Bombardier sells part of financing portfolio to GE

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Bombardier Inc. said Friday it has reached a deal to sell the bulk of Bombardier Capital's business aircraft market portfolio to General Electric Co. for $475-million.


The Montreal-based transportation giant first announced its intention to withdraw from the financing of business aircraft and reduce assets under management at Bombardier Capital by about $5-billion on Sept. 27, 2002.


In April Bombardier unveiled a plan to raise $800-million in equity and shed the legendary Ski-Doo snowmobile-making unit that launched the company more than 60 years ago.

http://theglobeandmail.com/servlet/story/RTGAM.20030808.wbbomb0808/BNStory/Business/

http://darkerxdarker.tripod.com/

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1. The broken credit market

General Electric is not an industrial company. It's bussiness is finance. Sort of like a bank but a modern one. It's primary activity is the securitization of loans. Modern accounting and the myriad of financial insturments called derivatives allow the booking of 'profits' today on money that will be paid back, suppsedly, many years down the road.


This bussiness requires, more than anything, an ever increasing amount of bussiness, endlessly. Thus GE is always 'buying' other companies receiveables. That is in esseence what they got when they got Bombadiers finance unit. Of course they borrowed the money to buy what amounts to a small mountain of loans. As long as their total book of outstanding loans is growing it is relarively easy to hide or discount those loans which are not being paid back.

GE, nor the entire financial system, can survive a slowdown in credit growth. Essentially much of todays borrowing is being used to pay off old loans. GE is in fact a champion in lending to it's debtors so they can in turn pay it back to GE. I am almost certain that GE in one way or another has a lot of money owed to it by Bombadier, directly or indirectly thru the labyrinth of modern debt derivatives. Such deals are often bailouts but with the striking aspect that to the ouside world it looks like 'growth'.

The entire financial system is geared to keeping up the appearance that loans have not defaulted. Many here have probably gotten notices from their credit card companies to the effect that if they are in trouble with payments the company will gladly allow you to stop paying for 2 years. As long as the books say the loan is good, that's all that counts. The wonders of modern accounting!

Not publicized is the fact that mortgage lenders virtually never foreclose on mortgages in arrears. They let things slide. Months, even years if needs be. Luckily the homeowern can sell and get out from under the loan because easy credit and low rates has the housing market on fire in most areas. At the margin more borrowers afe getting into trouble but the ever increasing amount of mortgage lending is hiding the problem. Total outstanding mortgages have doubled in the last 6 years. Well over a trillion dollars in mortgages will be written this year. With so much money sloshing around of course home prices are rising. And will continue to rise as long as lending increases. (home price inflation is the result on the liquidity, ie. money from easy credit, flooding the market. The financial system always seeks out and reinforces activites where prices are rising.) This inflation of asset prices is what passes for wealth creation today. Why build something or make something when it is so easy just to just wait for assets to inflate because massive amounts of money are being created to inflate them. (Obviously this isn't real economic growth)

Just like GE's securitizations, the system is addicted to ever more lending and credit growth. You'll note that with demand for credit incrreasing relentlessly the price of credit, the interest rate, is low. If one knows about markets one should know that this is not how markets are supposed to work, including the credit markets. High demand should mean a higher price, in this case higher interest rates.

This will end badly, if one believes in markets that is.

[dArKeR]

2. Is this the way money went into the dot.coms?

Because their stock prices kept rising.

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3. liquidity

Stock price inflation, particularly the most speculative areas like the dot coms are a totally different subject. The only similarity is that stocks rose on liquidty, ie money available to buy them, just like homes are.

Stock prices have nothing directly to do with the economy. Stocks rise and fall on liquidity, ie. moeny sloshing around the system to buy them.. When the credit spigot stopped in telecom in early 2001 that kicked a leg from the markets support. Liquidity is failing as we speak. I would be shocked if stocks are much higher than now for a very long time. There isn't enough liquidty, as everyone is saddled with debt.