Bureau knows the differences between seller and buyer, and between retailer and consumer. You, Mr. Mandel, seem a bit confused about these.

it raises serious questions about how we

What do you mean we, "qui no sabe" (http://www.write101.com/kemosabe.htm)?

're assessing U.S. consumer spending.

In fact, the current growth in retail sales, to some degree, represents the strength of foreign buying rather than that of the U.S. consumer.

So?

The combination of globalization and the Internet is outrunning the statistical system's ability to track the domestic economy.

That's not all that's being outrun.

[ewmayer]

AP | IndyMac stops new loans, to cut work force by half

LOS ANGELES (AP) -- Mortgage lender IndyMac Bancorp Inc., struggling to raise capital to stay in business, said Monday it has stopped accepting new loan submissions in its main mortgage lending divisions and plans to slash 3,800 jobs, or more than half of its work force.

The move comes as the lender works with U.S. banking regulators, who have determined the company is no longer well capitalized and have asked it to submit a new business plan designed to improve its financial footing, IndyMac Chairman and Chief Executive Michael W. Perry said in a letter to shareholders.

I strongly suspect that "Undercapitalized" = Insolvent. IndyMac's specialty was the Alt-A or so-called "liar loans", but the rot is spreading into "prime" loans as well - one would expect the subprime and Alt-A-heavy portfolios to be the first to blow, and that is what is happening here. Mish Shedlock predicts that Washington Mutual and Wachovia [among others] will soon find themselves [or better, reveal themselves to be] in a similar state, and has been tracking the dramatic deterioration in one apparently-typical WaMu Alt-A mortgage pool for months to vividly illustrate his point..


Job outlook continues to worsen: The Employment Trends Index points to continued and steeper job losses and rising unemployment ahead.

NEW YORK (CNNMoney.com) -- The outlook for the nation's battered labor market continues to worsen, according to a leading business research organization.

The Conference Board's Employment Trends Index fell in June. The index, which combines eight separate readings that track the job market, has now declined in 11 of the past 12 months.

The gauge offers a reliable window on employment: Over the past 35 years, a negative reading has always predicted job losses and rising unemployment up to six months into the future.

"Most leading indicators of employment point to an even sharper deterioration in the labor market in the months ahead," said Gad Levanon, senior economist at the Conference Board. "The steep decline of the employment trends index in recent months, and the fact that its weakness is spread throughout all of its components, does not leave much room for optimism."

The Conference Board released the index publicly for the first time only a month ago, but the group has computed it going back decades.

The last sentence in the above snippet is ambiguous - have they in fact been computing it for decades and only started releasing it, or have they only recently started computing it, and done so retroactively? In any case, hopefully this will provide a more reliable reading on the job market than the fudged-beyond-all-recognition "official" BLS numbers.


Office Depot 2Q same-store sales drop 10 percent

10% from one quarter to the next - that is a massive drop. Now I doubt office supplies are considered "discretionary spending", but for strapped consumers they are surely more discretionary than food and fuel. A significant portion of Office Depot's sales are to small and mid-size businesses - it would have been interesting to see whether those cut back spending at a similar rate as individual retail customers.


In the other side of the pond - specifically the UK - things are no better on the retail sales front, as The Independent reports:

Seven days that shook the British high street

By Sean O'Grady
Saturday, 5 July 2008

It was a week that most retailers would probably prefer to forget – seven days that shook the high street. From the grandest names to the most minor, the news has been uniformly grim.

Yesterday, the mighty John Lewis reported that its sales are running 9 per cent down on last year. Marks & Spencer, still Britain's leading clothes retailer, warned on Wednesday of sharply lower sales and profits, and promptly saw a quarter of its stock-market value wiped out. Last week also witnessed the bankruptcy of ScS, a medium-size furniture retailer, and ProCook, a chain of 39 cookery shops. The Society of Motor Manufacturers and Traders says private sales of new cars are almost 12 per cent down on last year.

Bradford & Bingley narrowly avoided the fate of Northern Rock on Thursday evening, when its efforts to raise fresh capital fell through for the second time and yet another rescue package had to be cobbled together by the authorities.

Taylor Woodrow, the country's largest housebuilding group, also faces an uncertain future, unable to raise the capital it needs and in danger of breaking its agreements with its bankers.