A wave of bankruptcies… short or long?

There is no talk today in the world that is more noisy than talking about bankruptcy and its obsession. The recent collapse of three American banks was a matter of concern, not in terms of capacity and spread, but in terms of the possibility of repeating the 2008 scenarios, and what the world required at that time of great support measures to lift the global economy from The clutches of a long, terrifying depression. These fears led the US government and many governments around the world to pump billions of money to buy bad assets and supply banks with a stream of cash flows that would enable them to continue, and many considerations, restrictions and theories were disrupted for that, and completely new explanations emerged, including the theory that these giant institutions It is too big to fail, and this explanation is purely social, and has nothing to do with the empiricism of the economy, nor in terms of the freedom of markets, but letting markets operate according to their freedom is not always a rational social behavior.
Silicon Valley Bank SVB, which declared its inability to meet customer withdrawals, was known to a wide audience for its specialization in financing startups until the end of 2022. It had assets worth $ 209 billion and deposits amounting to 175.4 billion. SVB was not just a bank for startups backed by venture capital. Rather, it was the largest bank, with a stake of more than 50 percent in venture capital firms.
Therefore, there are many big questions about this relationship, and whether the high debts of subsidized and emerging companies led the bank to bankruptcy, especially with the rise in interest rates, and whether such a scenario would stop the plan to raise interest rates, the answer is not easy as long as the debate on the reasons behind this is not resolved. The wave, which Al-Eqtisadiah monitored some of its manifestations in an extensive report on the bankruptcy of German companies, as the number of cases in Germany increased for the first time since the global financial crisis of 2009, which raises concerns about this wave with the increase in the number of companies heavily indebted. And the Federal Statistical Office recently announced that the competent courts recorded 14,590 bankruptcies of companies in 2022, an increase of 4.3 percent, compared to 2021.
By examining, reading and analyzing these numbers, there are different theories about the increase in the number of cases, and the sharply competitive economic environment remains the most important of these explanations. Changes in the business environment as a result of entering new markets or restructuring the economy can also lead to cases of bankruptcy due to the accumulation of errors and the difficulties of changing production lines easily to keep pace with new transformations, in addition to the rapid loss of capital, as happened with the American Bank and the inability to secure new capital. High debts are among the reasons, and for this reason liquidity and solvency indicators are essential elements in determining financial problems and the company’s ability to pay obligations and debts.
It is scientifically stable that bankruptcy cannot be dealt with by postponing it, meaning that scheduling debt payment postponement procedures will not work as long as the real problems underlying this situation are not resolved, which are related to the sources and speed of cash flows at the same time. As for German companies, one of the most important reasons for raising cases is the suspension of submitting the insolvency application in whole or in part during the period from March 2020 to May 2021, which prevented this wave from occurring during the Corona pandemic, and experts expected an increase in cases between companies after the expiry of these exceptions.
Therefore, some interpret what is happening globally in this direction as a result of these procedures of postponing bankruptcy, and not because it is a wave similar to what happened in 2008. In other words, the global economic structure is coherent, and the occurrence of cases is expected and many international companies and banks have hedged for such The case, but the consideration of these companies as bankrupt has been postponed due to the measures that were taken with the spread of the Corona virus, and this indicates that bankruptcies in German companies actually declined last January by 3.2 percent, compared to the previous month.
Apart from the special explanations regarding the postponement of this situation as a result of Corona’s procedures, one of the reasons behind the increase in the number of companies declaring bankruptcy is the changes taking place in the global economy, including the decline in global foreign trade as a result of the war, supply chain problems and high prices, and these reasons must be taken into consideration. Consideration, as liquidity levels and rapid cash flows fluctuate. The German economy witnessed a clear decline in meat products, and exports and imports shrank. The tightening of import regulations in China was the biggest reason for these declines.
In contrast to the decline in this German industry, we notice the American electric car manufacturer Tesla’s efforts to increase the production capacity of its giant factory near the German capital, in which the production capacity is scheduled to reach 500,000 cars annually, and the factory currently includes about ten thousand workers, and it is expected to reach 12 A thousand workers are in the first stage of expansions, and this provides different evidence about the health of the markets, but on the other hand there are current economic changes and transformations that have underlying reasons in the ability of companies to obtain financing or increase cash flows and their speed to meet changes in interest rates, and thus bankruptcy of companies, and for this it must Consider all of these factors when gauging the risks of this matter and before making investment decisions.
Finally, we do not forget that there are important factors that helped these companies declare bankruptcy, which is that Germany is facing the threat of an economic and social crisis. It plans to spend 200 billion euros to counter rising energy prices, at a time when inflation in the country is at its highest level in a quarter of a century. As a result of these conditions, the German government announced that German companies and families should rationalize gas consumption more, at a time when the country is in the midst of the energy crisis that Europe is going through, and it may turn into an economic and social crisis as well. Germany must recover all of its strength and economic well-being, as an economy that ranks first in the white continent and fourth in the world, to find solutions to the imbalance that hit indicators of growth, revenues and profits of local companies in order for them to rise from the state of bankruptcy they are suffering from.