By Morf Morford
Tacoma Daily Index
This is another one of those lists you never want to be on.
From financial services to automobile manufacturers to hardware stores, you never know which industry will be blind-sided by economic twists or shifts in consumer demand.
Or outright mismanagement.
Hindsight is always 20-20 they say, and some of these, especially in the auto industry, were years in the making.
Others, like the collapse of Seattle-based Washington Mutual, happened over a single weekend.
The Biggest Bankruptcies in the U.S.
Here are the 20 biggest bankruptcies in U.S. history, and what triggered them:
Rank Company Year Assets at Bankruptcy Downfall
#1 Lehman Brothers 2008 $691 billion 2008 financial crisis
#2 Washington Mutual 2008 $328 billion 2008 financial crisis
#3 Worldcom Inc. 2002 $104 billion Accounting scandal
#4 GM 2009 $82 billion Massive debt
#5 CIT Group 2009 $71 billion Credit crunch
#6 Pacific Gas & Electric 2019 $71 billion Wildfires
#7 Enron 2001 $66 billion Fraud
#8 Conseco 2002 $61 billion Bad acquisition strategy
#9 MF Global 2011 $41 billion European bonds
#10 Chrysler 2009 $39 billion Massive debt
#11 Thornburg Mortgage 2009 $37 billion Dropped mortgage values
#12 Pacific Gas & Electric 2001 $36 billion Drought
#13 Texaco 1987 $35 billion Contract dispute
#14 FCOA 1988 $34 billion Savings and loan crisis
#15 Refco 2005 $33 billion Accounting fraud
#16 IndyMac Bancorp 2008 $33 billion Mortgage collapse
#17 Global Crossing 2002 $30 billion Plummeting economy
#18 Bank of New England 1991 $30 billion Bad loans
#19 General Growth Prop. 2009 $30 billion Failed acquisitions
#20 Lyondell Chemical 2009 $27 billion Decline in demand
2008-2009 – The Great Recession
The events and consequences relating to the The Great Recession of 2008-09 (loan defaults, illiquidity, and declining asset values) were enough to take down banks like Lehman Brothers and WaMu. The after effects – including a slumping global economy – and an imploding mortgage/real estate market – led to a second wave of bankruptcies for companies such as GM and Chrysler. In total, nine of the 20 biggest bankruptcies on the list occurred in the 2008-2009 span.
A questionable achievement
You may also notice that one company was on the list twice, and this was not an accounting error.
Even in bankruptcies, it seems, we have some superachievers.
Pacific Gas & Electric, a California company that is/was the nation’s largest utility provider, has the dubious distinction of going bankrupt twice in the last 20 years.
The first time, in 2001, resulted from a drought that limited hydro electricity generation, forcing the company to import electricity from outside sources at exorbitant prices.
The second time, wildfires in their customer service area, were, it is alleged, caused by their equipment.
Details can be found here – https://www.visualcapitalist.com/the-20-biggest-bankruptcies-in-u-s-history/?
Too big to fail?
“Too big to fail” was a phrase contributed to our financial vocabulary after 2008-09.
I had the feeling then that it was more wishful thinking than any kind of economic fire wall against catastrophe.
The premise then was that any business, once it hit a certain scale, would take so many other corollary businesses down with it that it would not/could not be allowed to truly fail.
As I said, this sounds more like wishful thinking than any workable economic policy.
And as a retired college level instructor, I have to ask, what have we learned from any of this?
As the German philosopher Friedrich Hegel, put it, “The only thing we learn from history is that we learn nothing from history.”
Our (far fewer) banks are larger (and more interconnected) than ever.
And their debt load is also far larger.
And a strange, but obvious (in hindsight) thing happened; ever increasing real estate prices became socially divisive.
Some saw their equity grow exponentially while others were locked out of the real estate market – and the growing prosperity all too visible around them.
Rising home prices worsened inequality – and priced younger people out of the market. Millions of properties owned by investors have been kept vacant.
And all those billions invested (and in increased vulnerability) in real estate will certainly have their impact in our markets.
It might not be a bubble in the usual sense, but it is not far from it.
Everyone, from hedge funds to developers to individual home owners, is leveraged far beyond any economic safety zone.
And then there is China; with an economic heft enough to swallow multiple industries if not nations.
Former Chinese Premier Wen Jiabao called China’s economy “unstable, unbalanced, uncoordinated and unsustainable” 14 years ago.
And, if anything, it is only more so now.
With a textbook real estate bubble, over-investment, excessive buildup of debt, and a state-owned bank in control of every aspect, multi-billion dollar defaults seem inevitable – if not deliberate.
A slowdown in construction will certainly lead to reduced global demand for raw materials.
And if China dumps cheap surplus goods on the rest of the world, trade tensions are bound to resurface.
Is the collapse of Evergrande one of a kind, or a sign of things to come?
Whatever it turns out to be, it won’t be a pleasant experience for any of us.
And one thing we do know for sure is that “Too big to fail” will not save us.