Rolling US Economy Into The Shitbin Thread

B) Company makes agreement with supply chain finance, supply chain finance pays supplier $9800 on day 10. Company now owes supply chain financer $10,000. Company has that cash on its balance sheet until it pays.

What has changed? Does the supply chain financer give the company longer than 90 days to pay?

in one of the articles I read, companies are not including this properly as "debt" ... or categorizing it as longer-term vs. shorter-term debt? ...

here it is:
https://www.behindthebalancesheet.com/blog-1/greensill-softbank-and-cooking-the-books

I'll read, but I'm aware of the argument that they're not characterizing it as debt. But my question is: wouldn't an account payable owed directly to the supplier also not be counted as debt? That's why I asked what's changed. Will take a look at the link though.

Ok, so sounds like it is that it stretches the time without reclassifying it as debt:

"It’s something the accounting bodies are looking into. Last October, the Big Four accountancy firms wrote to the US Financial Accounting Standards Board pointing out that whereas typical payment terms with suppliers historically might have been 60 to 90 days, some entities today seek to negotiate payment terms with suppliers of up to 180, 210, or even 364 days, using supply chain finance as the bridge. Indeed, many companies using reverse factoring fail to disclose this, and those that do often have a single line buried deep in the notes, often without quantification."

I.e. once you get into the territory of having six, nine, or twelve months to pay, it no longer looks like an account payable and looks more like debt, but you don't have to call it debt, and you get to keep the cash for longer. Maybe the line between accounts payable/debt is arbitrary to begin with but I see how that can stretch things within the arbitrary framework.

More fallout:

https://www.reuters.com/article/uk-britain-greensill-germany/from-black-forest-to-cologne-german-towns-fear-greensill-losses-idUSKBN2B30HR

Still probably on the small side contagion-wise, but what if those towns in turn have municipal bondholders whom they now can't pay?

Also maybe more appropriate for a european than a US economy thread, it occurs to me, all of this

Maybe the line between accounts payable/debt is arbitrary to begin with but I see how that can stretch things within the arbitrary framework.

I think it's something that is really clear cut, but there is a whole industry that gets paid to muddy the waters and find loopholes that could be argued as a reasonable position without getting any lawyer, accountant, or other person with professional ethics requirements into major shit.

i imagine you also have to take continuing education and have to take units of ethics where they instill in you why it could be very very very bad if you violate those ethics requirements ... it's like watching those awful car crash movies in driver's ed

oh yeah for sure, I'm cynical as hell about auditors

Yeah, this Greensill thing definitely reminds me of Enron in the making numbers look better by assigning them to different entities that are basically the same company

matt levine basically said the accounts payable thing was just clever accounting

Supply chain finance is arguably preferable to other ways of borrowing the money—like having a revolving credit agreement—because it doesn’t show up on the big company’s balance sheet as debt; it shows up as “accounts payable.” When the big company owes the money to the supplier, it’s an account payable; when Greensill pays off the supplier, it buys the receivable, and the big company still owes an account payable to Greensill.

A basic dumb rule of thumb for big companies is that investors (1) do not like debt (ooh, scary debt), but (2) love accounts payable (ooh, you’re so powerful and so efficient with your cash, you can get your suppliers to wait a long time for payment so you can hang on to your cash). So transforming “debt” into “accounts payable” is a good accounting trick; it makes a company look more valuable, without actually changing anything of substance.

That makes sense if Greensill was letting companies stretch out repayment times or accrue larger amounts of accounts payable than they otherwise would have. Then it's hard to distinguish from short-term debt.

Greensill was letting companies stretch out repayment times or accrue larger amounts of accounts payable than they otherwise would have.

well yeah, that's what it sounds like was the case with Gupta

FWIW bigwigs at Goldman and other IBs are saying this is "contained" "microproblem" etc. May very well be the case. But I always remember stuff like this when I hear that:

https://www.cnbc.com/id/19363728

Here's a US angle -- WV Governor Jim Justice's coal company is in deep shit due to reliance on Greensill financing

https://www.wsj.com/articles/bluestone-resources-sues-greensill-capital-for-fraud-11615907626

WV Governor Jim Justice's coal company is just the most hearbreaking noun phrase

the financing arrangement described in the complaint seems absolutely insane, still trying to get my mind around it tbh

must be 4/4 #onethread

I'm not completely sure I understand this, but it sounds like Greensill was both (1) paying Bluestone's (the WV gov's coal company) suppliers (supply chain finance) and (2) purchasing Bluestone's "future receivables," i.e. basically just pumping cash into Bluestone left and right and passing the IOUs along to Credit Suisse and GAM. Greensill just kept rolling over these obligations until it couldn't anymore (because CS turned off the capital spigot). Now Bluestone is complaining that it can't survive without Greensill's injections, and Greensill is in insolvency. So Bluestone is fucked, and I'm guessing some of its suppliers will get hurt as well.

Even crazier, Greensill arranged business between Bluestone and Sanjeev Gupta's GFG group -- Greensill's main client, who was responsible for the largest part of Greensill's bad loans that it sold off -- and had Bluestone start selling to GFG, with GFG getting "extended payment terms" (that it still failed to meet).

Of course everyone involved, including Jim Justice, is a complete POS. Bluestone owes $3 million in penalties for not complying with a water pollution settlement, just reported a few days ago.

https://www.propublica.org/article/this-billionaire-governors-coal-companies-owe-millions-more-in-environmental-fines

this story doesn't make any sense, it needs a Redwall

🤮

Hillbilly Eligy guy JD Vance, who advised the Mercers about fundraising for Parler AFTER the deadly insurrection, is running for Senate. There's already a super PAC for him that's got tons of cash from the Mercers and Peter Thiel. https://t.co/v59PsqWPk1

— Alex Kotch (@alexkotch) March 16, 2021

uhh wrong thread sorry

at least it doesn't involve Yellowcake (that we know of)

xp

lol I bet we could get from JD Vance's PAC to Greensill in like two steps if we tried.

this story doesn't make any sense, it needs a Redwall

― map ca. 1890 (map), Tuesday, March 16, 2021 12:51 PM (twenty-two minutes ago) bookmarkflaglink

I mean, IIRC, Greensill made an arrangement with Bluestone where it said "We will pay your suppliers for you and you can pay us later" and AT THE SAME TIME also said "We will advance you money on coal you don't have a contract to sell yet." And of course didn't give a shit if that made any sense because it was just passing off the loans onto Credit Suisse. And Credit Suisse in turn passed this off on a bunch of pension funds claiming it was all "fully insured" when it actually wasn't.

I don't think this is 2007/08-sized, but it def has a similar flavor.

*IIUC

I expected the Hillbilly Elegy guy to look more like the rapist SEAL Missouri governor and less like an adult baby tbh

yeah he looks like he'd be the jared kushneresque failson of a tobacco exec or something

adult baby is quite a common scots-irish genotype #calipers

You mean phenotype

he looks a little like mike lee. chubby little chins

xp. oh yeah, phenotype caused by genotype.

that the sort of NPR chin stroking liberal op ed set took (takes?) this guy seriously is nearly as galling to me as ‘intellectual’ conservative MAGA apologia

and over the long haul may be more damaging

I expected the Hillbilly Elegy guy to look more like the rapist SEAL Missouri governor and less like an adult baby tbh

that book was fucking awful, and even its polical-economic antipode (Neel's 'Hinterland') is racist trash afaic.

A much more informative (and funnier) Matt Levine column on Greensill today, with details from the Bluestone complaint. Good line on the payday loans analogy: "Greensill basically gave Bluestone a payday loan for a job Bluestone hadn’t yet applied for."

Yeah, that is pretty wild.

usa! usa!

Wealth concentration at the very top now exceeds the peak of the Gilded Age pic.twitter.com/ElmqWUXp13

— Gabriel Zucman (@gabriel_zucman) July 6, 2021

A 1972 MIT study predicted that rapid economic growth would lead to societal collapse in the mid 21st century. A new paper shows we’re unfortunately right on schedule.

https://www.vice.com/en/article/z3xw3x/new-research-vindicates-1972-mit-prediction-that-society-will-collapse-soon

I’m not sure people appreciate just how quickly rents are rising right now. There was a lot of chatter about rent drops during the early pandemic, but look at THIS.

+14% (!!) since January!@lszini and I wrote some words this week about why this is happening.

(1) pic.twitter.com/IIaaepbnwW

— Rob Warnock (@robnock_) August 27, 2021

good thread

What's going on with global supply chains? (aka "why are we running out of everthing," "why is shipping so slow," "why are things more expensive"). A link roundup thread:

— Matthew Hockenberry (@hockendougal) September 16, 2021

That is a good thread. The (admittedly luxury brand) deodorant that I've been wearing for the past decade is out of stock everywhere in the US due to shipping delays, and on eBay, sellers from Hong Kong are marking it up 200%, in some cases.

It's going to be a bit of an adjustment getting used to a new scent on my body, because I can't wait another month until those delays clear up.

small potatoes, of course, but yknow.

Just stop wearing deodorant that stuff is useless

Maybe for you, stinky

maybe if everyone stops wearing deodorant the proletariat will rise and seize the means of production and expropriate all private property

silby jobs over here

that's a good thread but i realllly would've preferred to not read something that dense on twitter

Antiperspirant changed my life.

I will not use the stuff, way too many weird chemicals that make me feel squeamish. I'm not an unhairy guy, but the deodorant i've been using really works for me.

would you say it hirsutes you