Word: debt
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Creditors are not the government's biggest problem with GM, although they would like the public to think debt is the headache everyone should focus on. A bankruptcy judge could force a large cut in health and retirement benefits for UAW members. That would be on top of what is likely to be another round of lay-offs. With the national unemployment rate moving up as fast as it is and large numbers of pensions facing funding problems, the federal government may not want to be forced to support current and retired GM workers. Someone will have...
...messy for the Administration's tastes. According to The Wall Street Journal, "Key members of an ad hoc committee representing GM bondholders have begun preparing arguments against the auto maker's bankruptcy plan." The creditors may lose their attempt to get a better deal than being given debt in a company which holds the worst part of the GM asset base, but they can make the process prolonged and painful for the company and the Treasury. (See the 50 worst cars of all time...
...retail. If the economy does not recover quickly, there is a case to be made that one or more large retailers could face problems not unlike those being faced by GM. The largest retailers have two advantages over car companies. For the most part, they do not have crushing debt loads. Secondly, they do not have the legacy labor costs that are a result of UAW negotiations with The Big Three, although some have pension plans that are not completely funded...
...cause unemployment problems, but it could also trigger a destructive chain of events in the real estate industry by defaulting on store leases at locations all over the country. Neiman Marcus had a same-store sales loss of 30% last month. The company has $3 billion in long term debt and had paper thin operating margins on $1 billion in revenue last quarter, which was down from over $1.3 billion in the same period the year before. Neiman Marcus also has substantial pension obligations...
...past two years, however, munis' predictability has been replaced by volatility. The bonds of state and local governments were among the worst performing sectors of the debt market in 2007, before falling off a cliff last year. The average muni bond fund lost 9.4% in 2008, and there were ten funds that lost more than...