Yesterday, the New York Times ran a front-page article on Simmons Mattress and its almost 20-year history with the LBO world that recently culminated in bankruptcy.

With all due respect to the Times, in its effort to focus on the human element of the Simmons bankruptcy, I'm afraid it may have missed a far bigger and far more important story.

In the article, Julie Creswell writes “Every step along the way, the buyers put Simmons deeper into debt. The financiers borrowed more and more money to pay ever higher prices for the company, enabling the previous owner to cash out profitably.”

And in the body of the article, Ms. Creswell included the following chart:


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Don’t get me wrong -- I have no quarrels with Ms. Creswell's reporting or her chart, but here is the chart she should have also published:


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Now get the picture?

Lower and lower interest rates enabled Simmons to borrow more and more money while keeping debt service costs relatively reasonable.

Sound familiar?

Put simply, the private-equity firms speculated with Simmons, the same way real estate investors speculated with real estate. They leveraged an asset (be it a company or a house) with the hope that lower interest rates would enable the next borrower to pay more for it than they paid.

And to me, that's the story that Ms. Creswell should have written.

Over the years, people have talked about what brilliant investors private-equity firms have been over the past 30 years. With all due respect to the group, I don’t think they were particularly brilliant investors. I think they were great speculators who saw first the benefits of lower and lower interest rates.

(And for what it's worth, had rates risen in a meaningful way before today, not only would the judgment of private-equity firms have been questioned well before now, but so, too, would the judgment of the banks that lent them the money to speculate in the first place.)

But here we are in 2009 in a situation as inevitably happens with all speculative bubbles -- when there's no next buyer. Asset values plummet. And I suspect that Simmons is only the first of many LBOs that will collapse under the weight of their oversized debt load.

And one more thing: Given the interest rates are at record lows, rates are likely to only go up from here. And as I wrote earlier this year, rising rates aren't kind to speculation of any sort.