Greek Debt Fears

Bernanke Says U.S. Should Tackle Debt

Federal Reserve Chairman Ben Bernanke said Wednesday that huge U.S. budget deficits threaten the nation's long-term economic health and should be addressed soon. Obama administration officials have argued that the economy, while improving, is still too weak to bear all the new taxes and spending cuts that would come with an aggressive deficit-reduction campaign. In remarks to the Dallas Chamber of Commerce Wednesday, Mr. Bernanke agreed, but said merely articulating a plan for reducing the deficit in the long run would help the economy now."The economist John Maynard Keynes said that in the long run, we are all dead. If he were around today he might say that, in the long run, we are all on Social Security and Medicare," Mr. Bernanke said.
Cutting the deficit ultimately will mean choosing between cutting those entitlements, raising taxes, or other spending cuts

Consumer Lending Sagged in February

More consumers are keeping up with payments on their credit cards and other loans. But that is coming at a cost: They are cutting back sharply on borrowing as they pare back debt. While that is good for the long-term financial health of households, the development could slow spending and the overall economic recovery.
Consumer borrowing declined at a 5.6% annual rate in February to $2.45 trillion, the Federal Reserve said Wednesday. Consumer borrowing, which includes most loans outside of real estate, had increased 2.1% in January, reflecting how borrowers typically slow payments after running up card balances over the December holidays. Revolving credit, largely credit-card borrowing, declined at a 13.1% annual pace in February. Nonrevolving credit—including loans for cars, boats and education—fell at a 1.6% annual rate that month. Analysts attributed part of the February decline to winter storms that kept consumers at home.

Americans Pare Debt

The Wall Street Journal  - U.S. consumers are shedding debt at the fastest rate in more than six decades, largely through a wave of defaults, in a trend that underscores the depth of their financial troubles but could also help clear the way for a stronger economic recovery.

Total U.S. household debt, including mortgages and credit-card balances, fell 1.7% in 2009 to $13.5 trillion, the Federal Reserve reported Thursday—the first annual drop since records began in 1945. The debt amounts to $43,874 per U.S. resident.

The drop reflects the extent to which job losses and a moribund housing market are forcing people to default on mortgages and other obligations, a painful process that has slammed millions of families and hit banks and investors with hundreds of billions of dollars in losses.

At the same time, the defaults are leaving many people with more cash to spend and save, jump-starting the financial rehabilitation, or "deleveraging," that economists see as a crucial prerequisite to robust growth.

Profits for Buyout Firms as Company Debt Soared

Noble Rogers worked at Simmons for 22 years, mostly at a factory outside Atlanta. When the plant closed last year, he was left with a bitter tast.

Editor's note: Great story about the lessons of debt, buyouts and private equity.

The New York Times - For most of the 133 years since its founding in a small city in Wisconsin, the Simmons Bedding Company enjoyed an illustrious history.

Presidents have slumbered on its mattresses aboard Air Force One. Dignitaries have slept on them in the Lincoln Bedroom. Its advertisements have featured Henry Ford and H. G. Wells. Eleanor Roosevelt extolled the virtues of the Simmons Beautyrest mattress, and the brand was immortalized on Broadway in Cole Porter’s song “Anything Goes.”

Its recent history has been notable, too, but for a different reason.

Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.

For many of the company’s investors, the sale will be a disaster. Its bondholders alone stand to lose more than $575 million. The company’s downfall has also devastated employees like Noble Rogers, who worked for 22 years at Simmons, most of that time at a factory outside Atlanta. He is one of 1,000 employees — more than one-quarter of the work force — laid off last year.

But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.

Wall Street investment banks also cashed in. They collected millions for helping to arrange the takeovers and for selling the bonds that made those deals possible. All told, the various private equity owners have made around $750 million in profits from Simmons over the years.http://www.nytimes.com/2009/10/05/business/economy/05simmons.html

Video: http://www.nytimes.com/packages/html/business/2009-private-equity/index.html

Ten Trillion and Counting

The journey begins as FRONTLINE correspondent Forrest Sawyer takes viewers to a secret location: the Treasury's debt auction room, where the U.S. government sells securities backed by the "full faith and credit of the United States." On this day, the government is auctioning $67 billion of Treasury securities. The money borrowed will be used to fund services and programs that the government cannot pay for through tax revenues alone.

Observers warn that the United States' reliance on borrowing to fund essential programs is a dangerous gamble. For the first time, investors are beginning to question the ability of federal government to meet its growing financial obligations, and fading confidence can have dire consequences. "You might have a situation where there is one day when the government says we need to sell several billion dollars of bonds, and nobody shows," Economist reporter Greg Ip tells FRONTLINE. "No money to pay the Social Security checks, no money to give to the states for their Medicaid programs. Cut, cut, cut, cut, cut."

Yet more borrowing is exactly what the Obama administration plans to do: hundreds of billions to bail out the banks and other financial institutions; tens of billions more for the auto industry; $275 billion for homeowners and mortgage lenders; and a giant $787 billion stimulus package to jump-start an economy spiraling downward. Just like the Bush administration before it, Obama and his team are going to borrow big.

"That's the paradox of the situation that we're in now," observes Matt Miller, author of The Tyranny of Dead Ideas. "Government has got to run big deficits to stimulate the economy, deficits that would have been unthinkable ... because government's the only entity with the wherewithal to prop up a demand in the economy when businesses and consumers are all pulling back."http://www.pbs.org/wgbh/pages/frontline/tentrillion/

China Slows Purchases of U.S. and Other Bonds

The New York Times - HONG KONG — Reversing its role as the world’s fastest-growing buyer of U.S. Treasuries and other foreign bonds, the Chinese government actually sold bonds heavily in January and February before resuming purchases in March, according to data released this weekend by China’s central bank.

China’s foreign reserves grew in the first quarter of this year at the slowest pace in nearly eight years. For the quarter, the reserves edged up $7.7 billion, compared to a record increase of $153.9 billion in the same quarter last year.

The main effect of slower bond purchases may be to weaken Beijing’s influence in Washington, by lessening the reliance of the U.S. Treasury on Chinese central bank purchases at its government bond auctions. Chinese officials from Premier Wen Jiabao on down have expressed growing nervousness over the past two months about their country’s huge exposure to America’s financial well-being.

Private investors from around the world, including the United States, have been buying more American bonds in search of a refuge from global financial troubles. This has made the Chinese government’s cash less necessary and kept interest rates low in the United States over the winter despite the Chinese pullback.http://www.nytimes.com/2009/04/13/business/global/13yuan.html

Deficit Distress Deepens

Sirius Seeks To Fend Off Takeover, Bankruptcy

Sirius XM Radio Inc. is seeking an investment from Liberty Media Corp., people familiar with the matter say, in a last-ditch effort to fend off an unsolicited takeover approach from satellite entrepreneur Charles Ergen.

The talks set the stage for a battle between the leading U.S. satellite-television providers -- Liberty-controlled DirectTV Group Inc. and Mr. Ergen's Dish Network Corp. -- for control of the country's sole satellite-radio operator.

Liberty, which is controlled by billionaire John Malone, emerged as a potential "white knight" for Sirius after Mr. Ergen made an unsolicited offer late last year to take control of the radio operator.

Though the talks between Sirius and Liberty are advanced, a deal remains far from certain, a person familiar with the matter said. It wasn't clear how much Liberty would be willing to invest in Sirius and whether it would end up with control. Mr. Malone is known as a careful negotiator and is unlikely to cut a deal in haste.http://online.wsj.com/article/SB123440851532776029.html?mod=testMod

Scrambling to Clear Debt, Sirius Talks to EchoStar

The Wall Street Journal - Sirius XM Radio Inc. Chief Executive Mel Karmazin is scrambling to raise about $175 million by Feb. 17 to fend off the company's bankruptcy and a possible takeover threat from EchoStar Corp.

Sirius has been in talks for several weeks with EchoStar, which holds around $400 million of the satellite-radio company's debt, people familiar with the matter said.

EchoStar Chairman and Chief Executive Charles Ergen, who is believed to be seeking control of Sirius, has been accumulating Sirius debt since late summer, the people said. EchoStar holds most of the $175 million in Sirius debt expiring in February and owns more than half of a $400 million tranche coming due in December. Both stakes were purchased from hedge funds. Sirius's total debt load is $3.25 billion. Sirius didn't respond to a request for comment.

A spokesman for EchoStar declined to comment on the strategy behind acquiring the debt. It remained unclear what Mr. Ergen would do with Sirius if he acquires it. Mr. Ergen also controls satellite-TV provider Dish Network Corp. There is a link between Mr. Ergen's empire and his target: Former Sirius CEO Joseph Clayton is on the EchoStar board.

Industry officials and consultants see the latest EchoStar moves as a way to differentiate Dish from cable-television rivals by getting into wireless and mobile-video services. Combining the satellite spectrum and unused wireless spectrum Mr. Ergen already controls with the radio spectrum EchoStar would acquire is a way to reach that goal. Sirius's shares rose two cents to 17 cents. Its debt has also rallied.

Seeking to take control of a company by acquiring its debt is an unorthodox strategy and could backfire. The debt EchoStar holds is junior to $600 million in bank loans Sirius has taken out. In the event of a bankruptcy filing by Sirius, the bonds held by EchoStar could be worthless. But Mr. Ergen could be counting on negotiating a settlement with the banks that would allow him to seize control.

A bankruptcy filing could offer advantages to Mr. Ergen because it would allow Sirius to extract itself from costly contracts, including a $500 million, five-year agreement with radio personality Howard Stern. On his show Thursday, Mr. Stern said he didn't understand the financial details of EchoStar's moves, but added, "I just need to know who I'm working for on any given day."http://online.wsj.com/article/SB123388180101154945.html?mod=testMod

Sirius Faces Debt Payment in Test of Its Viability

Sirius XM Satellite Radio Inc. is facing an important test of its viability this month: how it handles $174.6 million in debt coming due Feb. 17.

Questions over how the company can pay it, along with $750 million more in debt due later in the year, have been dogging the company's stock price for months. Trading around $3 a year ago, shares in recent weeks have been stuck in the 10 cent-to-12-cent range.

But even if the company solves its looming debt deadlines, it will have merely bought time to prove to the investment community that its business of paid subscription radio has legs. And the high-interest solutions it seems likely to find would transfer more of the company's value to debt holders and away from stockholders, likely dulling any post-refinancing zip to the share price.

Given the economic environment, "it's a long road back," says RBC Capital Markets analyst David Bank. "And it's not as simple as refinancing the debt."

But dealing with the debt is a key first step. For months, Sirius has been chipping away at the bonds coming due in February, which originally totaled $300 million. By exchanging debt for stock in a series of transactions, Sirius has managed to reduce that debt to $174.6 million. Of course, that has diluted the value of each share, contributing to the rout in Sirius's stock price. http://online.wsj.com/article/SB123353783687837945.html

Companies under Pressure as Debts Come Due

The New York Times - Like consumers and homeowners, America’s corporations binged on easy credit when times were flush, racking up huge debts. Now the bills are due, and paying them back will not be easy, or cheap.

This year alone, more than $700 billion in corporate loans will come due, according to Standard & Poor’s. That is the size of the federal bailout of the financial sector. Many companies were counting on being able to borrow more money to meet those obligations and kick their debt farther down the road.

But with the credit markets still tight, corporations are being forced to pay much higher interest rates than they did a few years ago, putting more strain on balance sheets already hammered by falling profits and a grinding recession.http://www.nytimes.com/2009/01/19/business/economy/19debt.html?partner=permalink&exprod=permalink

On Front Lines of Debt Crisis, Luggage Maker Fights for Life

ST. PAUL, Minn. -- When Chuck Bidwell and Jennifer Guarino took over J.W. Hulme Co. a few years ago, their plan was to transform the tiny maker of duck-hunting gear and fishing-rod bags into a luxury luggage company.

They applied the modern American business playbook: Borrow heavily to grow fast. The strategy worked -- until the credit crisis threw out those rules.

Now the two business partners are struggling to pull their company, and their lives, out of a spiral. The pain is rippling through a broad circle of investors, employees, suppliers and family members.

Mr. Bidwell, a 63-year-old serial entrepreneur and collector of vintage Buicks, is selling his beloved cars, is about to lose his house and is getting divorced from his wife of less than two years, partly due to their financial nightmare. Ms. Guarino has drained her savings, had her credit cards shut off, and is fielding phone calls "weekly," she says, from a frustrated relative who loaned her money.http://online.wsj.com/article/SB123145502270765963.html

Debt Trap: College Borrowing Sinks Students

The New York Times - As a college student, Stefan Heise relied on student loans and credit cards to pay for his education. Now out of school, he is more than $80,000 in debt and facing bankruptcy.http://video.nytimes.com/video/2008/12/31/business/1194837095176/debt-trap-college-borrowing-catches-up-.html?partner=permalink&exprod=permalink

That Student Loan, So Hard to Shake

The New York Times - MOST people struggling to pay off their student loans keep quiet about it. They do not want to acknowledge that, perhaps in a fit of naïve, youthful optimism, they borrowed more than they could handle.

Then there is Alan Collinge, who for years has described his struggle with tens of thousands of dollars in student loan debt to anyone who will listen. He has appeared on “60 Minutes” criticizing Sallie Mae, the nation’s largest student lender, and has been quoted in the pages of this and other newspapers attacking loan companies.

Student lending is a big business, one that has been the subject of many complaints over the past two years after revelations of questionable ties between lenders and colleges’ financial aid officers. More recently, tight credit markets raised the possibility that some students might not be able to borrow to go to college in the fall.

But much less attention has been paid to what happens to students after they borrow. Lenders who make loans guaranteed by the federal government can more easily take steps against borrowers — like garnishing wages and benefits — than they can with other kinds of unsecured consumer debts. And all student loans, federally guaranteed or not, are extremely hard to get rid of in bankruptcy proceedings, more so than credit card or other debt.