Paying for "Influence"

The Wall Street Journal reports on a recent investigation by the Department of Justice on attorneys' fees in bankruptcy, and publishes a schedule of rates charged by Gibson, Dunn & Crutcher.  Antonin Scalia's son Eugene bills $980.  Ted Olson, former Solicitor General, bills a mind-blowing $1,800.


But believe it or not, the numbers themselves aren't the most disturbing parts of this article.  First, there's the fact that I've seen very good attorneys get ripped by DOJ and bankruptcy courts for billing one-third these rates.  The only discernible difference was that their clients were mortals, not Olympians.

Second, there's Justice Scalia's remark about paying extra for those who are "just a little bit brighter."  If that's all the better understanding he has of paying a premium at the margin, then he needs to stop pretending he has any understanding whatsoever of economics and leave that sort of thing to Posner.

Third, Some Perspective's comment shows me he/she should just go sing "Kumbaya" around a campfire.  OK, sometimes these kids have to work all night.  Earth to No Perspective: So do I (Ask my wife.).  So does any litigator.  That doesn't mean I expect to be billing out at $500 any time soon.

Finally, the most disturbing part: NALFA's statement that Olson's rate is simply free market economics.  What do you buy for a rate like Olson's or Scalia's?  Are their legal skills so inordinate?  No.  You're buying their influence.  You're buying their phone lists, and country club memberships, whom they lunch and dine and golf with, whom they share board memberships and alumni committees with.  And they work those contacts for you to bring pressure on decision-makers.  If a normal joe like a restaurant owner pays another normal joe like a beat cop fifty bucks a week to make sure he passes the health and safety inspections, that's a felony on both sides.  If a 1%er pays another 1%er to make sure a regulation isn't passed or is only "selectively" enforced, that's just the old boy network in action.

And that stinks like last week's diapers.

I Can't Let This Slide By

Just about all my clients have the same problem Senator Lee is facing.  There are a few differences, though.  First, I doubt Senator Lee is going to lose his job over this, and I also doubt he won't be able to get a loan for the next several years.  Second, rank has its privileges; Chase was more than happy to play nice and not pursue him for the deficiency.  Third, my clients aren't constantly preaching about personal responsibility and living within your means.  Things happen, even to a US Senator.

So, Is Utah a Developing Nation?

Not an idle question.  The latest McKinsey Quarterly links to one of their old papers on the "informal" economy, i.e. business that's run under the table.  They note that the proliferation of an informal economy can be detrimental to the economy as a whole for a variety of reasons, lost tax revenues, disrespect for laws, irregular wage payments, avoidance of licensing and regulatory compliance, illegal employment practices, worker safety, product defects, and undercutting legitimate businesses being among them.


They also note a number of indications of an "informal" business: underreporting of employment, avoidance of taxes, ignoring product quality and safety regulations, IP infringement, failing to register as a legal entity, etc.  How many of these are an every-day occurrence here?  All of them.  How many people do I get in my office who are "behind on their taxes" because their bosses list them as "1099 employees?"  There's no such thing.  Either you're actually an independent contractor, or your boss is a cheap sleaze who's shifting his tax burdens to you.  And then there are the businesses that send me brochures, and when I ask them where they got the photos and text, they tell me they just pulled them off the Internet.  Oh yes, that's a plan, commercially using other peoples' property without their permission.  And when I ask for a license, they hand me something in some other business's name.  So what's your relationship to this business?  "Oh, he just lets me use his license."  Uh, wrong answer, and it's a crime.  Not surprising, though, given that they typically haven't met any of the requirements for doing business, right down to registering the DBA they're operating under.

Every time I take the bench in small claims court, I end up having to admonish at least one small business owner that he/she is in fact in business and needs to get the paperwork straight, including licenses and contracts.  Happened again last night.  Folks, if you're in business, you're self-employed, and being self-employed is fundamentally different from being employed.  It means you're ultimately responsible for the paperwork, and if you don't keep it straight, sooner or later you'll wake up wondering what fell on you.  And when that happens, and you come to me to straighten it all out, don't start whining about how unfair everything is.  My kids know better than that.

Latest Financial Industry Comments

Over on Credit Slips, we're discussing the CDS mess in the Greek default.  No one over there thinks we've seen the end or even the beginning of the end.  More like the end of the beginning.  I'm sticking to my position that anyone who was relying on a CDS to cover his position was willfully ignorant and deserves the haircut he'll be getting.  I've added that anyone who really wanted insurance for his investment should have been able to buy something from somewhere, and that if no such insurance were available, that a CDS was the only option, we now know as an absolute fact that the markets are nothing but a crooked casino.

On London Banker's blog, we're discussing how to fix regulation methods.  Following up on another comment, I've said that the touchstone should be whether the financial industry can explain an investment to the regulators.  If it can't, the investment doesn't fly.  After all, if the regulators can't understand it, how can the investors?

Nursery School World

Continuing my earlier rant, I like having physical possession of my things; I want them to be here, rather than off in the ether where I have to conjure them into my presence.  Further, I want to be able to do what I want with them, not what Steve Jobs or Bill Gates thought I should do with them.


Once upon a time, there was a thing called "thin client".  It was basically a reincarnation of what we originally had with the first desktops: The monitor and keyboard on your desk did nothing but provide access to the central computer.  If the computer or the connection went down, you sat at your desk playing with your paddleball until the large piece of beige decor on your desk cam back to life.  Everybody hated it except the IT guys, who were ecstatic.  They were again the spider at the center of the web, and they could keep everything safe and secure by preventing the rest of us from having access to anything that mattered (I swear the firewall at the office works like this; all the Interwebs are presumptively blocked.  Reminds me of the episode of The Simpsons where Bart goes to the Flanders', and they have 125 cable channels, all blocked.).  We screamed, and once again we had something other than a dumb box on our desks.

And then one day our apps migrated to the Web.  And our data.  So although we didn't have dumb boxes on our desks, we had empty boxes.  It's all for safety and security, to keep bad things from happening.  And it stinks like last week's diapers.  I want my data on my box, not someone else's.  I want the software I want, not what I'm obligated to stream from Redmond or Cupertino with random "upgrades" that require new hardware and turn my earlier work into Linear A.

In short, I want to use my stuff my way.  Unfortunately, more and more producers consider you too much of an infant to be trusted to do anything on your own.  So with things from computers to cars to household appliances, you do it their way or you don't do it at all.  I call this "Frank Lloyd Wright Syndrome."  Wright's later clients told stories about Wright dropping in for visits.  If they had moved the furniture he had designed, he moved it back.  If they (Horrors!) had put in their own furniture, he made them take it out and put his back in.  Some may call this the price of genius.  I call it a crippling case of OCD.

I have a picture of a boy strapped into a "new model" potty chair.  Astronauts aren't this securely strapped in for a launch.  The picture is a joke, but only barely.  Everything has to be safe these days.  Safe and convenient.  We build in safety and convenience to the point that the thing doesn't work anymore.  Computers are a good example.  Cars are another.  Your car practically runs itself.  Until it doesn't.  Then you need a Cray computer and Roger Penske's shop just to find the problem, let alone fix it.  And how convenient is "convenience food" if it's so loaded with crap that it kills you instead of nourishes you?  I suppose it's convenient for the undertaker if you're pre-embalmed or if you're so full of grease that cremation is instantaneous.

It isn't just products.  Our entire society has gone this way.  Kids are regimented in ways that make Marine basic look like Woodstock.  TSA secures our airports by making everyone prefer walking 3,000 miles or simply wish they could blow the place up.  The Wars on Drugs and Terror compel us to rat out our friends and families (Ah, Soviet-style security.  I feel safer already.).
Here's the deal, people.  Risk is unavoidable.  Deal with it with what's between your ears.  Stop trying to find a magic wand that will make it go away.  And stop putting up with people who claim to be making it all go away while ushering you through the door to Prison Planet.

Block Busted

I was driving down the street yesterday and saw the neighborhood Blockbuster was closing down.  This weekend.  Everything had to go.  Now, while I picked up some very nice deals, long-term this stinks.  I am one of those dinosaurs who does not stream movies on line.  Oh, I will, but it isn't the way I like to do it.  I'll have more of this, particular rant later, but for now I'll just say that I like having the hard copy in my own hands.  I don't like depending on someone else's servers and someone else's connections.


Anyway.  A little digging told me what was going on at Blockbuster.  Back in July, Blockbuster was trumpeting the successful conclusion of a Chapter 11 liquidation, having sold the farm to Dish Network.  90% of the stores would remain open, jobs would be saved, landlords would not be facing yet more dark space, blah, blah blah.  The sun was bright, and all was right with the world.
A happy ending is a story that hasn't finished yet.


Digging through Dish Network's latest 10-K yields the following on page 31:

In addition, our Blockbuster retail store operations face increasing competition from video rental kiosk, streaming and mail order businesses. These competitive pressures have contributed to weak store-level financial performance at many of our Blockbuster retail stores. We expect to close over 500 domestic stores during the first half of 2012 as a result of weak store-level financial performance.

We continue to evaluate the impact of certain factors, including, among other things, competitive pressures, the scale of our Blockbuster retail operations and other issues impacting the store-level financial performance of our Blockbuster retail stores. These factors, or other reasons, could lead us to close additional Blockbuster retail stores. There is no assurance that we will achieve the expected benefits from the Blockbuster Acquisition.

That's 1/3 of the stores Dish bought being shut down now, with more coming.  So much for saving the stores, the jobs, etc.

And that's the dirty, little secret of Chapter 11.  You can negotiate and strategize for months.  You can force a plan through.  You can even walk in with a pre-pack and all your ducks in a row and be out in a month.  And a year later, it can still all be gone.

Amazon Triangle

Meanwhile in Seattle, Clise Properties, which owns about two-thirds of the Denny Triangle, has sold a big chunk (three blocks to be precise) to Amazon.  Amazon intends to build a big office tower on each block and fill them with cube farms, managers, and executives.  I don't know how to think about this.  My first thought is that Paul Allen better invite Jeff Bezos to his next barbecue, because this has to boost Allen's South Lake Union play.  My second thought is that, if Amazon can't fill this space, it's going to enter the leasing market, which will further exacerbate downtown vacancy rates.  My third thought, at least for now, is that, if Amazon can fill this space, the physical bookstore market must be spinning in at terminal velocity, which saddens me to no end.  I'll always want a store I can actually walk into.

But I Want More Stuff!

It never ceases to amaze me how many of my bankruptcy clients ask, "How soon can I get a credit card/car loan/mortgage."  Geez, kids, cool your jets.  First, one of your problems coming out of bankruptcy will be that you'll start receiving credit card offers right away because they know you're stuck with the bankruptcy waiting period and can't stiff them any time soon.  Are you really so eager to feed the vultures?  Second, incurring debt you couldn't service is what brought you to my office in the first place.  You may think you're flush, but you're still just one job loss or medical emergency from being back in the tank.  Try this thing called "saving" for awhile.  Ask your grandparents; they can probably tell you all about it.


Look, we all want things.  I want a new car and house, too, but here's a news flash: Tomorrow will come, and if you spent it all today, tomorrow is going to hurt.  Badly.  So I maintain my cars (Memo to me: Get that front end looked at.), and I keep renting.  When we moved from Washington to Utah seven years ago, My Dear Wife wanted to buy another house.  I said, "No dear, this market is whack."  She was incensed that I would do something so un-American as fail to incur consumer debt.  But guess what?  I was right.  And we'll keep renting, too, much to her chagrin, because in less than 10 years, we'll have an empty nest, so why do I want to go buy extra bedrooms and baths?


It's called "thinking," people.  Do it or pay the price.

"Show Me the Note" is Now the Law

A lot of foreclosure defense has been riding on the "show me the note" argument, namely, "Hey bank, where's the promissory note you claim is evidence of the debt?"  The state courts and the federal district courts have been quite loose on this and generally allowed the banks to proceed with little more than a shoeshine and a smile, but the bankruptcy courts have tended to be stricter.  The reason is inherent in the nature of bankruptcy: Note issues come up normally in two situations, claims and motions for relief from stay, and in both the claimant (the bank) has a stricter burden of proof than in nonbankruptcy proceedings.  Now that fact has been writ large courtesy the Tenth Circuit Court of Appeals in In re Miller.  The Tenth Circuit, reversing the bankruptcy court and the Bankruptcy Appellate Panel, holds essentially that, if you want to come to the table as a note holder, you'd better be holding the note.


This approach is perfectly reasonable and long overdue.  There is an issue that remains open, though.  The Tenth Circuit, as with every other court I've seen address the issue, relies on UCC Article 3 to determine if the claimant is in fact the holder of the note.  There is a growing debate, though, concerning whether standard mortgage notes qualify as negotiable instruments under Article 3.  If they do not, then Article 3 does not apply, and we must look to other law to determine who holds the note.  Stay tuned, we may have this all sorted out in 10 or 12 years.

New Website

Woo-hoo, new website up and running.  Click here, or use the link above my profile to the right.

Big Boys of BK

Lots of Chapter 11 news today.



Kodak finally filed last night.  It had been in trouble for a long time (I think I'm one of the few fossils remaining who uses film.), but it was trying to reshape itself as a printer company.  To do so, it was relying on a revenue stream from its patent portfolio (At one time that portfolio rivaled the likes of Bell Labs and IBM.).  Unfortunately, Kodak didn't account for aggressive (i.e. predatory) behavior by some major license users, including Apple and Research in Motion (I have to say I don't use much of anything from Apple.  I hate black boxes, so I didn't care much for the products, and I didn't care for the culture, either.  Seemed too much like a religious cult.  I see people walking around festooned with 500 i-Crap products, and I wonder why anyone needs to be so simultaneously plugged-in and cocooned from the world.  They remind me of Neo in The Matrix before he's released from his pod.  RIM, though, hurts.  I've rocked the Crackberry for over a half-dozen years now.).  The big users decided to stop paying for the licenses, forcing Kodak to litigate.  They wouldn't buy the patents outright, either, at least not for more than a dime on the dollar.  So Kodak is in Chapter 11, where it might be able to force a few things.



American Airlines, on the other hand, might be getting forced.  It's nearly two months since it filed, and American has barely gotten off square one.  As I blogged the day it filed, American's big motivation was to take down the labor contracts and pensions.  It hasn't, and everyone (including Your Truly) is confused about the delay.  Confused about it, but still willing to take advantage of it.  Delta and US Airways are making noises about rival bids, and others are getting into the game.  If American doesn't have a reorganization plan in front of creditors in two months, it's looking at getting parted out.



And of course we can't let the day go by without some more mess from MF Global, this time with a heapin' helpin' of JPMorgan Chase.  It seems that back in October, right before it filed, MF Global was selling piles of assets to raise cash.  Problem was, it was selling them through JPMorgan, which decided to do a by-the-book slowdown of the transactions.  Consequently, MF Global had neither the assets nor the cash and couldn't meet the inevitable margin calls.  Welcome to bankruptcy.  Now the creditors and trustee are finally getting around to asking JPMorgan where the money went, because it certainly hasn't been turned over.



JPMorgan's involvement in "where did it go" scenarios is getting to be a habit, and it's long past time someone pulled the curtain back and took a look.  Somebody needs to look at where Washington Mutual's assets went, because they were there until JPMorgan stepped in.  And unless something drastic has happened this week, JPMorgan is still sitting on piles of cash involved in investment schemes from five and six years ago (I have to be careful here.  I've had two, executive-VP-level in-house counsel lie to me about the creation and handling of those accounts, so it's hard to say what the "official" records look like any more.  And I've had outside counsel threaten me with bar discipline for daring to represent anyone opposing JPMorgan.  But then that's SOP for Utah.  The Bar doesn't care if an attorney makes a groundless threat like that so long as he is representing a 1% client and he makes it against an attorney with a 99% client.).  Any wonder I refer to the place as "JPMorgoth"?  We'll see if anybody decides to use the big microscope this time or if JPMorgan skates again.

If You Don't Promote, Your Business Won't Float

No apologies at all to Johnnie Cochran.

Yesterday, while waiting for a kid to finish a rehearsal, I swung by Trolley Square just to see what was going on there these days.  It was about 0915, and I was surprised to find the parking lots and new garage already pretty full.  I walked inside and discovered that Trolley had leased a space to the Sundance Film Festival for ticket sales and that there were several hundred people in line waiting for the ticket office to open at 1000.  I thought, "This is a great idea by Trolley.  Sundance audience, relatively hip, some discretionary income.  Exactly the target market for Trolley-style shops.  And a captive audience to boot, with nothing to do but stand around until the ticket office opens."


And then I noticed that I wasn't seeing any shops open.  I walked through the whole place.  Not a single shop was open.  No one was working the lines, handing out fliers or coupons or samples, offering to hold a place in line while someone shopped, taking food orders and bringing them back.  Nothing.  All those customers, and no one approaching them.


First, to Trolley Square management: Kudos, you did your job.  You brought in a mass of potential customers the likes of which has rarely been seen around that tomb.  And you'll be bringing those crowds in all week.  It isn't your fault if your tenants aren't taking advantage.  When they come whining to you for concessions because they aren't getting enough traffic, you should rub their noses in the photos and videos you're taking of this event.  Why should you give concessions to businesses that act like they're hobbies?


Second, to Trolley Square tenants: You blew it, and you'll probably blow it all week.  Yes, you opened at 1000, but so what?  Those customers had already been there for an hour with nothing to do but wait.  They didn't even have a moving line to keep up with.  They were just standing there.  And you were nowhere.  You weren't visiting with potential customers, you weren't telling them about your inventory and specials, you weren't learning about their shopping habits and needs, you weren't getting their contacts for your email list, you weren't having them like your Facebook page.  You were a no-show.  I know you'll whine about lack of traffic all Summer, but it's really your own fault.


Third, to everybody: I've seen grundles of small businesses that acted either like they were hobbies or they had a divine right to customers.  Both attitudes are fast tracks for the Fail Train.  Hobbies are not designed to make money; they need to stay in your garage.  And the last folks who claimed a divine right to something got their heads lopped off.  The only people who don't have to work for money are the ones who were born with it.  Your business is there to make money, and that requires work, your work.  If you don't bring it, don't expect success.

Merry Red Ink Christmas

Throughout the holidays, I saw people buying like mad.  I kept thinking, "Wait a minute.  The job picture stinks, about every asset and investment class is dropping, and everyone below the top 10% is getting absolutely rocked.  How is everyone buying?"


The old-fashioned way, apparently: debt.  The Fed's figures for November are out (December won't be out for another month, but I can't imagine it won't look worse.).  Consumer debt rose at an annual rate of 9.9%.  Revolving debt (credit cards, lines of credit, etc.) rose at an annual rate of 8.5%, and nonrevolving debt (mostly secured purchase money loans and student loans) rose at 10.7%.
This is a mess in the making.  We have learned nothing from four years ago.  People are once again buying by spending money they don't have by taking out loans they can't afford from people who don't care if they (or, more accurately, their clients/customers) get repaid or get stuck with collateral they can't unload so long as they get their origination fees.  And when this new house of cards collapses, where does the bail-out come from this time?

I see bankruptcies trending back up soon, but that isn't the real concern.  With the President, the House, and one-third of the Senate up for election this Fall, D.C. will pull any smoke-and-mirrors to kick the economic can past November.  But what kind of hangover will we get in 2013?  If what we've seen is any kind of prologue, you may want to find yourself a place to hide in the high grass.

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.

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.

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.

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.

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.

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."