Jumat, 30 Desember 2011

Money Tree Not Down

For any of you who may be wondering, the recent announcement of a Chapter 11 filing by Money Tree has nothing to do with the local company.  Completely separate entities.  The bankrupt one operates solely in the Southeast (Aside: How do you go broke as a payday lender?  Katrina was six years ago, and did it really blow that many paychecks out to see?  Were you lending to the entire Ninth Ward?).  So if you need a loan shark out here in the wild, wild West, the local Tree is still standing.

Rabu, 28 Desember 2011

It Wasn't Illegal?

On 11 December, President Obama was interviewed on 60 Minutes.  The transcript is here.  The interview is pretty much what you'd expect.  Then, about three-fourths of the way through, comes this:

I can tell you, just from 40,000 feet, that some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn't illegal.
Excuse me?

First, it must be nice to deal with US news media, which consist almost entirely of ignorant tyros who do what they're told.  Steve Kroft swallowed that comment and just kept pitching softballs.  A BBC interviewer would have gone straight at that comment and pointedly asked the President just what in Hell he was talking about.

Second, loan fraud is illegal, and we've had well over 31 flavors of it in this mess, with new ones cooked up by B of A, Chase, and RBS every day.  Securities fraud is illegal, including stuffing investment instruments with cherry-picked, bogus "assets" and then betting against them (I'm looking at you, GoldSacks.).

Mr. President, as a former prosecutor I can tell you that, just because your boys aren't pressing charges, all this garbage has suddenly been washed clean.  And yes, Mr. President, the DOJ folks are your boys, however much you may want to hide behind prosecutorial independence.  You picked Holder, you picked the US Attorneys.  Their decisions are your decisions.  Own them.

Just Because You Bought It...

...doesn't mean it's yours.  There's a big brouhaha in the MF Global bankruptcy.  It seems the trustee's definition of the bankruptcy estate (and hence the assets available for him to liquidate) includes gold and silver bullion that traders and investors parked, or at least thought they were parking, with the firm and received warehouse receipts for.  And they are WAY unamused they can't get their bling.

A little background.  First, warehouse receipts.  I'm Joe Farmer, and I just brought in my corn harvest.  I decide to store it at the grain elevator for a couple of weeks.  I take it to the elevator, physically deposit it there, and get a receipt for X amount of corn.  When I want it back, I turn in the receipt, pay the handling charges, and get my corn back.  Substitute any storable thing you care to name, it's the same, basic process.

Second, other people's property in a bankruptcy estate.  If you lend your friend $100, and he declares bankruptcy, chances are you'll never see old Ben Franklin again.  If you let your friend use your car, though, and he declares bankruptcy, the trustee can't just take your car.  The bankruptcy estate doesn't include things the debtor possesses but someone else owns.

And that's what the warehouse receipt people are saying.  They have receipts for specific bars of precious metals that they bought and that were supposed to be stored in the MF Global facility.

Problem the First: Unlike Joe Farmer, extremely few of these people actually lugged any gold bricks to MF Global for storage.  Some put money directly into an MF Global account for purchase and storage, and took a "warehouse receipt" in return.  Others were brokers themselves and were making purchases for customers.  Either way, they weren't really following warehousing procedures (How often do you ask the warehouse to buy the stored item for you?), so off the bat we have a question of whether these "warehouse receipts" are warehouse receipts.

Problem the Second (and here's where it gets painfully apparent that a brokerage is not a warehouse): Back in 2005 the CFTC adopted Rule 1.25, which allows certain commodities investors to invest clients' deposit accounts (as opposed to investment accounts) so long as an asset of "equal value" is substituted in (As an aside, if I as an attorney were to do this with a client account, I'd be doing the perp walk in nothing flat.  In Investment World, though, it's perfectly OK.  For the investment house, that is.).  This fact was undoubtedly disclosed somewhere in the "storage agreement," and unless I miss my bet, that condition wasn't entirely one-sided.  If MF Global could invest the deposits, it could defray some of its costs instead of passing them on to the depositors (Remember those handling charges I mentioned?  Running a grain elevator isn't free.).  I certainly wouldn't be surprised if that was how MF Global pitched it.

So instead of the gold and silver sitting in the warehouse, MF Global pulled it and replaced it with "assets," namely paper instruments with all the value of papier de la toilette, or some such.  Needless to say, a bunch of the gold and silver is nowhere to be found.  Which means a bunch of those "warehouse receipts" don't stand for anything.  Which is perfectly OK since, by the receipts' own terms, the bullion could be swapped out.  Which leaves the "warehouse receipts" looking less like warehouse receipts and more like mislabeled investment contracts.  Which is exactly how the bankruptcy trustee is treating them.  If the depositors want it any different, they'll have to take the trustee to court and force it.  Good luck with that.

Kamis, 15 Desember 2011

Some Recovery

Things have slowed down in bankruptcy world, and now I have an idea why: People are too broke to care.  The latest census report shows that nearly half the population is either "in poverty" or "low income".  In other words, half the country either can't afford to file or has so little worth that filing is pointless.  When exactly was it the recession ended?

Of course the Heritage Foundation (The only "heritage" that foundation has is shilling for the 1%.  Just saying.) trots out its "poverty expert" Robert Rector (Oh, it's such a strain not to do naughty puns on his name.) to say that they're not really poor (by Mumbai standards), that we do enough for them already (Look at all the taxes rich people have to pay.), and that we just need to teach them how to be "self-sufficient."  Of course, this toady has been shoveling this line for decades.  Don't believe me?  Google him.  Or look at this article from 11 years ago where he's claiming the gap between rich and poor isn't so bad because of all the poverty programs the rich have to pay for (First, note how he conflates "income gap", which is bad enough, with "wealth gap", which is more accurate and is absolutely obscene.  Second, note that the gap has only gotten worse, due in large part to policies the Heritage Foundation promotes.  Don't believe me?  I'll let those Commies over at Forbes lay it out for you.  And while I'm over at Forbes, took a look at this article on 1% wheels.  Don't you love that remark by the Bugatti CEO, "The crisis cannot keep a Bugatti buyer away from buying a car for financial reasons”?).  Or this article, in which he claims the poor don't need more food because so many are already overweight (conflating "underfed" and "undernourished").  Or how about his remarks to the New York Times saying all but a very few people are merely "constrained" in the type of food they buy, so there is no hunger problem.  Just to show you you what level of dinkage this guy operates on, he's also the Heritage Foundation's "expert" on abstinence-only sex "education".  News flash:  That's the kind of sex education we had when I was a kid and on before that, and ignorance really wasn't a terribly effective contraceptive.  The difference is that, back then, a 17-year-old could get a job that could support the girl and baby.  Those jobs are gone, and the Heritage Foundation led the charge to destroy them.

OK, rant over.  The bottom line is that things are not improving.  If unemployment figures are going down, it's because people have dropped out of the work force or are holding jobs that barely qualify as jobs.  People are hungry and cold and desperate, regardless what the paid shills say.  And it's getting worse, not better.

Selasa, 13 Desember 2011

Red Ink by the Barrel

Lee Enterprises has filed a pre-pack Chapter 11, basically to force some dissenting creditors to go along with restructuring the company's massive debt load.  For months now this hasn't been a matter of "whether" but "when".  Lee, frankly, is a mess, and while it is pretending to be singing "Kum-Ba-Ya" with its largest creditors now, this looks like nothing more than a game of kick the can.

Full disclosure: I used to be in newspapers, and Lee publishes a lot of them.  Locally, it publishes the Provo Herald.  Back in my old, home territories, it publishes the Quad City Times and the Muscatine Journal (in Iowa) and the Lincoln Journal-Star (in Nebraska).  I worked for the Des Moines Register, and the Times was our chief rival in Eastern Iowa.  On the other hand, when I was in high school, the Star ran a feature article on me, complete with a picture of my not-so-smiling face, on the front page.  I guess that makes me neutral.

In all seriousness, you have to wonder who is driving the bus at Lee.  You can trace this train wreck to 2005, when the company acquired Pulitzer, Inc. (owner of the St. Louis Post-Dispatch) for a cool $1.5 billion.  Newspapers folding left and right and the industry in a general state of free-fall, and Lee decides to drop a bill and a half on acquisition.  Of course it was 2005, credit was cheap and loose, and the economy could only go up, just ask The Blessed St. Greenspan.  You can imagine the dollar signs in Goldman Sachs's eyes when it heard Lee was looking for financing.  You can imagine the pitchers glossing over the 1.5 billion things wrong with the deal, including the complete lack of supporting cash flow and acquisition value and the requirement for unanimous creditor approval for refinancing (which is what forced the Chapter 11).  Anybody who greenlighted this checked both brain and spine at the boardroom door.

Now GoldSacks and its cronies are getting a 13% piece of the action, and you can bet they won't put up with any management shenanigans.  And I expect the shenanigan attempts to commence soon.  Lee's plan defers the due dates on all those bonds, but the bonds are still there, ticking away, and its revenue stream is so poor it must have been handing out Swisher Sweets to celebrate the deal.  Lee certainly couldn't cover Montecristo A's.  On top of that, a big chunk of the debt isn't really deferred.  It's currently at 10.55% (Can Mary Junck say "Junk"?), and in a year the escalator clause kicks in.  There is no way Lee can cover that.  I figure that in perhaps two years, the creditors will pull the plug, part Lee out, and hold fire sales for the papers that are still standing.  And there will go a big chunk of what's left of this country's news media straight down the drain.

Selasa, 29 November 2011

Chapter 11 Airlines

Well, it was just a matter of time.  Every other major, U.S. airline had taken a trip through bankruptcy court in the last 10 years, and now American Airlines, via its parent AMR Corp., has gone in.  AMR cites two, big causes: fuel costs and labor costs.  Ignore the former; it's all about the latter.  AMR will use 1113 to reject the current collective bargaining agreements, 1114 to severely curtail retirement benefits, and 29 USC 1341 to do a distress termination of the pension plans and foist them on the Pension Benefit Guaranty Corporation (i.e. we taxpayers).  No word about a pre-pack plan, but you can bet there has been a bunch of negotiating going on.  Watch the first-day motions to see who is pulling the levers.  You can be sure it isn't the unions, who haven't even been invited to a side table.

It's easy to feel sorry for retirees losing pensions, but these tended to be real Rolls Royce models, while the rest of us muddle along with Yugos (Actually, mine is more of a skateboard.), so it isn't hard to see how companies can't keep funding them.  There are two things that gripe me, though.  First, it's apparently OK for a multinational corporation to walk away from obligations like these, but morally reprehensible for poor schlubs to bail on economically absurd mortgages.  Sorry, that's hypocritical horse hockey.  Second, AMR entered into these contracts with its eyes wide open and led by the managerial geniuses who will be running the reorganization and who are unlikely to take any kind of meaningful haircut for putting the airline in this position.  If you want to talk about rewarding failure, start right there.

Minggu, 27 November 2011

Agribusiness Is The Problem, Not The Solution

Winterbotham Parham Teeple, one of SoCal's main BK houses, recently noted on its blog that rising grocery bills are playing havoc with family budgets.  I commented that the real culprit is the decades-long romance of government and the banks with industrial agriculture at the expense of small farms.  Winterbotham is trying to soft-pedal the price increases as business as usual.  I'm having none of it, and you can call me a conspiracy nut-case all you want, but U.S. ag policy for over 60 years has had the uniform effect of continuously shrinking the percentage of the population that can feed itself.  What does that mean?  Control.  As Mark Twain put it, "Show me where a man gets his corn pone, and I'll show you where he gets his opinions."

Anyway, I posted my comment a week ago, and it has yet to be let out of moderation, even though I know more about ag commodities and policies than everyone at Winterbotham combined (Not a brag.  Fact.).  So here it is:

"Yes, we would all like to maximize profits, but Agribusiness has had singular forms of assistance. Since WWII it has had a federal agricultural policy designed to drive people off the land, and since 1970 it has had a matching financial industry policy. We now have 90% of the population divorced from the land and wholly dependent on industrial food delivery (We have also become a net food importer, perhaps the greatest absurdity produced by our economic system.). When people tried to become less dependent, Agribusiness acquired new allies. A pliant USPTO granted patents on every strain of seed presented to it, allowing Agribusiness to send cease and desist letters to anyone with the temerity to save seeds for planting. And all producers have to comply with all regulations (regulations that Agribusiness loves to wail about but that it in fact uses to drive small “competitors” out of business), and if they don’t, the USDA, FDA, and state agricultural agencies will sweep in, destroy their operations, and even jail them, as if they were cooking meth.

In other words, Agribusiness has used government and bank assistance to create a captive market and continues to do so. So yes, there is plenty of reason to object to unrestricted price increases." 

Rabu, 23 November 2011

The Latest On Harrisburg

Bankruptcy Judge Mary France has dismissed Harrisburg's Chapter 9 petition, ruling the city did not have the authority to file under state law.  See this post for my initial comments on the filing last month.  Mayor Linda Thompson and a minority of the city council have fought the filing all along.  I have not seen the ruling, but apparently it was based on two grounds: 1) Act 26 that the Pennsylvania legislature passed this year bars Harrisburg from filing, and 2) the authorizing resolution was invalid because it was not presented to the city solicitor first.

We'll see how this plays out.  First, I question whether Act 26 is actually constitutional, regardless of Judge France's ruling that it is.  Given that it targets Harrisburg alone among all the municipalities in Pennsylvania, it has to be vulnerable to an equal protection challenge.  Second, if the council can get around Act 26 and wants to refile, it can streamroll the city solicitor.  The law only requires that the resolution be presented to the city solicitor, not that he approve it.  "Here's this resolution we're going to pass.  Don't like it?  Pound sand!"  Believe me, I've been to that rodeo more than once.

If the decision stands, the mayor and the council minority are going to learn you should be careful what you wish for.  Once a receiver takes over, their authority is going to be reduced to the name plaques on their doors.  And maybe not even that.

Senin, 21 November 2011

No Giving Thanks In Orem

Nordstrom's has pulled the plug at the University Mall in Orem.  Come 24 February, the mall will be missing two out of three anchor tenants (Mervyn's spun in several years ago, and Nordstrom's closure will leave only Macy's, in the old ZCMI space it got in the buy-out.) as Nordstrom's heads north to open its new store in City Creek.  Orem will seriously be hating that loss of sales tax revenue, and Woodbury (the mall owner) has to be ruing the improvement money it fronted to get Nordstrom to move into that space 10 years ago.  It's only half-way through the 20 years of earmarked sales taxes it was promised as reimbursement, and that payment stream just went POOF.

So why is Nordie's doing this?  Because it knows where the money is.  Nordstrom's has always been well above median in the market, it wants to go farther up the scale, and it doesn't think enough of the good citizens of Utah County have sufficient discretionary income to make it fly.  In other words, Nordstrom's has called the yeast-growth-curve-knee in the MLM Ponzi scheme that is the Utah County economy.  Utah County is saturated.  There isn't enough upline/downline/sideline left for the next magic hoochie juice to cover family expenses and still leave some extra for Waterford crystal or clothes imported from anywhere other than China.

But we're so business friendly here and have such a well educated population.  News flash: That's the problem.  Because of what Utah is, gazillions of highly trained people flock here for jobs that don't exist.  You can't swing a cat without hitting a dozen people with graduate degrees pounding the streets peddling security systems door to door because there isn't anything else to do.  Add to that a rabidly pro-business legal and social environment, and you're not just in a race to the bottom of the wage barrel, you're picking up the barrel and digging a hole under it.  You end up with no one being able to shop at Nordstrom's, except for the top 1%, and let's face it, there are only so many stores 25,000 people can keep open.

Of course the Chamber of Commerce is putting a big smiley-face on this, assuring everyone that Woodbury will have a new anchor in there in no time.  I don't know what Kool-Aid they're drinking, and I'm not sure I want to know.  What anchor retailers are looking for space like this?  The Mervyn's space has been dark for three years now.  Who is going to look at the demographics and decide that moving into this space is a good play?  The Dollar Store?

Kamis, 10 November 2011

Another Muni BK

So we have another municipal bankruptcy filing, this one in Alabama.  And it's a biggun, with over $5 billion in debt, sure to send some shockwaves through the bond markets (The centerpiece of this solid waste is a series of sewer bonds.).  The one bright spot is that this isn't the result of anything systemic but rather of outright corruption, and that people have actually gone to prison for it (Gee, how did that ever happen?).

What I can't believe in all this is the remark by the receiver, John Young Jr., that the filing is an "utterly irresponsible act".  Excuse me, but allowing the public purse to continue to be eaten away by creditors who were ratcheting up the terms of the settlement would have been utterly irresponsible.  Your job, though, was to keep the creditors in line, and you failed, so if we're talking about "irresponsible"....

The remark I can believe is the one by the JPMorgoth Chase spokescritter, just not in the way she intended.  I bet JPMC wanted to avoid a BK filing; in Chapter 9 its backroom maneuvering and political clout are severely curtailed (Duplicity by JPMC?  I'm shocked, shocked!  Just because I've had two VP-level JPMC counsel lie to my face in multi-million dollar cases....).  Sorry, people, you overplayed your hand and left Jefferson County with no choice.

Jumat, 04 November 2011

Ice Cream Cools Off

Dippin' Dots, which makes the ice cream equivalent of little chocolate doughnuts (You just keep popping them in until you 'splode.) has filed Chapter 11.  According to its filing, it has a decent shot at reorganizing, but we'll see if the filing is reality.  The bigger question is, if ice cream companies are going down (And they are.  Goodbye Snelgroves!), just what sort of civilization are we creating here?

BTW, it's absurd that the spell checker here thinks "doughnut" is misspelled.  But then again, it thinks "blog" is misspelled.

Kamis, 03 November 2011

The Way We Live Now

I love this book.  It should be required reading.

Do you think federal jobs are a safe bet?  You might want to check with the 9,000 civilian employees the Air Force is showing the door.

Maybe high tech?  Guess again.  AMD, the second-largest microprocessor manufacturer, is shedding 1,400, 12% of its workforce, and its stock is still falling.

George Papandreou made a brilliant move at the G20, threatening to hold a referendum on the Greek bail-out, which would undoubtedly scuttle the proposal (Mish and I actually agree on this, so take special note.).  Papandreou is already back-stroking on this, but the opposition parties may hold him to it.

In spite of 30-year mortgages falling to 4.1%, housing prices continue to sag because no one is buying because no one can.  How can you buy if your job prospects consist of being a part-time greeter at Walmart?  Yet Bloomberg has the temerity to blame the malaise on new regulations.

But then what do you expect from Hizzoner Michael?  He just blamed the mortgage mess entirely on Congress.  Have to protect Wall Street at all costs, eh Mike?  Even Forbes called BS on this.

So what do people consider to be the big answer to this mess?  Gold.  Yes you read that right.  The big, yellow clunker.  I love Paul La Monica's comment about gold having "tangible value".  Really, Paul?  How many fillings and ear studs do you need?  Trust me, children, as I've commented before, if you wake up one day wondering where you're going and what you're doing in that handbasket, you won't need gold, you'll need dirt and lead, i.e. a place to grow your spuds and a loaded weapon to defend them.  Smokes and booze are far more useful for barter than gold can hope to be.

And on top of that, a growing bloc of idiots thinks returning to the gold standard is the way to go.  Yeah, that makes sense.  Everybody is in hock to his highest hair follicles, and the threat of severe deflation grows daily, and we're going to fix it all by hardening the currency.  Reality to geniuses: We tried exactly that in the 1870s and got a quarter-century of rolling recessions.  For most people it was a depression.  Except for the top 1%, who made out like bandits (Ever hear of The Gilded Age?).  Now stop and think about who is really pushing for a gold standard now.  Sheesh, I knew you people were born at night, but I didn't know it was last night.