Posted on: Monday, April 28, 2003
Bankruptcies reflect hard times
By James McNair
Cincinnati Enquirer
A bruising recession, a hollow recovery and the long buildup of war with Iraq have crumbled U.S. businesses and left a record number of Americans in bankruptcy.
From the onset of recession in March 2001 to the onset of war last month, Fortune 500 corporations, mom-and-pop companies and workers alike have found themselves on the list of economic casualties. During that two-year span, seven of the 10 biggest-ever corporate bankruptcies took place, about 3 million bankruptcies were filed and at least 3.4 million jobs were cut.
"During hard times, the weak players incur losses, which impairs their creditworthiness, and the creditors pull the plug," said Ken Mayland, president of ClearView Economics in Cleveland. "You get caught in the squeeze."
Technically, the recession likely ended at the start of 2002, a year in which the U.S. economy resumed its expansion and rang up an estimated 2.4 percent increase in gross domestic product.
Hard times haven't discriminated entirely against the little guys.
Atop the bankruptcy roster last year are names right out of the corporate big leagues — Kmart, United Airlines, US Airways, WorldCom, Conseco, Consolidated Freightways, Budget Group (owner of Budget Rent A Car and Ryder trucks), FAO Schwarz and Rand McNally & Co. McDonald's capped the year of "recovery" by posting a $344 million fourth-quarter net loss, its first money-losing quarter in 37 years as a public company.
Many companies, of course, were victims of circumstances brought about by themselves, or were pummeled by competition or public fears of terrorism. WorldCom was done in by its own financial chicanery and McDonald's is paying for years of dozing off.
Bankruptcy filings compiled by the American Bankruptcy Institute show that individuals fell down the financial drain at a more pronounced rate than businesses did in 2001 and 2002.
More than 3 million people sought bankruptcy protection during those years, up 12.5 percent from the preceding two-year period and nearly double the number of personal filings in 1993-94. Business filings in 2001-02 rose 11 percent, but were down appreciably from the 1980s and early 1990s.
The increase in personal bankruptcies stems largely from the number of people laid off from their jobs. According to the Chicago-based outplacement consulting firm Challenger, Gray & Christmas, 1.96 million job cuts were announced in 2001 — triple the number of 2000. Employers announced 1.47 million more job cuts in 2002.
Mayland said the recovery must generate jobs for it to have any lasting economic effectiveness.
"Who's going to get enthusiastic about spending if the economy is not producing any jobs?" he asked.
