One in three businesses is losing money and the road to Britain's economic recovery will be 'long and winding', the Bank of England warned yesterday.
Experts dubbed these firms 'zombie businesses' which have survived only because interest rates are at an historic low and the banks are reluctant to pull the plug on them.
also see: Triple-Dip - But Jobs Up »
Much of this is down to businesses being handed an irresponsible amount of debt. Corporate buyouts / Management buyouts are always funded by the banks (about 75% to 80% of purchase price is debt). It doesn't matter so much to the investment banks, because this debt gets sold off and ends up the responsibility of pension funds. Lots of these pension funds are going to fail to offer any reasonable return due to so many failed investments. These big 'investments' rarely benefit the businesses....but these investments are irresistible to executives who can earn fortunes while being paid by the debt. Banks earn fortunes from fees,interest payments and so continue to encourage this business which in many cases leads to the collapse of businesses. It is therefore no wonder there are so many businesses losing money......this is what happens if you are irresponsible with debt. Im afraid to say the Bank of England is in a big part responsible. Businesses are suffering due to debt more than they are the recession. But while we have the recession bankers will always have an excuse to tell the press. The problem is while businesses are stuck with this debt, the longer we will stay in recession.
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