The company who counsels people on how to “get out of debt” has filed chapter 11. One news account mentions that the company is currently under investigation by the Attorney General. Expect that Dave Ramsey will have a LOT to say about this today. Debt Relief USA had advertised extensively on talk radio.
http://consumer.georgia.gov/00/press/detail/0,2668,5426814_94800056_135944239,00.html
Speciality clothing retailer Eddie Bauer filed Chapter 11 today. Eddie Bauer had previously been through bankruptcy in 2003. A buyout firm has made an offer to buy the company, and is urging the bankruptcy court to hold a quick auction to determine if any other firm is willing to pay more.
Extended Stay hotels, which operates 680 properties that cater to business people working away from home has filed chapter 11. Wachovia, Bank of America and Bear Sterns are each on the hook for about $1 billion each. Extended Stay employs about 10,000 people.
Six Flags has filed Chapter 11. This bankruptcy has widely been predicted since last summer when the $4+/gallon which resulted in large drops in attendance. The economic downturn hasn’t helped the situation. For now, the parks will stay open.
Back when I was working for GM (not as an employee – as a contract person), I learned a number of curious counterintuitive things – like people with seniority wanted to be laid off first during slow times. Doing so, they would get 90+ percent of their pay and continue to vest in their pensions, then could work “off the books” doing construction work for cash or just tour the country in a motor home on an extended vacation. The low seniority people were the ones who had to show up for work and make the cars. It wasn’t called Generous Motors for nothing.
Another quirk was that the State of Michigan gave GM special exemptions on how Unemployment Insurance is supposed to work. It’s a bit complicated, but there is a state and a federal fund with different sources of money. The basic principle of funding is that each employer keeps a “balance” in the fund – how much they’ve paid in, and the amount of benefits paid out. If a company gets in a deficit position, their contribution rate goes up to help rebuild the fund. Other employers temporarily are subsidizing the ones (like GM) with lots of unemployed workers.
Well, GM had incorporated Unemployment Insurance into their business model. When GM didn’t need all its workers, it would lay them off and let the State pay them. Normally doing that would risk that those employees could drift away and when GM needed to restart the line, it would have to rehire and retrain people – so their agreement with the Unemployment folks was that GM workers collecting unemployment were NOT required to look for a new job to keep getting the check. [Yes, I know that is a scam too] The Fund just became a way to subsidize GM at the expense of other employers. Michigan didn’t want to lose GM, and many of those other businesses were indirectly in business because of GM so they were not in a position to complain. This was in the 1980s, and also unemployment benefits were taxed differently than today.
Since GM will be declaring bankruptcy and shutting a lot of plants, those GM workers will be on unemployment for a LONG time, with no real assurance that GM will ever be in a position to pay back into the state uninsurance funds – especially in states where GM is going to shut down its only facility.
Look for a bunch of State Unemployment Funds screaming “we’re out of money” (It’s already started because the condition of the economy in general). Not only are people collecting unemployment, but a lot fewer employers are paying into the fund. Look for demands for a Federal Bailout (did you read that IRS taxes paid in April were down 36% year over year?… yet Bloomberg and the economists think things are about to “turn around”)
In the spirit of just making problems worse, the Democratic party solution to this is to always feel compassion for The Worker – by extending unemployment so long that people forget what it is like to work. Other employers become so burdened down with the costs and the artifically high costs of labor that they shut down or move to other countries to get out from under.
Do what you’ve always done, you’ll get what you always got.
Silicon Graphics makes high end servers for business and government customers – their niche in the computer business was high performance graphics systems like those used for Computer Aided Design (think car companies)
Sunday, the US Government told Rick Waggoner – the CEO of General Motors – that he no longer has a job. The government automobile rescue commission has declared that the viability plan is not workable.
Tim Geithner has declared that the problem with the economy is that he hasn’t done enough, not that he has done too much. At the same time, he is lashing out at banks for being unwilling to take on additional risk.
Markets in Asia responded by dropping over 4%. Futures suggest the same will happen here. If you didn’t already sell to take advantage of the recent upswing, you probably missed your chance.
Geithner is now trapped by the reality that the hedge funds are not going to fund his latest toxic solution plan since Congress did the 90% AIG tax thing to punish those working hard to unwind the company. Add to that the threat of “taking over” the same companies by decree of the Federal Reserve Board of Governors (which has no jurisdiction over anything except its members), and Geithner is in a real dilemma. If he makes nice with the hedge firms and seeks to protect them from populist retaliation for making big profits by rescuing the banking system – he could face the rath again of those who want his head on a platter. If he doesn’t shield them, they won’t voluntarily help.
No wonder nobody wants to work for him.
The long suggested bankruptcy filing of Charter, the country’s 4th largest Cable TV company has happened – they filed chapter 11 to avoid its responsibility to repay its bond holders today.
Paul Allen of Microsoft fame will still control 35% of the voting power of the company even though he only owns 7% of the stock.
It’s widely reported that the folks who run all those amusement parks will file for Chapter 11. Perhaps when people don’t have a job, they won’t spend $40 for a one day ticket to ride roller coasters?
Just a day after the FDIC announced it may be insolvent this year – and with responsible smaller banks crying foul (We’re paying for the mistakes of the reckless banks), GE Capital (which was NOT a bank) has issued $8B in bonds guaranteed by the FDIC and BofA (which recently said it was a mistake to accept TARP funds) has issued $8.5B in FDIC backed loans because Credit Default Swaps on their own lending is getting too expensive (because people selling the swaps believe the chance of default is going up).
If CitiGroup is allowed to fail, there is really no doubt the FDIC goes with it. All the cards are on the table now, and the United States is holding a pair of 3s and bluffing – and the other people at the table know the cards we are holding.