< meta name="DC.Date.Valid.End" content="20050825"> Amendment Nine: February 2005

Monday, February 28, 2005

Don't that beat all?

I'm chatting with a buddy of mine this evening who lives in Bermuda (great gig actually). When we get a chance to talk, we rarely talk politics. For some reason though, he brought up Bob Herbert's column today in the Times, which he approvingly cited. What he said next though is a little more interesting, but made remarkable when you realize this guy is a New England blue blood with a trust account big enough to back up that long family tree.
"Now everyone's whining about torture. Torture! They're gonna say that America doesn't torture. That democracies don't do this. That only Nazi Germany, or extremist Afghanistan do this sorta thing."
I told him that was true enough. And I read him snippets from this post over at AmericaBlog. He roared with laughter. "Those damn white liberals!" he declared.
"Where are they everytime a poor white Southerner gets his ass handed to him on the police station floor cause he was at the wrong place at the wrong time? Where are they when some wetback gets his jaw dislocated during an interrogation? America doesn't torture? Bullshit. America doesn't torture smart-ass, white college kids with a little bit of money. America has always tortured everyone else though."
Sounds right to me.

Train Dispatch #5, from Laguardia

Haven't had the opportunity to take the train lately... been doing a lot of flying. One thing I've noticed about those flying our commercial skies is that they are markedly different from those riding our public trains. Almost no one wants to talk to you when you fly, unless you're in business class or first class and you and the person you're talking to are both flying alone. On rare occassions, coach flyers will strike up a conversation, usually prompted by the children flying with one of the conversants. Kids have a way of breaking the ice in close quarters that adults just can't seem to handle. And that's where I think the main difference lies. On planes, you're on top of each other (unless flying business or first, see above) . When you're on top of each other, you're afraid to make the other person (or yourself) any more uncomfortable than you already are. You can smell their breath, so they can smell yours. You understand this I'm sure. On trains though, there's a little more room, and you can walk a few cars to get yourself a beer (or two) instead of waiting for some lady to bring you one. Even the side by seats are bigger and a little less "cozy" than two coach seats side by side (however, I have noticed that less conversation typically occurs on the side by side train seats than their three seat bench counterparts holding only two passengers).

What's all this mean? Not sure, but something to keep in mind. Give people a little space and they open up, they become friendly, and they start having good conversations, the kind that shed light on the day to day, or the kind that are therapeutic. Pack people in like rats and they'll shut up, stare straight ahead, and forget to ask questions or crack jokes. Makes me think about the suburbs... Speaking of which, please check out a new blog on suburban development and land use. Started by friend of Amendment Nine DML. We caution DML though, most friends of this site don't fare well at MyDD or Daily Kos... Not sure why, just a warning. Anyway, the blog itself seems pretty interesting and we hope to hear more from DML soon!

Pooty Poot

Gotta love this... the whole article is like watching someone look at themselves in a mirror, and then write about it as if they're looking at a stranger. Weird, but hilarious. I especially love this part:
It's not clear how well Putin understands the controversy that led to the dismissal of four CBS journalists over the discredited report on Bush's National Guard service.
Well, if Pooty Poot did indeed say this:
We didn't criticize you when you fired those reporters at CBS.
then I imagine Vlad understands it just fine. It seems while Bushes rule behind closed doors, Putins rule out in the open.

Monday, February 21, 2005

Lebanon Today

Can anyone remember the last time this many Arabs were in the street, and not a single one of them was either (a) burning a US flag, (b) burning the American president in effigy, (c) shouting "Death to America!, or (d) all of the above? Forget that....can anyone remember the last time this many Arabs were in the street protesting against their own government?

Something is going on here. And like the Iraqi election, it is an unmitigated good thing, and who knows where it could lead. These are courageous people. I hope my fellow Democrats can appreciate that.

More at Democracy Guy.

S. 256

The so-called "Bankruptcy Reform Act" or, more exactly, "Bankruptcy Abuse Prevention and Consumer Protection Act" has been around for quite awhile. I've refrained from posting about this because, as far as I can tell, most people commenting on it have not actually read it. Liberals today are doing a lot of that, talking about stuff without doing their homework. Colleagues of mine, however, have all but called me a chicken. So here goes...

I find the unintended effects of this bill the most amusing. Supposedly the GOP is the party of the "great interior", or as most pundits say today: "red state America." That includes the South, the rural Midwest, and the Mountain West. Cruel irony of Shakespearean magnitude that the leading state for personal bankrutpcy filings is, Utah! After Utah are a host of red states including Indiana, Mississippi, and even Ohio. Red America is going to get smacked by this bill. But, when you vote for a guy whose family is from Maine, was born in New Haven, went to Yale and Harvard, and is known by the nation as a Texan, would you expect anything less than irony?

Another factoid. Senior citizens are the fastest growing segment of new bankruptcy filings. Why? Medical expense. Just something to keep in mind.

In the bill itself are a number of interesting provisions. The most discussed, and least necessary provision is the means-test. The means-test denies debtors the use of C. 7 if they meet certain economic criteria. These debtors are presumed abusers and the criteria used to evaluate them are based on IRS tax and audit rules. I've been an outspoken opponent of confusing the tax law with the bankruptcy law (even on this blog I've noted my disgust at this tactic). Lawyers do it, legislators do it, accountants do it, everyone is doing it. But its a big problem. Bankruptcy is a mechanism used to permit the orderly repayment of debts by an estate that is overburdened by debt. Tax law and the Internal Revenue Code are mechanisms used to increase revenue for the government. The aims are different, and using any standard from one in the other arena is like bringing a baseball glove to a football game. Also, the means-test goal, to allow the judge to kick cases for abuse, is already in existence in sec. 707(b). So, its just stupid, everyone knows this. The provision was written by and for high-risk (eg., high yield) consumer credit agencies.

Other provisions of note: there's a million dollar plus carve out for IRAs and education accounts (guess who has $1M in their IRA... as a hint, it is NOT the senior citizens going bankrupt because of prescriptions). Interestingly, the million dollar carve out was deemed a bit "harsh" by some of the bill's sponsors, so they graciously left some discretion for the judge if raising the max would be "in the interest of justice." Also, those of you who rent your residence, don't go bankrupt because your automatic stay does not protect where you live. This is most amusing because the commercial property rules remain more difficult for landlords to get around. Message appears to be, you can sleep at work. Another part actually expands the oft-abused homestead exemption, while those in C. 13 are prevented from lien-stripping. ADR is an out for debtors, as is an additional hearing challenging the fairness of the means test, but all in all, debtors in red America are going to find life a little more difficult.

Let me predict, if this all becomes law, the business of distressed M&A and vulture funds in general will be, on the whole, less attractive than offering high-rate credit cards via direct mail to every trailer park in Indiana. Just on the basis of simple negotiating leverage, were this law passed, I would rather be a predatory lender to blue-collar America than a hedge fund looking to restructure ineffecient businesses. Now you know where the money is going.

Sunday, February 20, 2005


On the plane from Heathrow to JFK... Said the elderly gentleman to his American companion: "So, to recap, he trims the tax on the upper class, and pays for it by eliminating retirement security for the elderly?"

Roll the videotape.

Thursday, February 17, 2005

Just dog tired... Train Dispatch #4

I've been pretty busy of late, and most of the other contributors here have been busy too. Busy and tired. Something about late winter here that makes you "just dog tired." On the train yesterday, it was quiet. A few bankers, businessmen, and other suits knocking off a little early, some moms in the city for a shopping spree, and a couple of MTA employees riding up for the shift change. Each person on board had something in common though, we all appeared wiped out. It was a quiet ride to say the least. Quiet, that is, until we stopped in Stamford and the 4pm crowd of teenagers piled in on their way home from school. It was like being in the rare books section of a university library one moment, and then the next moment, suddenly finding yourself at lunch in the cafeteria of a 3,000+ high-school. Insane!

I've never been able to figure this out. All these kids pile on in the afternoons, heading to Bridgeport from Stamford. They all apparently go to a public high school, but honestly since my kids are about 14 years from having to worry about such things, I just haven't looked into what it is all about. Needless to say, the contrast in passenger type is most amusing at this point.

After a few minutes, the teenagers settled down, the police officers walked through a couple of times (yeah, police officers! weird huh?) and suddenly part of the train was transformed into the back of the schoolbus. Teenage girls with tight jeans cozying up to teenage boys with jeans so baggy three or four full grown adult males could fit inside them. Some kissing, rubbing, whispering, altogether normal flirting though with the occassional "fuck no you damn ho bitch!" thrown in for good measure.

At one point, a group of teenagers started swearing loudly and clapping and laughing. They kept getting louder too. Finally, one businessman in what can only be termed a "loud" brown pin-stripped suit just lost it. He'd had enough. He was tired. They woke him up. He fell back asleep. They woke him up again. He started reading a book, and their banter was making that impossible. "Hey!" he yelled to get their attention, "why don't you kids shut the hell up, huh?" Silence.

I thought to myself at this point that the guy either had some serious cajones or he was a miserable wretich who thought he could boss around anyone younger and darker than him. "Who said that?" Asked a half-afro, half-latina girl with corn-rows, gold-hoop earrings, and clothes so tight they looked they were about to pop-off. Oh yeah, and she was about four foot two as well. "Who said that? I said!"

Finally the brown-suited businessman piped in: "I did." At this point I realized the guy was a miserable wretch. Someone with balls would have said: "I did, now shut up." But he didn't. He thought once they recognized that HE said it, they'd all be quiet and start doing their homework.

I sat up in my seat for the fireworks that were about to begin. "Oh you did? Well listen here Mr. I'm gonna disrespect everyone cause I make more money than them, didn't your mama ever teach you to ask for things nicely? What's wrong with you? You don't gotta be swearin' at us an shit, if you want us to quiet down, all you gots to do is ask. You hear me big man? You just ask?"

The businessman was now so red that he was in danger of igniting. His ears, the tips of them, actually seemed to be blue. What really did it to him wasn't what she said, but that she stood up, walked over to him, and started swaying her head from shoulder to shoulder as she spoke each syllable. He was finished. I think he might have even pissed himself.

"You go girl." said someone from the back. There was a small, but nevertheless genuine, applause. And the guy mumbled something like: "i'm just dog tired, i'm sorry." Yeah, they were being loud buddy, and they woke you up. But she's right, you got to ask first.

Tuesday, February 15, 2005

Good One Michele!

Even if it weren't the French saying this, it would be ever so funny.
"China is rapidly developing its industry, and today our experts say that in five years China could make exactly the same arms that we have today. And they will do it if they cannot import. So maybe if we can sell them the arms, they will not make them."
Sound point, Ms. Alliot-Marie (French Defense Minister). But, uh, what happens after you import them for a few years?
"And in five years' time, they will not have the technology to make them."
Hah! That was funny. You're joking right? If not, you need to speak with Hollywood about what happens when the Chinese get ahold of "technology". Oh yeah, while you're here, could I speak to you about a bridge in Brooklyn the French might want to buy?

Did he squeal?

Bob Novak knows who in the administration leaked the identity of Valerie Plame. So why are two other reporters being compelled by judicial decree to answer questions in grand jury testimony? I smell a rat, and if I had to guess, I'd guess the rat spoke long ago to save his own skin.

Monday, February 14, 2005

An Apology?

Look fast, Jonah Goldberg at NRO says "I'm sorry"... why? Well, I'll let you figure that out. But I'm reminded of something I learned in Sunday school, it ain't an apology unless you ask for forgiveness. Come on Jonah, you can do better.

Sunday, February 13, 2005

Readers Respond

Reader JH asks:
You say that academia should dialogue with conservatives who call liberals traitors. But how can you dialogue with someone who doesn't want to discuss but inflame? Aren't some standards just too high?
I gave JH the best answer I know of, read the Meno. When you are done, read this.

My only other advice would be to relearn the lessons of liberalism before it went awry. What I mean by this is best described by Father Zosima in Brothers Karamazov, preached about by Dr. Martin Luther King, Jr., and in fact practiced by Gandhi. Is this too high a standard? I think not. I think, in many ways, that its such a low standard, many of us tend to forget. This is liberalism without paternalism, free education without partisanship, discussion without debate.

Friday, February 11, 2005

A Troubling Development (to say the least)

I've been following the recent vitriolic debate consuming some of the more reasonable blogs out there. Unfogged turned me on to the drama at first, though the other players seem even more involved. At the esteemed Crooked Timber, we get a good synopsis posted by Ted.

Here, we are directed to the O'Toole File, a favorite of mine, where the blogger there is driven to such despair, he says he has "decided to take a step back from the whole discussion..."

What is it that agonizes these thinkers? The steadily increasing drumbeat and chorus of conservative pundits who accuse liberals, and liberalism at its essence, of treachery against the United States.

Alone, that would cause me to step back too. Yet, all things are duplicitous (see verse 24). There is no charge alone, but a series of charges and counter-charges. Before I get too far into that though, let me make one thing absolutely clear, the accusation on its face is a type of disgusting slime-balling tactic, which can only be described as pure hatred, or pure evil.

Now, even pure evil itself does not exist alone. Pure evil is but a reaction, and itself again, another action causing a third movement. Hegel teaches us that we are what we say we are not. Our liberal bloggers, of which I am proud to say I am, are agonized by the pure evil which they themselves spawned, and they themselves in some small part truly are.

These are not charges to be taken lightly, but if there are any Christians left reading this post, they'll know what I mean. We are all sinners (Romans 3:21-23) We all use knowledge for its power. And we are all affected by power's corruption. No way to get around it, no matter how simplistic the syllogism.

For decades academia ridiculed the conservative mind. They lumped all conservative thoughts into one category, condemning that category by exposing its motivations, by revealing what they "really" are saying, and so by using a mix of psychotherapy, radical skepticism, and realism, liberal academia forever shunned and stunted the growth of the conservative idea.

Liberals should remember this well. We created the monster which now causes us agony. It was a failure of the academy to approach the conservative idea with compassion, to approach conservative thinkers with dignity, and to address their arguments on the merits rather than on our own perception of their personal greedy impulses. Everything we hate about how they are sliming the term "liberal" the same way they slimed John Kerry with the Swift Boats, all of that and more, we appeared to them.

The question is, now that we know this, and deep in all our minds and hearts we know this, what will we do? Continuing the cycle of self-indulgent opposition will only lead to the annihilation of both liberals and conservatives. Breaking that cycle by engaging in dialogue, engaging in deliberation, engaging in honest, open, discussion (not debate) is the only possible path to redemption.

Somebody checked their email

in the State Department, and realized GE was upset. Six days ago, GE's CEO echoed Bill Gates in a call for immigration policy reform as the bright stars in engineering and science were heading elsewhere. Not good. But when Gates bitched about it, nobody really cared (which is odd, though typical). GE, on the other hand, bitches, and less than a week later, the State Department does its bidding. I guess whoever handles these things was on vacation and just checked their email, but regardless of why it was done, it needed to be done. Liberals may whine, but this is good for the ol' US of A.

Take Them at Their Word

What does that phrase mean? In my business, it means take what they say will happen and apply their past performance to that target. "We project 8-10% returns in this portfolio" means, look at their past returns and adjust accordingly. Sucks for people who are starting a fund. But for people with a track record, its like a credit card. If we've delivered 7-8%, and we're adjusting our risk profile for this new portfolio, 8-10% is something people can invest in.

Shouldn't be much of a surprise that someone dealing in bonds would be just a little curious about the projected transition costs for the social security private accounts (or personal, or whatever the hell they call them now). I asked a buddy of mine (who sings a good GOP chorus) what he heard was the cost. He said: "they say $754B over 10 years to fund those accounts." That sounded low to me, "do you believe that figure?" I asked. "You can take them at their word on this" he assured me.

Alright, I will do just that.
  • The Bush Administration said the cost of the Iraq War would be between $50-$60B. So far, its $200B and counting (FoxNews). Bush was off by 250-300%.
  • The cost of the Bush tax cut was alleged to be $1.3T in his campaign. The actual cost is between $1.9T and $2.3T(SalesTax.Org). Got that one wrong by only 46-77%.
  • The cost of the medicaid prescription, Bush said, was gonna be $400B. The cost now turns out to be $700B (Heritage Foundation). Blew that one by 70-72%.
The tax cut, the Iraq war, and the medicaid prescription are big deals, so you expect some error. But again, they are BIG deals, so you also hope you're estimates are credible. The average low differential for these deals is 105%, the average high is 150%.

Hey buddy, you know who you are, I'm taking them at their word and by my math that means that the transition costs for the first 10 years of the private accounts will be $1.547T - $1.885T. For the record, if I was wrong by this much, this often, I wouldn't have a job.

Thursday, February 10, 2005

Another good tip

A lot of times we get emails about "transitions" or "movers & shakers"... you know the ones, "so and so proudly announces such and such will be joining our offices because we are such a great place." That sorta thing. I'm sure you see one or two a week if you work in structured finance. Once, I paid a lot of attention to the investment banks. Who are they hiring? Who's work is going where now? Turns out thats all crap. You can't read anything from this. Sometimes these guys hire just for the sake of hiring. Other times they leave just for the sake of leaving. Its all random.

BUT, lately I've found the big corporate law firm moves are pretty good indicators of what is coming down the pipe. I remember back in '00 and '01 lots of bankruptcy groups were announcing transitions. Sure enough, the next few years saw some of the largest 11s in history. Recently the pattern I'm seeing is the following. Lots of M&A partners going a notch up... especially M&A partners with Canadian experience Not a big surprise there, we all know there's an M&A cycle revving up. But the Canada thing shocked me a little. Also, IP partners are being minted out west at an increasing rate. So, R&D budgets should be up, which they are, and new patent deals are in the works for sure. Maybe you don't find this useful, but I do, its like getting a few attorney client privileges of your own. I also find it useful to ask around about one of the names. You find out who his clients were, and you get a little extra something to pay attention to when you're scanning bloomberg.

Aussie Rules

At it again... they polevaulted over expectations on jobs numbers. 44,500 new jobs created versus estimate of 5,000. Can we get some of that over here?

Wednesday, February 09, 2005


Way deep in my inbox is a blurb on eBay's latest filing showing the 12/04 acquisition of Rent.com. I generally skip over such things, eBay is anything but distressed, but I remember thinking about the buyout and wondering what eBay is thinking. Here's the skinny: originally eBay bought Rent.com for $30M cash & $385M in stock. Not bad considering eBay's historical performance. Now though, its $415M, all cash. Why the change? For starters, eBay's recent stock slide, on 1/19/05 they missed their earnings estimate and traders punished it. It closed the year over $100, on 1/20/05, it was touching $80... ouch! eBay is clearly saying to the market, "you overshot, we're worth more per share." That's all fine and dandy, and the stupid traders again punished the stock a little today when they learned that an extra $385M in cash is going out of the company.

Here is where the opportunity lies. First, renting an apartment through a live auction. Huh? Yeah, think about it. We aren't there yet, but the promise for urban markets is pretty real. And eBay suddenly becomes a brokerage (which is all they are). Second, the extra cash out was essentially a stock buyback (before the stock was ever sold) so there is absolutely no reason to trim the target on the stock. If anything, you should expect eBay to go up. Just wanted to pass this along. I rarely get to think about companies like this, and its just such a clear play. Pour gratis.

Life's a Bitch

A Big Idea

Western European style proportional representation often gets tossed around when Washington starts to look particularly gridlocked. Has it ever been seriously considered at the state level?

After voting for another failing school levy yesterday, which was needed because Ohio's educational system is broke and no one wants to fix it, I'm gonna try and start a debate about this in Ohio, at my blog, Democracy Guy. It's easier to change a state constitution (gay marriage, anyone?), and such a major change may work better at the state level. Might be worth approaching in other states, too.

Tuesday, February 08, 2005

I'm Back

I was truly touched by some of the email I received from Amendment Nine readers. Thank you. My wife's family, it turns out, is all fine. Those missing are accounted for, though as you can imagine, things are still in a state of disrepair.

I have a lot to say now that I'm back. The least of which involves the Social Security debate. In the post below, contributor Tim Russo asks for an economic opinion on the Bush reform proposal. Somewhere in the comments, another contributor, Sharpshanks, makes the point succinctly: "the bottom line is this, we have too few workers, and will continue to have too few workers. Until that changes, no matter how you jigger the system, its not gonna pay out."

This is an important point, but I sense most Democrats have not grasped it. The simple math (again from the comments) is stated by Mitya K: "three workers in america cannot afford to pay for one retiree, now matter how good the economic environment." Quite right. In the not so distant future, every three American workers will be asked to pay for every one retiree, which cannot work. It does not matter what the economic climate is, what the tax rate is, what the return is, nor even what the retirement age is, none of that changes the simple arithmetic of the situation.

The answer then, which neither Democrats nor Republicans ever speaks of, is quite simple. Again, from the comments, Sharpshanks: "you let more immigrants in ... and you do your damn best to incent breeders." By breeders, I hope, Sharpshanks means families. And this is where the Democrats can find the high ground.

Put Families First. Don't End Social Security. Save it.

Then you put forward numerous proposals for helping families out, realizing of course that increasing family wealth means shoring up Social Security... So, when the GOP says that Democrats are being irresponsible for not putting forward a reform agenda, don't give in. Because the truth is, the only people who can save Social Security is you and me, and every other member of every other American working family. Help us, and help yourselves.


A corporate lawyer friend of mine told me that if one of his clients signed off on a K or Q like the budget Bush has submitted, failing to account for some of the biggest ticket items that are currently being funded, his client would likely be fired and could face some serious legal percussions. I wonder if they'll have a copy of Sarbanes-Oxley when Snow testifies?

Monday, February 07, 2005

Apt Description?

Does this...
...nattering nabobs of negativism who are deeply pessimistic about America's future.
Sound at all a little like this...
This Election is simply, in my estimation, an exercise in pretty pictures.
And if so, can we all agree to disagree with Fred Hiatt where he says this...
Eeyore's friends never doubted his good intentions.
Cause it seems pretty clear to me that such pessimism as seen in the above link re: the election in Iraq is written not in good faith, but simply is a manifestation of a pathology of power hunger.


Did anyone see the Anheuser-Busch ad last night with the troops walking through an airport terminal and everyone clapping for them? Was anyone besides me a little offended at that? I don't know, call me old fashioned, but it seemed like Anheuser-Busch hurt themselves, rather than helped themselves with that ad.

Also, speaking of commercials, how about the Miller Lite take down of the new Budweiser Select? I didn't see the Budweiser Select commercial until after I saw TWO Miller Lite attack ads... effective? You bet. As soon as I saw the Bud Select ad, I wondered without even realizing it, "why do they need a better tasting bud light?" To those ad guys at Miller who dreamed this one up, this Bud's for you!

Friday, February 04, 2005

Paging The A9 Auditors

Ok guys...now that we have the Bush Social Security reform plan to analyze, I think it's time for Amendment Nine's crew of finance folks to put on the green eye shades.

My initial un-educated take? So we've got this BIG crisis. Bush has this BIG idea to fix it - private accounts. But it turns out, on their own admission, that the BIG idea is actually a zero sum game vis a vis the BIG crisis. It solves nothing, costs a whole lot, and puts people's retirement at risk.

Paul Krugman had a good analysis, calling it essentially a giant stock speculation on margin. I've always been skeptical of the lefty talking points on this, namely, that such a plan only benefits Wall Street stockbrokers. But it sounds like this is actually the case.

Worse yet, how much of this historically enormous margin purchase will eventually face margin calls...and if so...then what? Is this the worst idea in the history of public finance?

Thursday, February 03, 2005

Judicial Lien Creditors

Scum of the earth... or so the bankruptcy courts typically so hold. Not only did Tower go 11 yesterday, but little ol' USM (shoemaker based in Mass) went to the undertaker. A lot of people ignored this, but I always find it amusing when a judicial lien creditor forces an 11. This time, the creditor was USM's landlord! How dare they? Collect rent on a corporation? The audacity!

Despite my dropped jaw, Teradyne, a landlord of USM's former headquarters in NH, got an $800K plus judgment against USM. Next it seems the judgment triggered a default provision in the bank debt, which of course made it impossible for USM to pay out cash (dirty landlords). The whole thing is really amusing, and with the ... well, "laces off" progress of the N. American shoe industry these days, USM ain't looking so hot.

This novelty of the case got me thinking a little about Mitya's proposal on tort reform. How much you think Teradyne would sell that judgment for? Cause I have a damn good idea how much its truly worth.

Tower - 11

Finally, they actually held out a little longer than anyone had anticipated, but they went the way of chapter 11 yesterday (their website has details). In case you missed it here are the specs on the DIP ...

DIP Total: $725M (huge, largest since UAL)

-Tranche A: $300M Revolver @ Prime + 175 or LIBOR + 275. $100M of total available in L/Cs.
-Tranche B: $425M term loan @ prime + 175 or LIBOR + 375.

Check out the fees though to JP, .5% committment plus 2.75% for L/Cs outstanding. That's a good revenue stream, no wonder they gave them so much.

The 11 proceedings will be of interest for two reasons: First, as a few of you remember, back in May, Tower issued a second lien financing deal of about $155M. This will no doubt be a good case study in how the second lien lenders play the negotiation.

Also of interest will be whether or not Tower runs to preserve their NOL (quickly approaching the $25M+ neighborhood) and if they do, how the creditors respond.

Wednesday, February 02, 2005

Terrorism, Liquidity, and Fighting War

After 9/11 the equity markets tanked. See this 5 yr chart for a good view. You'll see that by Q1-2002, the Dow had recovered almost completely from the shock of 9/11. Bond markets, while much more volatile, show a similar pattern. Almost all US markets were "shocked" by 9/11, but within a quarter, they rebounded. This is why its now common to refer to terrorist events as short-term liquidity crunches.

One of my favorite people in the world is an arbitrage portfolio manager at a major investment bank. He calls terrorist events: "a pinch in the wallet, but a punch in the face." In other words, they knock you silly, but they don't rob you blind.

Now, look at that chart again, notice the Q2-2002 downward trend start to develop, and notice it not fully recover until Q4-2003. What caused that? Iraq. While terrorist events and the resulting fight with them results in a short-term liquidity crunch, invading and occupying a nation creates long-term, sustained liquidity problems. For example, oil goes up, but not just because of supply, demand too rises. Gasoline reserves are drained to power the Army that invades and now controls Iraq. Thats just one example, there are numerous others, just think about all the things that go into fighting war and all the demands that war places on the economy.

This is why, from an economic perspective, war is a serious pain in the ass. It kills returns. It skews markets. And it often rewards some of the least efficient businesses and industries. The only thing more of a pain than war, is an indefinite war.

My answer to this is for Bush to give an ultimatum tonight. "We will end this war by the time I leave office." If he says that, a lot of risk premium out there will be removed and inflows of venture capital will see a broader uptick than what they are already currently seeing. My only hope is, if he says it, that he really means it. Finishing the job with Al-Qaeda and completing the work in Iraq are necessary to encourage sustained economic growth. This may mean sacrifice, but right now, if we leave things in their current state, we'll sacrifice much more in the long run.

Tuesday, February 01, 2005

Follow the Money

Today's Daily Deal reports (subscription only) that private equity player Advent has invested $40M in NBS. What is NBS? National Bankruptcy Services. This came up as odd for me and some others here as the corporate reorg market is due for a slow down, not a pick up, in business. A little deeper in the column you read though that NBS focuses on C. 7 and C. 13 bankruptcy monitoring services; as in, personal or small biz bankruptcies. Follow the money.

In other news, Adelphia GUCs appear to be getting short-changed, again, by about $1B says the LA Times. I know some folks who are gonna be unhappy about that.

$17 / barrel

That's what China is paying over the next five years for oil from Russia, says Bloomberg. The Chinese fronted $6B to Rosneft for the acquisition of Yugansk (formerly w/Yukos). Rosneft delivers the 48M+ tons of oil through 2010. Today, ural blend crude is trading at $40 and change (after the news). Quite a deal they struck. The race for oil is heating up and while this has obvious domestic impact, the real questions lurking are how is India going to get in on this and whats the impact on treasuries?