HMV - Good News?

Before I start and you think I am a cold hearted__________ (insert your own word), it is only right that I put my thoughts into a little bit of perspective. I completely appreciate the heartache and stress that thousands of families will be going through due to HMV being placed into administration and their futures uncertainty. My angle here is very much relating to the wider economic implications and in particular the banks……HMV could actually be a positive signal for the rest of us.

Why? 

 

The evidence of past recessions is that economic growth doesn't resume at any great rate until ‘corporate zombies’ (unviable and inefficient businesses) are put out of their misery as they are simply a drain on economic resources. However, HMV is only the 32nd significant retail chain to go into administration in just over a year and there have been fewer corporate collapses since the financial crisis of 2008 than was predicted on the basis of past economic experience.

 

So if HMV's demise signals a rising incidence of banks and other creditors being more ruthless in putting lame companies out of their misery, that might be a good thing. If those rising corporate mortality rates were real, it would show that banks are feeling increasingly confident that they have sufficient capital to absorb the consequential losses. It would also highlight that banks have sufficient capital reserves to extend necessary credit to viable businesses.

This is a massive positive sign for us all economically and cannot be stressed enough.

 

There are still plenty / far too many corporate failures that are clinging on, absorbing bank resources and holding back job creation by those companies with much better prospects.

Just think slightly differently when you hear of the next retail casualty……it might just be a good thing long term.