From Briefing.com...
"Credit insurer, Euler Hermes (EUHMF.PK), has canceled insurance protection for suppliers of General Motors (GM) and Ford (F), two people familiar with the matter told Dow Jones Newswires Monday. "
"According to the sources, deliveries from the suppliers weren't covered by insurance in the last two weeks, as the risk of the car makers failing to pay them for deliveries is too high. Today, up to two-thirds of auto parts aren't produced by the car maker itself, but by suppliers, who must take on considerable credits for that. The cancellation of the insurance protection puts suppliers under additional pressure, making it more difficult for them to obtain loans. The suppliers might start demanding advance payment for their deliveries or set short-term payment deadlines."
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Credit, in its literal meaning (faith, from the Latin credito), is the lifeblood of the economy. As the institutions with cash and deliverable credit hedge against borrower's default risk by not making the loans and issuing the insurance they have done heretofore, they effectively strangle those companies in desperate need of credit or cash. And thus self-create the very effect they seek to avoid: business diverts elsewhere, defaults begin, and the devolution gathers force.
Not good.
