Debt Solution Tips

Actually, I’ve been thinking about unfolding events, fallacies, the rule of 10:90 or 90:10, bailouts, mission(s) accomplished, rising tabs and the keystone cops.

As I write this column, we are looking down the gun barrel of our third weekend (in a row) “make it or break it” crisis for the U.S. financial system. At this point, there are few details as to what all will be added to Uncle $ugar’s growing list of guarantees. Future tax cash flows from taxpayers will be committed to cover the financial losses of the rich, the well-born and the powerful. There are even fewer guess-timates as to ultimate costs. But, once again smiling faces (botoxed to mask the true scowls of terror) will emerge. We will be told that “mission accomplished and crisis averted” again!

You see, by now the spin, the hype, and the fallacy of the “don’t worry, be happy, we’ve got it covered” song and dance should be old hat. Since a year ago this past August (when the powers that be were finally forced to acknowledge a crisis of debt was “rumbling” in the wings), we have witnessed the unraveling of our debt only driven economy. Growth in consumption and spending came not from the value added numbers of domestic production. It came from the largesse of foreign benefactor, it came from additional paper appreciation of assets and it came from the windfalls of additionally minted “money” via the government’s printing presses and fresh lines of credit on newly issued credit cards. Growth was not that of wealth and prosperity, but growth of liabilities and obligations.

We were warned that if pre-emptive action were not taken, we might lapse into some recession contraction in 2008. This was a major fallacy because the real growth for most Americans in past decades was in net liabilities not in growth of net assets. I read that a third world country was defined as a nation where 10 percent of the population owned or controlled 90 percent of the wealth and assets. In the alternative the 90 percent had the 10 percent share. With what we have witnessed of late, I’m not so sure that it is even the wealthiest 10 percent of our own citizenry which now owns or controls 90 percent of this nation’s wealth or assets. Just where does that sorry state leave the country going forward?

The solution to every economic downturn in the past has been to open the floodgates of credit. Problem is this economic mess is mired in too much debt already. You don’t rescue a drowning person by giving them a drink. You don’t help a drug addict by providing cheaper heroin or crack. So, how could more debt be the solution to a debt problem? Well, that’s the only solution the U.S. Treasury and the FED know how to do mainly because that is all they can do.

Since last fall, the FED began buying back on a “Repurchase Agreement Basis” (REPO) financial institutions’ worth-less (or even worthless) mortgage paper to delay the write-offs and write-downs that would result in insolvency. These rolled over temporary transfers from institutions’ balance sheets to Uncle $ugar’s accounts now are pushing a record $480 billion. The Bear Stearn’s event involved a $29 billion guarantee. The IndyMac intervention cost us about $9 billion.

The Fannie and Freddie debacle comes in at conservatively $200 billion. Bank of American picked up the tab (for now) for the resolution of the Merrill Lynch situation by issuing $44 billion of their own stock. Lehman Brothers was left without a bailout and it (and its prior “merged with investment banking behemoths” – Shearson, Kuhn, Loeb, Rhodes, and Hutton) simply ceased to exist. Meanwhile, insurance giant AIG was “saved” by some $85 billion in Uncle $ugar’s guarantees.

Now it appears all these one time fixes were for naught as the really big bailout intervention was required again this past weekend. A government buy-out of some $700 billion in distressed investments is now on the table. The rushing around the corridors in DC would be reminiscent of a keystone cops comedy, were it not so tragic. Not to worry, mission accomplished, until next weekend, that is. I’ve been thinking.

THE Welsh Rugby Union group has reduced its debt with Barclays by £10m and negotiated a new revolving funding arrangement.

In an endorsement of its business plan and strategic direction under its chief executive Roger Lewis, Barclays has removed the punitive covenants under the previous arrangement.

As part of the restructuring, its debt has been reduced to £45m – of which £10m is redeemable only under a number of exceptional circumstances, including the sale of the Millennium Stadium.

The reduction of £10m had been made possible from record revenues of £50m generated by the WRU from its last financial year to the end of May 2008.

As with many businesses, the union has also negotiated a new revolving funding facility. This means that in theory the union could pay off up to an additional £10m of its debt without penalty, as well as being able to draw down up to the same amount.

The vast majority of the union’s revenues are generated around the autumn internationals and Six Nations’ Championship, so the facility allows the union the option of boosting cash-flow during quieter financial periods.

The deal follows a year of negotiations between the bank and the WRU’s group finance director, Steve Phillips.

However, the reduction in the debt, which now has to be repaid by 2035 as opposed to the previous arrangement of 2039, will not result in a cashflow boost.

The WRU has agreed to raise the capital repayments on the debt – off setting the interest rate saving of £200,000 from the £10m reduction with an additional cost this year of around £500,000.

The union could negotiate with Barclays a repayment of the debt before the new repayment deadline of 2035.

Drawing down on the new revolving facility will also allow the union to potentially make further investments into the game at all levels, as well as on its key asset – the now ten-year-old Millennium Stadium.

Mr Lewis said: “This is a major step forward for us and offers us considerable opportunities in taking our business planning onto a new level.

“Any organisation with ambitions to grow and prosper must have the confidence and the ability to manage its finances properly, effectively and responsibly.

“Now the WRU has a new level of financial freedom and the announcement of this deal sends out all the right messages to our stakeholders, potential partners for the future and the rugby fans of Wales.

“I have overseen major changes in the senior management team, internal structuring and commercial strategy of the WRU and Barclays are basically telling us we are making the right decisions.

“I know Steve [Phillips] in particular has shown great determination and endeavour to reconfigure our internal structures to create the measures and balances we were then able to take into our talks with Barclays.

“I am now excited by the pros-

pect of being able to utilise this new financial standing we enjoy for the benefit of Welsh rugby as a whole.”

Mr Phillips said: “The dialogue with Barclays has been extremely focused and they challenged us on all our financial plans and strategies.

“This arrangement basically means they are restoring to us a level of trust which allows us to properly manage our business and make the hard decisions involving millions of pounds.

“It is incumbent on us to manage that trust with the due control it deserves, which means using this arrangement with the kind of commercial creativity which will help us prosper.

“What it all boils down to is that Barclays are giving us a greater degree of freedom in how we manage our business and allows us to focus on the repayment profile of this substantial loan. I am delighted that Barclays have afforded us this opportunity and would wish to thank them for their efforts over the last few months.”

Greer Hooper, relationship director with Barclays Commercial Bank, said: “By really understanding the business, Barclays has been able to provide innovative solutions and financial packages beneficial to both parties. The facilities of the Welsh Rugby Union have been restructured on a more commercial footing which reflects the confidence which we have in the business and the management team. Barclays are delighted to continue our support for the Welsh Rugby Union and wish them continued success on and off the field of rugby.”

ACCESS Receivables Management and InterProse Corporation are proud to announce a joint patent filing for a new web-based invention that makes customer service, debt collection and online payment faster and easier. The patent was filed with the USPTO under the name "Methods and Systems for Account Management and Virtual Agent Design and Implementation." The invention enables any company with a web presence to collect delinquent accounts, make sales and offer support in a fast, friendly manner. It incorporates the use of an Avatar that converses with customers to quickly point them to a solution based on a series of questions.

Following Mervyn King’s warning that “the nice decade is behind us”, debt management company Gregory Pennington reminds borrowers that any major change in circumstance, whether personal or national, should prompt them to review the way they manage their debts. “Even in good times, managing debt isn’t always easy,” says a spokesperson for the company, “but the Governor of the Bank of England reminds us that those good times could be over – and that the economic worries of the nation will directly affect us all as individuals.”

For individuals, the actual transition from ‘good times’ to ‘bad times’ can be a particularly difficult period: “Many people have grown used to making monthly debt repayments that take up their entire disposable income. It’s a dangerous balancing act which can easily be upset by any change in their disposable income, whether it’s due to reduced income or to inflationary price increases.”

“Anyone in that situation today will remember 2008 as the year that demonstrated the dangers of over-commitment and the importance of considering the worst-case scenario before taking out credit. In the short term, however, they’re looking for an immediate solution to their debt problems – and for many of them, we believe our debt management plan may be that solution.”

Like any debt solution, debt management doesn’t exist in a vacuum. Creditors are all too familiar with the effects of the credit crunch and the uncertainty in today’s housing market. They understand that debt consolidation may no longer be an option for many people. At the same time, they understand that a debt management plan offers them something which insolvency doesn’t: complete repayment of all monies owed.

“From the borrower’s perspective, debt management can deliver the flexibility they’re looking for. Our clients depend on us to keep payments at an affordable level by renegotiating with their creditors if their disposable income shrinks. This is always a major benefit of our debt management plan, but the current volatility of the financial world makes it more valuable than ever.”