With such enormous
apparent collateral, telecoms firms could borrow without limit. Between 1996
and 2000 they took on $800 billion in bank debt and issued an additional
$450 billion in bonds
Following telecoms in a close second for debt accumulation, stock inflation and now asset writedowns and steps toward bankruptcy are many of the energy companies.
During 1996-2001, they also raised $800 billion through bank loans and credit facilities and $400 billion through bond issuance. The scary part of that is, much of the debt went to three things.
First, to support massive trading operations (like Enron, Dynegy, El Paso, CMS, Reliant) that have since pissed away the money and closed shop for various reasons.
Second, like in telecoms, billions of dollars of debt was used by these unregulated energy companies to supposedly build broadband fiber optic networks near the beds of old pipelines across the US. Most of which are completely not in use.
Third, still more debt is tucked away in plant/property/equipment or good will buckets of their balance sheets. The top 'power marketing' companies as a group have lost over 80% of their value. Some, like Dynegy, Reliant, Mirant have lost over 95%. Yet, there have been no major good will writedowns across that industry, nor asset writedowns, despite the fact that most of their assets have devalued substantially.
The other thing that's going on, which is even more ominous is bank goodwill writedowns. Today, ING announced a 79% writedown or $14.2 billion. ING, domiciled in Holland, owns American insurance companies Aetna and Equitable. These writedowns came from the US portion of their balance sheet. This is one of many upcoming signs that the insurance industry, the backstop of a lot of the teleco and energy debt bubble, has yet to disclose the enormity of pain its suffering.
Not to be shamelessly self-promotional, but facts like those (and the massive takeouts that senior management of all these firms got for doing nothing more than presiding during a bubble) are why my upcoming book is titled - 'Money for Nothing.'
Nomi
