Greece: Back from the brink

Greece has pulled itself back from the brink, by agreeing to a painful austerity package aimed at reducing the country's giant budget deficits.

On Thursday, the Parliament voted to implement those unpopular reforms. The vote set the stage for the nation to secure the final $17 billion of a $156 billion international relief package.

The latest cash infusion means Greece will be able to stave off an immediate default and pay its bills for the next three months.

But Greece is not out of the woods. The country still needs to put the unpopular reforms into practice, negotiate with creditors and privatize big public institutions.

Passage of the austerity plan "will certainly give some short-term relief to markets," said IHS Global senior economist Diego Iscaro. "But concerns about the long-term feasibility of Greece's fiscal plans still remain in place."

Greece is now expected to begin negotiations with the European Union and International Monetary Fund for another bailout, said Wolfango Piccoli, a director at the Eurasia Group in London.

The next round of emergency aid is expected to range between $172 billion and $216 billion, which would cover Greece's expenses through 2014, he said.

As with the previous deal, the new package will come with conditions. The terms are expected to include some concessions by Greece's creditors and the transfer of state assets to the private sector.

But providing more short-term support for Greece "is just kicking the can down the road," Piccoli said.

Officials in Europe are hoping to keep Greece solvent long enough to allow other troubled European nations to strengthen and put pressure on Greece to enact the painful reforms passed Wednesday.

At the same time, the European Union is working with Greece's main creditors -- French and German banks -- to roll over some of the nation's debt into longer-term bonds.

"It's unclear how that will be done, though there seems to be some willingness there," on the part of the banks, said Piccoli. "But that's just another measure to gain time, it doesn't diminish the amount of debt that Greece will be left with."

The bottom line is that Greece's ability to repay its debts remains in question.

"For all economic intents and purposes, Greece has already defaulted," said Sandeep Dahiya, professor of finance at Georgetown's McDonough School of Business. "There's no way Greece can repay all the money it owes."

The big worry is that other debt-laden nations in Europe -- particularly Ireland, Portugal, Italy and Spain -- would be dragged down if Greece were to default in a disorderly way.

But the threat to the U.S. economy, for now, remains remote.

That's mainly because U.S. banks have relatively little Greek debt on their books and the financial markets have largely priced in Greece's fiscal problems, which have been playing out for over a year.

Nevertheless, the situation remains highly uncertain.

Greece austerity: Cure or poison?

"We're still not sure how much exposure there is," said Gus Faucher, an economist at Moody's Analytics. "There is certainly the potential for a big problem in the U.S. if Greece were to default unilaterally."

While he believes that's unlikely, Faucher said an outright default by Greece could cause a financial shock similar to the one that occurred after Lehman Brothers collapsed in 2008.

The investment bank's implosion roiled global financial markets and caused a severe credit crisis.

Analysts say U.S. money market funds, which hold an estimated 40% of their assets in various forms of European debt, would be the most vulnerable in such a scenario.

The pain of Greece's crisis

Ben Bernanke, chairman of the U.S. Federal Reserve, said last week that the central bank is looking into how exposed U.S. money market funds are to Greece. He acknowledged that the indirect exposure could be "very substantial," but sounded hopeful that the worst won't come to pass.

In addition, some U.S. investment banks and insurance companies could be on the hook if they own credit default swaps linked to European debt.

These complex derivatives, which crippled US insurance giant AIG after Lehman fell, could also yield big profits for investors betting against Europe.

However, the market for credit default swaps is opaque and analysts say it's impossible to pinpoint how exposed U.S. institutions may be to them.

Debt ceiling delay would be 'chaotic'

Here's what Americans can look forward to if lawmakers fail to raise the debt ceiling in time: Treasury would not be able to pay between 40% and 45% of the 80 million payments it needs to make every month.

That's the estimate from a new analysis by the Bipartisan Policy Center, a think tank in Washington founded by four former Democratic and Republican Senate majority leaders.

A delay in raising the debt ceiling could affect Social Security checks, food stamps, federal worker and military paychecks, government contractor bills and payments to Medicare and Medicaid providers.

"Handling all payments for important and popular programs (e.g., Social Security, Medicare, Medicaid, defense, active duty pay) will quickly become impossible," the report's authors noted.

Treasury Secretary Tim Geithner has said that by Aug. 2 he will no longer have enough money on hand every day to pay all the government's bills in full and on time. The government reached the legal borrowing limit on May 16 and has been taking "extraordinary measures" since to keep the country out of default.

To ensure it has enough cash on hand to make a $29 billion interest payment to investors on Aug. 15 -- among other payments -- the government would have to defer 44% of federal spending, and that would affect the broader economy, according to the BPC study.

Treasury is expected to update its estimate of the so-called "drop dead date" at the start of July, but no one expects the date to change much.

It's impossible for anyone to know exactly how much the government will take in and have to pay out on any given day in August. The BPC based its estimates on the revenue and outlays reported by Treasury from August 2009 and August 2010.

Bond experts to Congress: Don't mess it up

It's also impossible to say yet just how the government would prioritize payments. It's fair to assume, however, that picking who gets paid and who gets put off will be a mess technically and socially because it's never been done before.

"The reality would be chaotic," the report states.

The going assumption is that Geithner will do everything he canto pay bond investors, so the country doesn't go into a formal default.

"The Treasury Secretary will squirrel away money like -- well, a squirrel. He may have to delay some payments starting days or weeks early to prepare for big important payments later," said Joe Minarik, who served as the chief economist of the White House Budget Office in the Clinton administration.

And as the BPC study noted, the whole event could cause a public uproar and market unrest, the outcomes of which is anyone's gues.

Congress moves forward on free trade deals

The Senate will officially take up three trade deals and a scaled-back version of a jobs retraining program for laid-off workers on Thursday.

Senate negotiators will have to start pounding out the details of the trade deals, as well as

funding for the jobs retraining program -- whose funding ran dry in February.

"This was truly a bipartisan negotiation on all sides ... we think this is a strong package that reflected the different priorities," said one senior administration official on a call with reporters Tuesday.

But final passage on all the measures is not a done deal. Republican support depends on how closely the trade deals and jobs retraining program are linked together.

Republicans want to vote on the trade pacts, and have agreed to consider the new compromise that would extend the jobs retraining program, according to congressional aides. But they refuse to have the issues stuck together on the same bill, in a way that would prevent them from making changes to the jobs retraining program.

"I would strongly urge the Administration to re-think this action, and urge them to send up all three pending trade agreements without delay -- and without extraneous poison pills included," said Senate Minority Leader Mitch McConnell in a statement Tuesday.

If Congress were to pass the trade pacts without the jobs retraining program, President Obama would face a tough choice as he had previously said he couldn't have one without the other.

At issue is the Trade Adjustment Assistance program, which got a big funding boost with the 2009 economic Recovery Act.

The program gives unemployed workers financial help and job training when employers move jobs overseas. White House officials had previously said that more than 435,000 workers would be eligible for the program if it were reinstated. But Republicans have said they are concerned about funding such stimulus programs, because of the big deficits the nation faces.

A White House official outlined a compromise made on the program, saying it would be scaled back. He added that it wouldn't add to the deficit, thanks to cuts in unemployment insurance; and due to a new proposal that would penalize tax preparers who have "bad records," claiming tax credits for those who don't qualify.

But the White House couldn't give a final tab on Tuesday for the scaled back Trade Adjustment Assistance program.

An additional roadblock is that even though House Ways and Means Chairman Rep. David Camp was involved in the compromise, it's unclear whether even a scaled-back version could pass the GOP-controlled House

"We're pleased the President may finally send us the three job-creating trade agreements we've requested, but we have long said that TAA -- even this scaled-back version -- should be dealt with separately from the trade agreements," said Brendan Buck, spokesman for House Speaker John Boehner.

The one thing many congressional Republicans and Democrats can agree on is wanting to pass the trade deals to help boost the U.S. economy, particularly since some say the treaties could add as many as 250,000 jobs.

Despite Obama's effort to tie the trade pacts to something the unions want, the AFL-CIO and other labor groups continue to oppose the treaties -- which they say don't do enough to protect workers' rights.

But business groups from the U.S. Chamber of Commerce to the Business Roundtable applauded the move forward.

"With our economic recovery stalling, the time is now for Congress to act on these deals," said Thomas J. Donohue, president and CEO of the U.S. Chamber. "We simply cannot afford to put American jobs at risk any longer."

Saab can finally pay workers... to do nothing

Saab has secured a tentative short term financing deal that should allow the Swedish automaker to pay its factory workers. But they still won't be building any cars, at least not until other financing deals are reached.

Saab's parent company, Swedish Automobile N.V., announced last week that it had run out of money to pay hourly workers. Saab's Trollhattan production facilities were already halted because the company couldn't reliably get parts to build cars.

In a transaction valued at about 28 million Euros -- or about $40 million -- an investment consortium led by Hemfosa Fastigheter AB will buy a 50.1% stake in Saab Automobile Property AB.

Saab will then enter into a 15-year lease agreement for the production site.

The deal still requires the approval of the Swedish government, the Swedish National Debt Office and the European Investment Bank, all of which have been involved helping to finance Saab's operations since the Swedish automaker split from former parent company General Motors in early 2010.

On June 9, Saab announced it was suspending production at its factory in Trollhattan "pending more stable inflow" of auto parts.

On June 13, Saab announced tentative deals with two Chinese companies, distributor Pang Da Automobile Trade Co., Ltd. and auto manufacturer Zhejiang Youngman Lotus Automobile Co., Ltd., that could provide longer-term financing. Those arrangements still must be approved by the Chinese government and they would not help with Saab's immediate cash problems, a Saab spokeswoman said.

Debt ceiling: Just do it

Warnings from all three credit ratings agencies didn't do it. Seven weeks of talks among lawmakers didn't do it. Maybe President Obama's talks with Capitol Hill brass will do it.

But as of now, there's still no debt-reduction deal. And many lawmakers are still demanding one in exchange for their vote to increase the debt ceiling.

Here's an idea: Even if they can't come up with a deal by Aug. 2, lawmakers should raise the debt ceiling anyway. Then they should make a pot of coffee and go back to hammering out a debt-reduction plan.

Fiscal responsibility isn't a one-off proposition; it's an ongoing process.

If Congress fails to raise the debt ceiling by Aug. 2 -- the day when the Treasury Department estimates it will no longer be able to pay all the country's bills -- any number of damaging and utterly preventable scenarios could occur.

Deadbeat nation: For starters, the United States would look ridiculous. The debt ceiling needs to be raised because of obligations that Congresses past and present chose to incur.

Not raising the ceiling would signal to the world that Americans are willfully choosing not to pay their bills. The message won't be "We can't pay." It will be "We could pay, but we've decided not to. Sorry."

Market mayhem: To date, investors have been trading on the assumption -- the rock-solid belief, actually -- that there is just no way Congress would fail to raise the debt ceiling in time.

If Congress dashes those expectations, no one can know exactly how the markets will react. But most think markets will react, and not well.

Some bond experts expect that contrary to popular belief, Treasury rates won't rise but stocks may tank. In other words, there will be a move out of risk-based assets and a flight to safety in bonds.

Bond experts to Congress: Don't mess it up

So interest rates may stay low, but Americans' investments get whacked.

Or, Treasury yields could become volatile and start to climb as investors smell political instability in Washington. That would push the cost of U.S. debt higher.

Hopping mad republic: If Treasury is technically and legally able to prioritize the payment of interest to bond investors, the country may avoid the kind of default that would trigger rating downgrades.

A growing number of lawmakers say that it's OK not to raise the debt ceiling as long as Treasury continues to make payments to bondholders.

But that doesn't mean there wouldn't be seriously negative consequences.

"Someone -- perhaps millions of someones -- won't be paid on time. Contractors, federal workers, program beneficiaries, or state and local governments will suddenly find themselves short on their cash flow," former Congressional Budget Office Donald Marron wrote in a recent op-ed in the Christian Science Monitor.

That could hurt the economy, which is still trying to find its sea legs, and won't do much for the country's mood.

Damaged reputation: Even if bond investors continue to be paid, investors and credit rating agencies won't take it lightly when Treasury has to delay payments to others.

Such delayed payments -- and the public anger that would result -- could cause investors to worry that even if they're getting paid today, tomorrow may be another story. And they could trade on that concern, even if it's unfounded. That, in turn, could cause interest rates to rise.

Fitch Ratings Agency said it would put the country on "Ratings Watch Negative" in such a scenario.

"Extensive payment arrears to suppliers of goods and services to the government ... would damage perceptions of U.S. sovereign creditworthiness and signal growing financial distress," the agency said in a recent report.

The S&P already has already downgraded its credit outlook on the United States to "negative" from "stable." And Moody's is considering doing the same.

Downright default: This is the very worst and still least likely of outcomes, because most believe that there's no way the U.S. government would not pay its bondholders.

But if they don't raise the ceiling, lawmakers would raise the chance that those bondholders don't get paid over time.

Debt ceiling: What you need to know

That could theoretically happen if the Treasury a) is somehow not able to prioritize payments to bondholders; or b) has to pay out more to bondholders than it has coming in on any given day.

On some days Treasury brings in more money than it has to pay out. And on some days it doesn't. But on average, the United States comes up short by about $125 billion every month.

To cut that much spending or raise that much extra in tax revenue overnight would hobble the U.S. economy and very likely de-stabilize world markets.

A U.S. default would be catastrophic, influential bond investor Mohamed El-Erian said Sunday on CNN's "Fareed Zakaria GPS."

His advice to Congress? Raise the ceiling, even if you can't complete a debt-reduction deal in time.

"If ... you're going to kick the can down the road, kick the can rather than face something that could be catastrophic in terms of legal contracts being triggered," said El-Erian, CEO of PIMCO

Stocks don't need (or want) more stimulus

The Federal Reserve is winding down its $600 billion bond buying stimulus that helped fuel an eight-month stock rally, and experts say stocks are ready to take back the reins.

They don't need or want any more stimulus, say strategists surveyed by CNNMoney.

Even though stocks have retreated about 7% since the start of May, most market strategists say the pullback is temporary, and are calling for the S&P 500 to rise more than 7% during the second half.

That means the S&P 500 would end 2011 with double-digit gains ... at a fresh 3-year high. All of that without any additional stimulus.

"The Fed should stop. They've done more than enough already," said Matt King, chief investment officer at Bell Investment Advisors. "Any further stimulus only increases the long-term risk of inflation, which we already view as high."

A stormy year for stocks

What's more, some went so far to say that the Fed's stimulus program, known as quantitative easing or QE2, was "a failure."

"It weakened the dollar and stuck the economy with higher food and energy prices," said Donald Selkin, chief market strategist at National Securities, adding that those factors are to blame for the recent pullback in consumer spending and slowdown in economic growth.

CNNMoney survey: Where the markets are headed

Rather than another round of monetary stimulus, experts say policymakers need to focus their goals on righting the nation's fiscal ship to keep the market and economy on track.

"The Fed should move to the sidelines until Congress acts to extend the debt ceiling and addresses a budget deficit package," said Marc Pado, chief investment strategist at Cantor Fitzgerald.

Without Fed intervention, Congress may also be more inclined to address tax policies that are keeping record amounts of corporate cash abroad, experts said.

If Congress were to enact some sort of repatriation tax holiday, it could bring some of that money back to the United States, which would spur business spending and lead to more job creation.

"The Fed needs to pass the baton to the next runner in this relay race and that is business spending," said Burt White, chief investment officer at LPL Financial. "It is time for businesses to spend and hire, which will move the baton later to the anchor runner, the consumer."

Los Angeles Dodgers File For Bankruptcy

The Los Angeles Dodgers filed for bankruptcy court protection early Monday, less than a week after Major League Baseball blocked the team from signing a new television deal to provide it with the cash it needed to meet the team's payroll.

The bankruptcy filing also comes in the wake of a bitter divorce battle between owners Frank and Jamie McCourt, who finally reached a settlement earlier this month.

But Frank McCourt still needed approval of a new $3 billion television deal with Fox Sports, and Commissioner Bud Selig blocked the deal with the News Corp. (NWS) unit last week, who said he couldn't approve a deal which he said was "structured to facilitate the further diversion of Dodgers assets for the personal needs of Mr. McCourt."

Selig had already appointed a monitor to oversee the club's business operations. McCourt had vowed to fight any effort to force him to sell the team, but that effort may now be nearing an end with Monday's filing.

McCourt has complained bitterly about not being able to get approval of the 17-year television deal, which he said was critical to the team meeting its liquidity needs this year.

Why Bud Selig is calling the shots at the Dodgers

McCourt issued a statement Monday charging that Selig had "turned his back on the Dodgers, treated us differently, and forced us to the point we find ourselves in today."

"I simply cannot allow the Commissioner to knowingly and intentionally be in a position to expose the Dodgers to financial risk any longer," he continued.

Major League Baseball did not have any immediate comment on the filing.

With the filing, the Dodgers were able to arrange for $150 million in debtor-in-possession (DIP) financing to fund operations during the reorganization.

Lenders who are unwilling to loan money to troubled companies before bankruptcy filings are sometimes willing to make DIP loans because they are in a preferred position to be repaid.

The filing is under Chapter 11 of the bankruptcy code, meaning the team will continue to operate during the reorganization. But a sale of the team out of bankruptcy is likely.

The Dodgers said that the team will operate within their existing budget to sign and acquire amateur, international and professional players, and that ticket prices will remain the same and purchased tickets will continue to be honored.

"The Chapter 11 process provides the path on which to position the Los Angeles Dodgers for long-term success," McCourt said.

Last year the Texas Rangers were sold out of bankruptcy, but that did not prevent the team from reaching the World Series for the first time in franchise history.

The bankruptcy filing lists numerous Dodgers players, past and present, among its largest creditors, with former player Manny Ramirez the largest creditor, owned almost $21 million.

Players are likely to be paid in full, though, as they have protections under in the collective bargaining agreement between their union and Major League Baseball

Flooding submerges parts of North Dakota city

The swollen Souris River whose waters deluged North Dakota's fourth-largest city of Minot, was expected to crest early on Sunday, with storms threatening to complicate efforts to contain the biggest flood in area history.

Local and federal officials worked feverishly to reinforce levees, protect the city's key infrastructure and care for thousands of residents forced to flee their submerged homes.

By Saturday evening, the Souris, which flows from Canada southeast into North Dakota, was at least 3.5 feet above the 130-year-old record it shattered on Friday.
Under current conditions, the river is expected to crest by Sunday morning at 3.8 feet above that record, according to the National Weather Service.

"We will continue to be at this highest level for the next several days," said Minot Mayor Curt Zimbelman, adding that the possibility of rain could complicate containment efforts.

"There is a cluster of thunderstorms that are pretty close to Minot now. It looks like a couple of inches of rain could impact some of the areas with flooding," said Rich Thompson, a lead forecaster at the National Weather Service's Storm Prediction Center.

There have been no reported deaths or injuries.

"There is still a tremendous amount of water and even when this crest has passed, there will be months of a recovery effort," U.S. Army Corps of Engineers spokesman
Jeffrey DeZellar said.

"When the water goes down it relieves pressure on emergency levees, but there has been so much damage done to the community that there is going to be a tremendous recovery effort," DeZellar said.

Authorities were also trying to stop a walking bridge that collapsed in the middle of the river from crashing into a downriver dam, a Minot Fire Department official said. The bridge had not moved as of Saturday evening.

Floodwaters have all but swallowed more than 3,000 Minot-area homes, according to North Dakota Department of Emergency Services spokeswoman Cecily Fong.

Officials' attention has turned to displaced residents, more than 12,000 of whom heeded mandatory evacuation calls.

Some moved in with friends or family, but more than 250 people were holed up in Red Cross shelters at a city auditorium and Minot State University or at the Minot Air Force Base.

More evacuees were expected from the towns of Turtle Lake, Velva and Sawyer, among others, according to Allan McGeough, executive director of the mid-Dakota chapter of the Red Cross.

In Sawyer, about 16 miles southeast of Minot, 400 residents were told to evacuate after river water rushed through a downtown roadway, and as many as 300 people in Velva will require shelter, McGeough said.

Flood warnings have been issued from Burlington, northwest of Minot, through Logan and Sawyer to the southeast.

The massive flooding in Minot has overshadowed temporarily the widening deluge along the Missouri River that threatens cities from Montana through Missouri.

Federal officials have pushed record water releases from six reservoirs along the Upper Missouri River that are near capacity because of a deep melting snowpack and heavy rains.

Those reservoirs have little capacity for additional rain, and record releases are expected to continue through August, causing widespread flooding in Nebraska, Iowa, and Missouri.

Heavy rains across the Souris River Basin left Canadian reservoirs over capacity. Water rushing down from Canada has forced U.S. officials to make record-large releases from the Lake Darling Dam above Minot and other communities.