[truthkeeper]

I just heard the same report. The commentators on CNBC are saying KMart is partially blaming the problem on being unable to get "surety bonds," and one added, "This goes back to Enron."
I have no idea what this means, since I am an economic dunce. Maybe some nice smart person will explain it to me.

[TruthShallSetYouFree]

surety bond

A bond in which a surety agrees to assume responsibility for the performance of an obligation of another in the event of a default.

It's like getting your brother-in-law to co-sign for a loan. If you don't pay, he is on the hook for the dough.

[Rodney King]

When KMART began to have troubles, none of their suppliers wanted to ship to KMART on credit. A surety bond would be a bond that KMART purcahses that would have guaranteed payment to suppliers by the surety bond company in the event that KMART was unable to pay.

While it is true that credit may have tightened a bit since the Enron fiasco, the reality is that obviously no insurance company was willing to sell KMART a bond at a price that KMART was willing to pay. Watch, I bet they will blame 9/11 next.

[NittanyLion]

The commentators on CNBC are saying KMart is partially blaming the problem on being unable to get "surety bonds,"

They should blame it on this (Numbers are approximate):

K-Mart, 1990 - $32 Billion
Wal-Mart, 1990 - $32 Billion

K-Mart, 2001 - $32 Billion
Wal-mart, 2001 - $180 Billion

[tdadams]

I'm not an economist and don't have an MBA, but can probably give you a glimpse of what surety bonds are. Surety bonds guarantee a company's suppliers will get paid even if the company doesn't have sufficient short term cash flow.

In the wake of Enron's collapse, the price of surety bonds have gone way up, due to obvious added risks of the surety bond business.

This has eaten into the slim margins Kmart was already operating on, forcing them into banruptcy.

[JoeFromCA]

Here's the KMart spin on surety bonds: Kmart "self-insured" (took on the liability itself without insurance) for some liabilities, including those arising from workers comp and gun sales in its stores. A surety bond is a promise by a third party that an obligation will be paid, like a bond.

With the economic downturn and Enron's demise, losses occurred in the surety bond market, making it difficult or impossible for KMart to buy surety bonds. KMart therefore had to buy expensive insurance to cover these liabilities, reducing its cash flow.

Source: Today's Wall Street Journal