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Throwing Good Money After Bad
-- December 4, 2001
Safe Money Report, in cooperation with our sister company Weiss Ratings, keeps a close eye on the strength and safety of banks. Weiss Ratings (http://www.weissratings.com) publishes quarterly ratings on nearly every bank in the US. And this newsletter quickly alerts subscribers topossible problems. In fact, in our latest Flash Alert (available to subscribers only in the Current Issues & Archives section), we just listed the largest US banks that we feel are on the verge of collapse.
It's precisely actions like lending money to already-debt laden companies like Enron that make us cringe. And it's why we've warned our subscribers about the potential for a banking crisis in 2002. Banks have enough problems dealing with the billions of dollars in loan defaults that resulted from thousands of bankruptcies over the past year. Yet they keep on loaning to these companies even after they've gone belly-up! In most cases, it's because these banks just can't afford to let their debtors fail.
JP Morgan Chase and Citigroup had a huge stake in the Enron-Dynegy merger and lost out big time when the deal fell through. Now, they're trying to salvage anything they can. But this is a risky prospect. Enron is being sued by Dynegy for the same assets that the banks took as collateral for the loan. If they lose, they could be out the entire $1.5 BILLION -- PLUS all the money they've already dumped into this deal.
And this is the case throughout the banking industry. As more and more companies fail, banks try to protect their investments by throwing good money after bad. But this practice will only be able to continue for so long before banks themselves become the failing companies.
Enron Receives Financing Deal