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FTX customers could get $9B shortfall claim payout by mid-2024
A proposed settlement could see creditors receive a shortfall claim of $8.9 billion for FTX.com and $166 million for FTX US.
Customers…
A proposed settlement could see creditors receive a shortfall claim of $8.9 billion for FTX.com and $166 million for FTX US.
Customers of bankrupt crypto exchange FTX and FTX US could see over 90% of assets returned to them by the end of the second quarter of 2024 after a proposed settlement was reached between FTX creditors and debtors.
On Oct. 17, FTX debtors said they reached a “major milestone” in their Chapter 11 case after “extensive discussions” with the unsecured creditors' committee, a committee of non-US customers, and class action plaintiffs regarding customer property disputes.
FTX ebtors filed a notice of the proposed settlement to a Delaware-based United States Bankruptcy Court on Oct. 16 (for information purposes). However, they need to submit an official filing by Dec. 16 seeking the court’s approval.
(1/4) The FTX Debtors have announced another major milestone in their chapter 11 cases.
— FTX (@FTX_Official) October 17, 2023
Part of the amended plan consists of the “Shortfall Claim,” in which FTX debtors estimates that customers of FTX.com and FTX US would collectively receive 90% of assets available for distribution.
The Shortfall Claim is estimated to be approximately $8.9 billion for FTX.com and $166 million for FTX US. If approved by the Bankruptcy Court, FTX expects these funds to be disbursed by the end of the second quarter of 2024.
John. J. Ray III, CEO and chief restructuring officer of the FTX, was pleased with the terms of the settlement:
"Together, starting in the most challenging financial disaster I have seen, the debtors and their creditors have created enormous value from a situation that easily could have been a near-total loss for customers.”
The amended plan involves FTX dividing the assets into three pools — assets segregated for the benefit of FTX.com customers, U.S. customers and a general pool of other assets. However, only the first two groups are included in the Shortfall Claim.
The Plan Term Sheet is a compromise between the Committee, the Debtors, the ad hoc customer committee and other representatives on a range of issues that balance the rights of customer and non-customer creditors across the U.S. and foreign debtors.
— Official Committee of Unsecured Creditors of FTX (@FTX_Committee) October 17, 2023
FTX debtors however anticipate that customers of both exchanges will not be paid in full and that FTX.com would likely see a greater percentage of losses.
FTX customer clawbacks
Meanwhile, observers noted a part of the proposed plan sees to it that customers that withdrew over $250,000 from the exchange within nine days of bankruptcy would have their claim reduced by 15% of the amount.
However, claims under $250,000 wouldn't be subject to a reduction, FTX debtors explained:
"Eligible customers that have a preference settlement amount of less than $250,000 during the nine-day period would be able to accept the settlement without any reduction of claim or payment."
Related: Caroline Ellison wanted to step down but feared a bank run on FTX
However, as part of the amended plan, FTX may exclude from the settlement any insiders, affiliates and customers who may have had knowledge of the commingling and misuse of customer deposits and corporate funds, it said.
Former FTX CEO Sam Bankman-Fried is two weeks into his fraud trial on matters relating to his involvement in FTX’s collapse to bankruptcy last November.
Magazine: Deposit risk: What do crypto exchanges really do with your money?
crypto cryptoUncategorized
Q4 Update: Delinquencies, Foreclosures and REO
Today, in the Calculated Risk Real Estate Newsletter: Q4 Update: Delinquencies, Foreclosures and REO
A brief excerpt: I’ve argued repeatedly that we would NOT see a surge in foreclosures that would significantly impact house prices (as happened followi…
A brief excerpt:
I’ve argued repeatedly that we would NOT see a surge in foreclosures that would significantly impact house prices (as happened following the housing bubble). The two key reasons are mortgage lending has been solid, and most homeowners have substantial equity in their homes..There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/ mortgage rates real estate mortgages pandemic interest rates
...
And on mortgage rates, here is some data from the FHFA’s National Mortgage Database showing the distribution of interest rates on closed-end, fixed-rate 1-4 family mortgages outstanding at the end of each quarter since Q1 2013 through Q3 2023 (Q4 2023 data will be released in a two weeks).
This shows the surge in the percent of loans under 3%, and also under 4%, starting in early 2020 as mortgage rates declined sharply during the pandemic. Currently 22.6% of loans are under 3%, 59.4% are under 4%, and 78.7% are under 5%.
With substantial equity, and low mortgage rates (mostly at a fixed rates), few homeowners will have financial difficulties.
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‘Bougie Broke’ – The Financial Reality Behind The Facade
‘Bougie Broke’ – The Financial Reality Behind The Facade
Authored by Michael Lebowitz via RealInvestmentAdvice.com,
Social media users claiming…
Authored by Michael Lebowitz via RealInvestmentAdvice.com,
Social media users claiming to be Bougie Broke share pictures of their fancy cars, high-fashion clothing, and selfies in exotic locations and expensive restaurants. Yet they complain about living paycheck to paycheck and lacking the means to support their lifestyle.
Bougie broke is like “keeping up with the Joneses,” spending beyond one’s means to impress others.
Bougie Broke gives us a glimpse into the financial condition of a growing number of consumers. Since personal consumption represents about two-thirds of economic activity, it’s worth diving into the Bougie Broke fad to appreciate if a large subset of the population can continue to consume at current rates.
The Wealth Divide Disclaimer
Forecasting personal consumption is always tricky, but it has become even more challenging in the post-pandemic era. To appreciate why we share a joke told by Mike Green.
Bill Gates and I walk into the bar…
Bartender: “Wow… a couple of billionaires on average!”
Bill Gates, Jeff Bezos, Elon Musk, Mark Zuckerberg, and other billionaires make us all much richer, on average. Unfortunately, we can’t use the average to pay our bills.
According to Wikipedia, Bill Gates is one of 756 billionaires living in the United States. Many of these billionaires became much wealthier due to the pandemic as their investment fortunes proliferated.
To appreciate the wealth divide, consider the graph below courtesy of Statista. 1% of the U.S. population holds 30% of the wealth. The wealthiest 10% of households have two-thirds of the wealth. The bottom half of the population accounts for less than 3% of the wealth.
The uber-wealthy grossly distorts consumption and savings data. And, with the sharp increase in their wealth over the past few years, the consumption and savings data are more distorted.
Furthermore, and critical to appreciate, the spending by the wealthy doesn’t fluctuate with the economy. Therefore, the spending of the lower wealth classes drives marginal changes in consumption. As such, the condition of the not-so-wealthy is most important for forecasting changes in consumption.
Revenge Spending
Deciphering personal data has also become more difficult because our spending habits have changed due to the pandemic.
A great example is revenge spending. Per the New York Times:
Ola Majekodunmi, the founder of All Things Money, a finance site for young adults, explained revenge spending as expenditures meant to make up for “lost time” after an event like the pandemic.
So, between the growing wealth divide and irregular spending habits, let’s quantify personal savings, debt usage, and real wages to appreciate better if Bougie Broke is a mass movement or a silly meme.
The Means To Consume
Savings, debt, and wages are the three primary sources that give consumers the ability to consume.
Savings
The graph below shows the rollercoaster on which personal savings have been since the pandemic. The savings rate is hovering at the lowest rate since those seen before the 2008 recession. The total amount of personal savings is back to 2017 levels. But, on an inflation-adjusted basis, it’s at 10-year lows. On average, most consumers are drawing down their savings or less. Given that wages are increasing and unemployment is historically low, they must be consuming more.
Now, strip out the savings of the uber-wealthy, and it’s probable that the amount of personal savings for much of the population is negligible. A survey by Payroll.org estimates that 78% of Americans live paycheck to paycheck.
More on Insufficient Savings
The Fed’s latest, albeit old, Report on the Economic Well-Being of U.S. Households from June 2023 claims that over a third of households do not have enough savings to cover an unexpected $400 expense. We venture to guess that number has grown since then. To wit, the number of households with essentially no savings rose 5% from their prior report a year earlier.
Relatively small, unexpected expenses, such as a car repair or a modest medical bill, can be a hardship for many families. When faced with a hypothetical expense of $400, 63 percent of all adults in 2022 said they would have covered it exclusively using cash, savings, or a credit card paid off at the next statement (referred to, altogether, as “cash or its equivalent”). The remainder said they would have paid by borrowing or selling something or said they would not have been able to cover the expense.
Debt
After periods where consumers drained their existing savings and/or devoted less of their paychecks to savings, they either slowed their consumption patterns or borrowed to keep them up. Currently, it seems like many are choosing the latter option. Consumer borrowing is accelerating at a quicker pace than it was before the pandemic.
The first graph below shows outstanding credit card debt fell during the pandemic as the economy cratered. However, after multiple stimulus checks and broad-based economic recovery, consumer confidence rose, and with it, credit card balances surged.
The current trend is steeper than the pre-pandemic trend. Some may be a catch-up, but the current rate is unsustainable. Consequently, borrowing will likely slow down to its pre-pandemic trend or even below it as consumers deal with higher credit card balances and 20+% interest rates on the debt.
The second graph shows that since 2022, credit card balances have grown faster than our incomes. Like the first graph, the credit usage versus income trend is unsustainable, especially with current interest rates.
With many consumers maxing out their credit cards, is it any wonder buy-now-pay-later loans (BNPL) are increasing rapidly?
Insider Intelligence believes that 79 million Americans, or a quarter of those over 18 years old, use BNPL. Lending Tree claims that “nearly 1 in 3 consumers (31%) say they’re at least considering using a buy now, pay later (BNPL) loan this month.”More telling, according to their survey, only 52% of those asked are confident they can pay off their BNPL loan without missing a payment!
Wage Growth
Wages have been growing above trend since the pandemic. Since 2022, the average annual growth in compensation has been 6.28%. Higher incomes support more consumption, but higher prices reduce the amount of goods or services one can buy. Over the same period, real compensation has grown by less than half a percent annually. The average real compensation growth was 2.30% during the three years before the pandemic.
In other words, compensation is just keeping up with inflation instead of outpacing it and providing consumers with the ability to consume, save, or pay down debt.
It’s All About Employment
The unemployment rate is 3.9%, up slightly from recent lows but still among the lowest rates in the last seventy-five years.
The uptick in credit card usage, decline in savings, and the savings rate argue that consumers are slowly running out of room to keep consuming at their current pace.
However, the most significant means by which we consume is income. If the unemployment rate stays low, consumption may moderate. But, if the recent uptick in unemployment continues, a recession is extremely likely, as we have seen every time it turned higher.
It’s not just those losing jobs that consume less. Of greater impact is a loss of confidence by those employed when they see friends or neighbors being laid off.
Accordingly, the labor market is probably the most important leading indicator of consumption and of the ability of the Bougie Broke to continue to be Bougie instead of flat-out broke!
Summary
There are always consumers living above their means. This is often harmless until their means decline or disappear. The Bougie Broke meme and the ability social media gives consumers to flaunt their “wealth” is a new medium for an age-old message.
Diving into the data, it argues that consumption will likely slow in the coming months. Such would allow some consumers to save and whittle down their debt. That situation would be healthy and unlikely to cause a recession.
The potential for the unemployment rate to continue higher is of much greater concern. The combination of a higher unemployment rate and strapped consumers could accentuate a recession.
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The most potent labor market indicator of all is still strongly positive
– by New Deal democratOn Monday I examined some series from last Friday’s Household survey in the jobs report, highlighting that they more frequently…
- by New Deal democrat
On Monday I examined some series from last Friday’s Household survey in the jobs report, highlighting that they more frequently than not indicated a recession was near or underway. But I concluded by noting that this survey has historically been noisy, and I thought it would be resolved away this time. Specifically, there was strong contrary data from the Establishment survey, backed up by yesterday’s inflation report, to the contrary. Today I’ll examine that, looking at two other series.
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