what is cooked is the "stock" of his business, or the capitalized value of his income.
he can't operate his business without his LOC. He uses his cash flow from people paying their "juice" to pay the interest on his outstanding balance. when extra cash came in he'd pay down his line. when people paid off their loans he'd pay off his. but he can't operate without his LOC, and he can't go to his other two banks and ask them to take up the slack. if he tells them what Bank A did, they'll think he his leprosy.
he doesn't yet know how tough the bank will be on making him payoff his line. they asked him to give them a proposal. but he doesn't think they will give him a year. regardless, he can't operate his business. he hasn't talked to a bankruptcy lawyer yet, but he thinks all he can do is file bankruptcy and wind things down. he has more than enough in the market to pay off the bank, but that will deplete his savings. he still has millions in equity and he'll end up okay, but it may take a few years. in the meantime, he's not sure what he'll do for cash flow.
if i was running a business, i would want as little leverage as possible...maybe now the small business is highly leveraged and many will go BK once they are "stress-tested" in the real world.
I agree on the leverage, but as you say I don't think many are run that way anymore.
the thing about Detroit is it's the most farked up big city in America (economywise). i think in order for that kind of stuff to be popping up like shrooms all over America, it will take another couple of years, and even then it will take a very bearish scenario.
detroit has been f*cked up for decades, but the suburbs were very prosperous until post-9/11. the auto company cutbacks and manufacturing outsourcing have killed the area. my own opinion, worth the cyberspace it is written in, is that as the RE bubble bursts, it's going to happen everywhere. no place will be immune...the economics of the different areas are too interrelated.
will it take another couple of years? I doubt it. reading Russ' blog makes me think it's happening right now.
if such a scenario unfolds, we may see the "fabric of our society" tested.
there's no question about that. |
