Wednesday, January 14, 2009

Pay off your debt with more debt


This could become a great trend. Since the US taxpayer is being asked to keep Wall Street alive, with no profit for doing so, shouldn't they be allowed the same rules as the corporations that led them there?

Pay off your debt (and payments to your investors) with more debt, instead of the cash you originally agreed to pay. Here is how Neiman Marcus, as reported by Forbes.com, is doing it: $700.0 million in senior notes due 2015 will get toggle bonds in place of their quarterly $15.75 million payment.

So...., if the retailers, now owned by hedge funds and private equity groups, are allowed to pay their creditors with more debt, thus avoiding payments in cash, shouldn't you be able to pay off your credit card to these same retailers in the same fashion? Just send them a nice note, along with a signed and notarized IOU, explaining you will pay them, in a time frame you decide, the interest on what you owe. Never mind you agreed to pay a preset interest rate within a preset time frame. If they conduct themselves this way with whom they owe money to, you should, by law, be able to do the same to them. I say by law because corporations are viewed, by the intent of the law, to have life, just as you do. When a corporation shutters its doors, it dies, by law, and follows the same procedures of liquidation as you do.

Yes, there are some technical differences, but they are only technical. Corporations, as viewed by the intent of the law, are born, and die, just as a person does.

Of course I am being partially facetious. But this is telling, and alarming. Neiman Marcus is not alone in this course of action; "Neiman Marcus is the 24th company in the past year to elect to fork over bonds in place of cash. Other notable names include Freescale Semiconductor and Realogy, owner of Century 21. All were bought by private-equity firms."

It is more alarming that many, if not most, of the big business names we know are now part of larger, thus fewer, owners. It is hard to imagine that Private Equity groups, in retrospect, have been good for America.

2 comments:

Anonymous said...

the great depression happened with americans not in debt and a strong dollar. same with japan's lost decade.

as the market drops the home prices drop. bad cycle.

i see dow 3000 in a few years.

recruiterrick said...

As home prices drop the market drops, because that has been the only economy the US has had for the past 8 years.

I agree the Great Depression happened with the US as a net creditor nation, and now we are a net debtor nation.

Japan tried to keep their banks solvent by injecting money into otherwise insolvent banks, just as we have. The difference is Japan was not the major economic engine, meaning they could go outside for corporate profits, which then came home. All their manipulation did not give them any more than an L-shaped recession lasting almost 15 years.

I believe the DOW is in for a ride south, just as you. I believe below 6000 within 12 - 18 months is guaranteed, after that, we will see.

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