IndyMac
Our first company is IndyMac or Independent National Mortgage Corporation. IndyMac is an American Mortgage Bank which situated mostly in Los Angeles area. For IndyMac Bank, which was the eighth largest Mortgage Bank in the USA everything was perfect and easy before the bankruptcy.
What are the reasons?
IndyMac Bank's specialized loan type was Alternative A-paper which can be given to borrowers who doesn't have good credit rates or income to debt ratio. Although, it looks risky, this was not the reason IndyMac's failure. Mostly, when the borrower couldn't pay the debt, IndyMac became an owner of the house and usually sold the house more than the debt and made profit. (Specially when US real estate market rocked in the beginning of 2000's) Easy peasy. So what happened? Authorities say that after the house prices fall in USA, IndyMac Bank couldn't make enough profits to coperate. Personally, I believe that this is not the only reason. Because, usually, the mortgage banks were selling these loan's to investors. So, actually borrower was paying not the bank, to the investor. Yet, after house prices fall, there were not so many investors who want to purchase it anymore and cash flow from investors decreased. In other words, external crisis -Mortgage and Real-estate- caused IndyMac more than $900 million.
Before bankruptcy announcements, Moody's and S&P 500 downed credits of IndyMac and just in 2 years, IndyMac Stock price lost %95 of it's value. Therefore, the crisis came with loud -not silent- yet still while the IndyMac bankrupted with $19 billion deposits and Government could insure %90 of it. What happened the rest %10 or in other words $1,9 million. Just lost.
General Motors
The symbolic Detroit based American car-maker -General Motors- which almost bankrupted before the actual bankruptcy and took almost $50 billion federal aid filled Chapter 11 at June 2009. After Chrysler, Detroit car-maker industry lived another failure which cost more than twenty thousand job cuts.
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What are the reasons?
General Motors or shortly GM was holding %50 of US Market share and now is holding less than %25. Their symbolic -American- style cars are not the most popular in the USA. We can not just explain this because of the recession or something. I strongly believe that; They couldn't change quickly. To be honest, car market is not so changeable yet GM couldn't follow the trends while fighting against bankruptcy. It took them years to produce big cars when big cars were popular (they reached the success with it anyway) and it took them years to produce small cars.
My another theory is; Although They mostly focused on US Market, they could't really understand the American people's taste. Anyway, my theories are true or not there is only one truth that they stopped making profits. Why? Good question. When you are selling $1000 worth goods yet your cost is $1200. So, what you will do? Probably,cut the cost right? Buy less raw material etc. But what if your cost is fix and you can not cut it so easy? You will lose money. Now, change this $1000 in to $1 billion. Yes, you got the General Motors problem. And of course, we can not expect from GM to compete with other Car-Makers. Because GM has been fighting against bankruptcy for almost 2 years. On the other hand, GM is saved by government and one of the most important bankruptcy in US History didn't resulted as worse as expected.
All in all, these two bankruptcies are one of the largest and important bankruptcies in the US and World history. IndyMac bankrupted by mostly external reasons -Mortgage Crisis, Real-Estate Corruption- etc. whereas GM bankrupted because they couldn't follow the trend and they couldn't be flexible in the market like their competitors. I tried to explain reasons of bankruptcies basically and simply but if you have any question or comment, don't hesitate to share it with us.
Part 2 will be on our blog soon.
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