Donald Duck: More Patriotic Than Grover Norquist? March 30, 2012March 27, 2017 FORMAT FOMENT Ethert Hagen: “Hate it. Please change back.” Rick Thompson: “I welcome change as long as everything remains exactly the same.” Larry: “I guess everyone finds a change of their favorite interface a little unnerving. I especially dislike it when a new version of, say, my operating system or browser has changed, seemingly only to demonstrate that the new version is, indeed, substantially different than the old one — even though all they did was hide or obscure previous functions that I use. BUT, your new webpage adds info (previous titles), clarifies content (e.g., special fonts for quoted text), and overall makes many helpful improvements. Thanks for a nice surprise. Your version change should be a model for Microsoft.” ☞ All kudos go to Whirled Pixels‘ Luann Vodder (with gracious assists from Marc Fest, who pioneered this for me before there were blogs, and Jason Alphonse). CONSERVATIVE THOUGHT Bryan N.: “THIS is the root of the problem. They can’t think.” Conservatives, particularly those with college educations, have become dramatically more skeptical of science over the past four decades, according to a study published in the April issue of the American Sociological Review. Fewer than 35 percent of conservatives say they have a “great deal” of trust in the scientific community now, compared to nearly half in 1974. . . . Interestingly, the most educated conservatives have led that charge. Conservatives with college degrees began distrusting science earlier and more forcefully than other conservatives, upending assumptions that less educated people on the whole are more distrustful of science. . . . TAXES TO BEAT THE AXIS Rob N.: “I saw this, in which Donald Duck has been enlisted to introduce the income tax to the masses in 1941. And owes $13. Amusing bit of Americana.” ☞ Thanks, Rob! Who can resist a Disney cartoon? Amusing — and food for thought. Yes, the duck owes just $13 on a $2,501 income (he lists Huey, Dewey, and Louie as dependents) — in 2012 dollars, that would be like paying $201 on $38,734. But it’s hard to argue Donald was living better then, with that low tax, than than he would be living now. Despite today’s tax burden, most lucky ducks now have TV sets (in 1941: none did), air conditioning (in 1941: virtually none), penicillin (virtually none), indoor plumbing (only 55% — don’t miss this history of plumbing, if you take sewers for granted), not to mention interstate highways, cheap jet travel, cell phones, computers, Wikipedia (none, none, none, none) . . . you get the point. Disney has Donald embracing his patriotic duty to pay for guns and war. The same Republicans who decry taxes today mostly support today’s military budget — anywhere from $700 billion or so up to $1 trillion or more, depending on how you look at it. That compares to the roughly $25 billion 1942 military budget that 1941 income tax form Donald fills out was meant to help finance. Even adjusted for inflation, where $25 billion becomes $349 billion in 2012 dollars, we’re spending more than we did in 1942. (As that military spending ramped up in 1943 and 1944 and 1945 , so did Donald’s tax rate: from 10% to 23%. And so did the top rate — it might have been called “the Donald’s” tax rate if he had been living and having one of his good years at the time — to 94%.) It’s just a cartoon, but the takeaway might be that patriots are proud to pay taxes. And some of us might add that the truly conservative approach to national finance is pay for what’s spent by taxing today’s adults rather than borrowing it from tomorrow’s (our kids and their kids). That’s what Clinton did: he raised taxes and balanced the budget. He left office urging that we “save Social Security first” — meaning that, rather than spend the budget surpluses on tax cuts, we should first shore up our national balance sheet. The Democrats would have eagerly gone along; the Republicans would have none of it. Controlling the White House and both houses of Congress for six years, they sent us onto an entirely different course, handing incoming President Obama a $10 trillion National Debt (it was under $1 trillion when Reagan took office) and a $1.5 trillion 2009 fiscal deficit that had been baked in even before Obama took office (the 2009 fiscal year began October 1, 2008, more than a month before he was elected). OK. I feel better now. Here’s the duck: MARRIAGE So the anti-marriage-equality people got 22,000 followers to pledge to boycott Starbucks (Starbucks supports equality) and the pro-marriage-equality folks got 281,000 folks to sign a THANK YOU, STARBUCKS card. Here’s the story. Go have a latte.
How the Health Care Act Affects YOU March 29, 2012March 27, 2017 WHO YOU CALLIN’ SANE? LMK: “Re the new look of your site – please change it back! It’s too busy. Too chopped up. I do not participate in ‘social media.’ Period. I don’t need pictures. I visit your site to READ information. I hope you get enough feedback to consider returning to a simple, sane, informative page.” Tamara: “Love it.” Martin Grady: “Don’t like the new format but I’ll get used to it.” A VALID CRITICISM OF THE NEW YORK TIMES By Dean Baker, here, which begins: It’s always good to get the perspective of the people on the ground when reporting on a policy. However, when they say things that are clearly not true, reporters should provide readers with the correct information. The NYT fell down on the job in a piece that presented the views of a number of people in Massachusetts who were unhappy with the mandate and employer penalties in its health care law, which is the model for Obamacare. . . . THE TWEET SHEET For the twits among us: What Obama’s DONE, what he WILL do, what Romney or Santorum WOULD do. All here. CROPPING RACHEL Her style is to come at a topic from way out in left field, get there gradually, and build. It’s generally brilliant, but – perhaps recognizing that others are less patient – her site allows “cropping.” Webmaster Luann explains: To do this for any Rachel Maddow clip, just watch until you get past the ad, and then the bottom bar in the video will show a “clip and share” option on the bottom right. Click that, and you’ll be given sliders which you can use to set the beginning and end points. Then beneath the video, choose the size you want and click the Copy button for the embed code. That’s what you can paste into your column. It’s one of the coolest things I’ve ever seen, and I think Rachel had it first. Yesterday, not realizing this, I offered a nearly 17-minute clip on the INDIVIDUAL MANDATE, a Republican-conceived-and-endorsed idea that, once the President accepted it, they branded tyranny. Here it is stripped down to the essential 6 minutes I wanted you to see (well, following the ad that can’t be cropped out): HOW THE HEALTH CARE ACT AFFECTS YOU A pretty neat little on-line calculator — here.
Well, That’s Just Rich March 28, 2012March 27, 2017 I think we all know by now that “the individual mandate” that Republican attorneys general have banded together to petition the Supreme Court to strike down was, in fact, a Republican idea, conceived of and widely endorsed by Republicans. It was their answer to Hilary Clinton’s health care plan. But it’s hard to grasp the breadth of their prior support for the individual mandate – and the depth of their current hypocrisy in opposing it – until you go to the videotape, as it were. Rachel being Rachel, she takes her time getting to the juiciest footage. If you’re pressed for time, start 5 minutes in and quit 5 minutes early. You’ll still get one Republican senator “begging the federal government to leave us a shred of freedom.” And 6 minutes of devastating overview – the Republicans in their own words. THE RICH GET RICHER My friend Steve Rattner, who helped save the auto industry – and at whose home I have had the most astonishing carmelized bacon hors d’ouvres (“death on a silver platter”) – offered an important op-ed in yesterday’s (indispensable) New York Times, digested here: NEW statistics show an ever-more-startling divergence between the fortunes of the wealthy and everybody else. . . . In 2010 . . . a dizzying 93 percent of the additional income created in the country that year, compared to 2009 — $288 billion — went to the top 1 percent of taxpayers . . . 37 percent of these additional earnings went to just the top 0.01 percent . . . about 15,000 households with average incomes of $23.8 million. . . . The bottom 99 percent received a microscopic $80 increase in pay per person in 2010, after adjusting for inflation. The top 1 percent, whose average income was $1,019,089, had an [average $118,000] increase in income. . . . Government has also played a role, particularly the George W. Bush tax cuts, which, among other things, gave the wealthy a 15 percent tax on capital gains and dividends. That’s the provision that caused Warren E. Buffett’s secretary to have a higher tax rate than he does. . . . Just as the causes of the growing inequality are becoming better known, so have the contours of solving the problem: better education and training, a fairer tax system, more aid programs for the disadvantaged to encourage the social mobility needed for them escape the bottom rung, and so on. Government, of course, can’t fully address some of the challenges, like globalization, but it can help. . . . Earlier this week, House Republicans unveiled an unsavory stew of highly regressive tax cuts [for the rich] . . . and an evisceration of programs devoted to lifting those at the bottom, including unemployment insurance, food stamps, earned income tax credits and many more. Policies of this sort would exacerbate the very problem of income inequality that most needs fixing. Next week’s package from House Democrats will almost certainly be more appealing. And to his credit, President Obama has spoken eloquently about the need to address this problem. But with Democrats in the minority in the House and an election looming, passage is unlikely. The only way to redress the income imbalance is by implementing policies that are oriented toward reversing the forces that caused it. That means letting the Bush tax cuts expire for the wealthy and adding money to some of the programs that House Republicans seek to cut. Allowing this disparity to continue is both bad economic policy and bad social policy. We owe those at the bottom a fairer shot at moving up. A RICH TAKE ON ELEVATORS So Mitt is building an elevator in his new home for his cars, yet vetoed an elevator for the disabled when he was Governor of Massachusetts. “That’s just rich,” as old sports used to say around the club in the Thirties and Forties. (Do they still talk that way?) One could say it’s as it should be – he’s lavish with his own money but frugal with the taxpayers’. We need even lower taxes for the best off, he strongly feels, and if that hurts the disabled, or the 99% (see above), well, so be it. But something tells me we’ll be hearing more about this.
Stinky Cheese for Your Nose Wheel March 27, 2012December 29, 2016 THIS DYSLEXIC MAN WALKS INTO A BRA . . . Ba-DUM-bum. (Thanks, Alan.) WHEELTUG SIGNS FIRST AIRBUS CUSTOMER Not that I’ve ever heard of Israir myself, but here’s the release. In a frenzy of trading on yesterday morning’s news, parent Borealis remained unchanged all day on zero volume. The excitement just builds and builds. (Well, mine, anyway. Full disclosure for anyone new to this site: I own a ridiculous number of Borealis shares, a speculation so rank it could well be the camembert of the Pink Sheets. Then again, Borealis has outpaced General Motors, Citibank, Lehman Brothers and Enron since first appearing in this space. I live for the day that my oh-so-smart friend “J” – I’ll just call him “J” but he assuredly knows who he is and has been mocking me from the get-go – finds himself on a 737 or A300 that is backing out from the gate under its own power via the tiny motor in its wheel.) CHRYSLER! If you’re looking for a boost, what a great story this is – “60 Minutes” on Chrysler. (Seriously? You don’t watch “60 Minutes” every Sunday? What’s wrong with you?*) I so wish I had reason to own a car so I could run out and buy a Dodge Dart. *And have you not begun recording “UP w/ Chris Hayes” on MSNBC Saturday and Sunday mornings from 8am to 10am? Highly substantive and informative every time. THE NEW LOOK Bob Fyfe: “Your new website format looks great. Please change it back. Immediately. I now know how Sheldon Cooper feels when confronted with change. Well, at least we can look at the archives in the old format — No wait! As if by magic, they’re also changed over.” >> Funny: I have had largely the same reaction. Like losing an old friend. But look! I can insert pictures! Zeus (on loan) and My Foot
Sumo Tangerines March 26, 2012March 27, 2017 Notice anything different? (Thanks, Marc! Jason! Luann!) Still figuring it out. Suggestions welcome. BEING RICH The trick to being rich is not to need much. There. Wasn’t that simple? REAGAN AND OBAMA AGREE ON TAXES Take 55 seconds to watch. There – wasn’t that simple? TAXES ARE LOWER UNDER OBAMA THAN UNDER REAGAN This clip is from last summer, but the facts haven’t changed. Under Reagan, the income tax people paid averaged 18.2% of GDP – under Obama, 14.8%. And the top rates on wealth are lower too: under Reagan at the end of his second term: 28% on dividends and capital gains, versus 18.8% under Obama (including the 3.8% health care surtax that doesn’t kick in until next year). Under Reagan, 55% on billion-dollar estates, versus 45% under Obama. (Romney has pledged to lower it to zero, to help the wealthiest of the wealthy.) THE REPUBLICAN PARTY Kevin Baker’s overview of how it has become “the outsourced party” – outsourced to Rush Limbaugh, Foster Freiss, et al. (Two players in the genesis of all this, instrumental in striking down “the fairness rule,” were appellate court judges Antonin Scalia and Robert Bork, both of whom Ronald Reagan rewarded with nominations to the Supreme Court. Bork was rejected but now co-chairs Mitt Romney’s 2012 Justice Advisory Committee.) SUMO TANGERINES Not cheap, but the perfect fruit: seedless, unbelievably easy to peel, enormous, sweet, juicy, American grown. (Are you in New York? Fresh Direct has them here.) Someone’s birthday coming up? Blow $20 on half a dozen of these. CRME – “SELL” Guru: “Merck stopped development of the oral drug. This is one of those strange cases of the better mousetrap – the drug works – that didn’t pan out.” If you can use the tax loss, sell. It’s barely 80 cents, so a near total loss from the $4.60 we paid. But just as buying at $4.60 turned out to be a mistake, I’m not sure it’s a sale here if you don’t need the loss. It probably is (Guru says “sell”), but I tend to be a bit contrary (ornery? foolhardy? suicidal?) in these situations.
Gas and Solar March 23, 2012December 29, 2016 WHAT SHOULD I DO FOR MY 100TH BIRTHDAY? So my 4,000th column is coming up (this is #3,978). Not to say that more than 20 or 30 have been real columns. (My favorite: the one about being a loud sneezer.) Most have been your contributions, shamelessly stitched together and hyperlinked. But it’s still 4,000 of them – that calls for something. And #4,000 will appear, by happenstance, almost exactly on my 100th-or-so birthday (don’t be fooled by the photo, upper left). More reason to . . . well, to do something. I’d like to tell you that I will that day unveil the results of the study I commissioned to determine just how well or poorly this site’s stock picks – purchased only with money you could truly afford to lose – have fared. In other words: how much money you did lose. But the task proved so daunting that the capable man I enlisted (and even paid a little), eventually gave up, someplace around column #2,716. I’d like to tell you that Borealis has scheduled something so compelling for that day that the stock, in celebration of #4,000, will sail to the moon. But it’s just always $3 or $4, whatever the news; like the speed of light: a constant. (Just slower.) But I do have a small surprise in store, potentially. Toward that uncertain end . . . POSSIBLE SERVICE INTERRUPTION: THIS SITE MAY BE DOWN SPORADICALLY TONIGHT OR IN THE DAYS TO COME. YOUR PATIENCE IS APPRECIATED. GAS PRICES If anyone tells you more drilling will lower the price of gasoline, show them this. More U.S. production does essentially nothing to affect the global oil price. “Sometimes,” indeed, “prices increase as American drilling ramps up. . . . ” Mitt Romney knows this, of course, and yet . . . ROMNEY ON GAS PRICES Hard as it may be to believe, Mitt Romney has actually changed his position on gasoline prices. From The New Republic: As he campaigns for president, Mitt Romney is ratcheting up his attacks on Barack Obama over high gas prices, putting the issue at the center of his economic message. He is calling for Obama to fire his Energy secretary, EPA administrator, and Interior secretary, saying they are to blame for high prices at the pump. “No question in my mind that these—I call them the gas-hike trio—that those three are on a mission to drive up the price of gasoline and all energy so that they can finally get their solar and their wind to be more price-competitive. That’s what they want to do,” Romney said on Monday. Curiously overlooked, though, is just what a shift this rhetoric is from the approach that Romney took while governor of Massachusetts. Befitting his profile as a moderate Republican who cared about the environment, Governor Romney responded to price spikes by describing them as the natural result of global market pressures and by calling for increases in fuel efficiency—the same approach that he now derides Obama for taking as president. . . . ETCH-A-SKETCH You’ve doubtless seen Romney’s top advisor confirm that his guy will soon be changing positions yet again. If not, it’s here. And according to this piece, “Mitt Romney is right to be rattled about being labeled Mr. Etch-A-Sketch.” Joe Klein, meanwhile, thinks the Etch-A-Sketch gaffe “may go well beyond a momentary embarrassment and become a campaign-defining disaster. This is true for several reasons: . . . ” SOLAR Could this be the year? Prices of silicon solar modules have fallen from $4 per watt in 2008 to just over $1 a watt now, according to this story, and “In what was once a Polaroid factory 50 miles south of Boston, a high-tech company is printing sheets of solar cells made of plastic [that] curl into lightweight rolls and can be unfurled and put on a wall or a tent or an impoverished hut . . . A recent succession of efficiency gains has researchers, investors and companies convinced the effort is finally close to success.” All leading toward a future a few decades off when energy is clean and “nearly free” – just as communications now are. Which takes us, potentially, to a whole new level of prosperity. BOREALIS Could this be the year? Probably not, if experience is any guide. But the El Al and Jet Airways letters of intent (LOIs) have been signed and announced – no small thing, if you ask me – and according to last week’s investor email, “We have just completed another 737 LOI and an A320 LOI.” Which would bring the company up to four airline customers, assuming they can actually deliver working motors and win F.A.A. certification. THOSE 17 MINUTES If you haven’t found time to watch – and imagining that weekends may be less frenetic than Monday mornings – here, again, is Tom Hanks narrating the 17-minute story of the last three years.
Huge March 22, 2012March 25, 2012 SPELLING BEE Fun. Some of my errors were the result of not being able to hear the word right. I heard “inadroit” – which I took to be an obscure synonym for maladroit – but apparently she was saying “vinaigrette.” But otherwise, not bad. KHAN ACADEMY “A free world-class education for anyone, anywhere.” How cool is that? Any kid with access to the Internet, in any village, on any continent. If you missed it on “60 Minutes,”‘ behold. (I’m straining to stretch this into a full paragraph – those first seven words say it all – but this strikes me as huge.) “I’M PROUD OF YOU” Videoed by a young deaf man who went to see his president . . . and actually got close enough to catch the President’s eye and sign to him – only to have the President sign back. His story: Hello, I would love to share my experience; something that I will not forget for rest of my life. Today was a special day for me, and I was preparing for it. It was announced yesterday, March 14, for everyone to receive tickets to see none other than the President of the United States, Barack Obama! When I got ready to get up the morning at 7 am, I did not rush and took my time since the admission started at 8:30 am. I ate some breakfast and got onto the train to get to Prince George’s Community College. When I got there, there was such a long line and I got so worried that I wouldn’t get a good seat to be able to see my interpreter! How was it possible for me to understand what Obama had to say?! I decided to let go of my nerves and went with the flow. I waited in line to go through security. Security was almost like security at the airport. It was the first time for me to experience that kind of security outside an airport. Of course, I have been to airports numerous times, but it was my first time to have that kind of experience on my college campus. I was not used to it. I saw the actual Secret Service, and you could feel how serious and strict they were, much different than dealing with county and even state police! You could tell they were not playing around. When I got in, I took many videos. What amazed me is that it took two hours to make it just right before Obama started. I did not realize how great of seats there were for us deaf people. Right front of Obama. I sat in VIP with the Governor Martin O’Malley and many other important people. So, it started at about 11. Obama was right front of me. I was ready to jump up and walk toward him and shake his hand. Could you imagine how the Secret Service would’ve responded? When I watched Obama give his speech on the stage I thought to myself, “No way, Obama is not standing right in front of me! Wow!” If you want to know more about what Obama’s speech was about, you can find out online. I was close enough to touch Martin O’Malley on his shoulder but I didn’t want to bother him. I regret I could have done better holding my camera while talking to Obama. The moment I will never forget was when he looked at me. He gave me a chance to talk to him. It was like he was waiting for me to say something. I took the moment and signed “I am proud of you,” and his response was “Thank u” in sign language back! Oh my gosh! I was like wow! He understood me after I said I was proud of him. It was so amazing…I was just speechless. Right after he thanked me, he smiled at another deaf lady who signed “I love you.” When I shook his hand it did not feel like he was superior to me. He was just a humble man. I am just impressed by him and know that he will have my vote and he will win second term without a doubt. Yeah, I feel safe to have him for another term.
Monet, Manet, Money and More March 21, 2012December 29, 2016 FREE MASTERPIECES James Musters: “The National Gallery of Art now allows you to see – and download free – 20,000 images from its enormous collection of pre-1900 art.” THE INVESTORS BEWARE BILL – II Bob Pozen, who used to run much of Fidelity (and who would have made a very fine S.E.C. chairman), elaborates on yesterday’s post re crowd-finding and the rest – here, in the Washington Post. He makes smart recommendations. 17 MINUTES Lorraine Baldwin: “That was a wonderful 17 minutes. We must get Obama reelected. I hope Women of the World will heed the call.” David C.: “Tears. Thank you.” Steve: “It’s bologna. Obama continues to move us down the path to 1984. No hope, no change. No democracy.” ☞ Steve links to this Wired cover story: The NSA Is Building the Country’s Biggest Spy Center (Watch What You Say). It is Orwellian. At least potentially. Yet I expect Steve would agree it’s too simple to think the President lacks his (and everyone’s) concerns about Big Brother – the President must have read the Constitution at least twice to become a constitutional law professor – so I’m wondering what counterbalancing concerns Steve thinks would have led the President to approve this program and whether he thinks there is any justification for those concerns. And how he thinks we SHOULD deal with them. This may sound like I’m arguing, but I’m really asking: How do you balance privacy and security? I want my privacy; but I also want to thwart the poisoning of the water supply before half a million New Yorkers die from a few drops of something in the reservoir. 17 MINUTES . . . WHERE TO GIVE If those 17 minutes left you tearful or inspired, click here to help. I’ll see it the minute you do (if I’m awake) and jump through the screen to say thanks. (Some of you have already experienced this. Isn’t it wild the way the glass shatters and I find myself in your den?) You won’t be alone. We had 348,000 contributions last month alone – 105,000 of them, first-time donors. MYLGF So this highly speculative stock, suggested nearly a year ago at 37 cents, barely ever even trades (last: at 26 cents). The hope, as suggested then, is that it may rise to $1 or more. If you do buy it, with money you can truly afford to lose, be certain to place a “limit order.” I would think 30 cents might be enough. Guru: “One thing I can say is that they are continuing to attract an impressive group of knowledgeable people. In February, they appointed Henry Fuchs to the board. He was chief medical officer of Onyx (ONXX), a pioneer in developing the small molecule VEGF inhibitor, Nexavar, and at Genentech he lead development of Herceptin, a breast cancer antibody. Methylgene’s lead drug is a molecule that like Nexavar blocks Vegf, but also blocks met. Yesterday, they appointed Peggy Mulligan, most recently CFO of Biovail, a Canadian pharmaceutical company, to the board. Normally, I wouldn’t make much of these kinds of appointments. Biotech companies often fill the board with ‘trophy’ appointments who have little oversight or impact on the company’s operations. I watched a healthcare company go bankrupt that had on the board Mike Holland (Holland Capital), Mike Huckabee, and the former dean of Harvard medical school. Still, what impresses me about the recent Methylgene appointments are that these are knowledgeable people with very direct experience in MYG’s operations. Rachel Humphrey, the new chief medical officer, and Henry Fuchs, the new board appointee, were pioneers in developing new cancer drugs that block growth receptors. That won’t matter if it turns out MYG’s drug is a dud. On the other hand, if it IS biologically active (as it appears to be), these people should be very helpful in making sure that they pick the best cancers to go after, the optimal settings, the situations where the drug is most likely to succeed. We’ll see what happens this year.”
Investor Beware March 20, 2012December 29, 2016 SHE’S 94 With the happy gene, it seems. INVESTOR BEWARE Not only have we gone too slowly and too meekly to flesh out Dodd, Frank – the financial reform bill that the Republicans fought and now seek to emasculate – there’s a new bill close to enactment that, at least as I read Floyd Norris in the Times, endangers investors even further. Three Democratic senators are trying to improve it, as you’ll read. And I actually love the notion of “crowd-funding,” even if it’s prone to abuse, so exempting some of that from most securities regulation, up to reasonable limits, doesn’t bother me. But the rest? Read this piece. SERIOUSLY: BEWARE GOLDMAN SACHS – III Herewith a telling excerpt from Janet Tavakoli’s 2003 Collateralized Debt Obligations & Structured Finance (reiterated five years later in its second edition). “If you guessed that the credit derivatives ‘professionals’ in this incident were from Goldman Sachs,” Janet now writes, “you were correct. Goldman has a long history of, inadvertently or otherwise, trying to pull a fast one. BTW, to the best of my knowledge, only one of the fellows still works at Goldman; he’s a partner in the NY office. But I can assure you the nice kids at Goldman have been playing these games a long time.” One well-known, well-respected, American investment bank asked … if the bank I worked for would intermediate a credit default swap transaction. Requests for intermediation are common. Many banks need an OECD bank counterparty for regulatory capital purposes. If the structure is right, the intermediation fee can allow the intermediary bank to earn a reasonable return on the minimal capital required, and all parties are satisfied. The investment bank sent over their documentation. It was a paltry two-page document, whereas monolines will send a small booklet and make their lawyers available to discuss language details. When I looked at the document, I realized that the transaction was unsuitable. The following diagram shows the gist of the proposal, without embarrassing those who should be. The investment bank assured me they would give me proper credit default swap documentation incorporating whatever language I wanted. If a credit event occurred, the bank would look to the SPE to make payment under the terms of the credit default swap, and I could design the terms. I declined. The investment bank invited me to a meeting at their offices. Four tailored Armani suits or better appeared at the meeting. If life were a fashion war, the investment bankers would be winning. They were confident and took victory postures. They attempted to persuade me to do the transaction. I continued to decline. I could sense their building frustration. They couldn’t understand why they weren’t getting my agreement. After all, they were taller, they were louder, and they were in the majority. So what was the problem? I picked up a cookie – the meeting didn’t have to be a total loss – and explained. I didn’t want to play their shell game. The problem was that my counterparty for the credit default swap protection would have been the SPE, a shell corporation. The only asset of the SPE was an insurance contract. The SPE would only receive a credit default payment after the insurance company determined its actual recovery after taking the matter through bankruptcy proceedings. The SPE had no way of assuring timely payment under the terms of the credit default swap confirmation. The transformer wasn’t even worth the price of the child’s toy of the same name for the purpose they were suggesting. Sure, the SPE would have ultimately got paid and the bank would ultimately have received payment, but that wasn’t the point. The point was that the SPE did not have the resources to perform under the terms of its transaction with the bank. It could not pay on a timely basis, no matter how cleverly crafted the credit default swap confirmation. If a credit event occurred, the bank would have to fund the credit default payment to the ultimate protection buyer until the SPE finally received its payment from the insurance company. The investment bank only offered the usual credit default swap intermediation fee, but the bank had additional risk beyond the credit default swap agreement. It’s possible that the well-dressed guys weren’t aware of this until I pointed it out. The implications of that are ugly enough. But if they were aware, the implications are even uglier. ROICW – II After last week’s update, one of you offered this: M.: “I own a considerable number of these. My firm owns or manages capital that owns roughly 8% of them. I paid close to what you paid for the great majority of them. The company needs to do something to address the overhang the warrants are putting on the stock. Above 12, the shares outstanding go up from 50 million to 90 million. ROIC trades at a discounted REIT multiple, in part because of this overhang. The recent equity offering the company did to finance new acquisitions was a step in the wrong direction. An exchange of stock for warrants to raise capital to grow, and take the warrants out, makes more sense. I think management gets this now, but they have misled me on this topic in the past. There is also a difference between the price that management wants to pay in stock for the warrants and the price warrant holders like me want. The Barron’s piece you linked to was good, but it missed this dynamic, and I thought I would point it out. Also, keep in mind: when the stock gets close to 12, it makes sense for some warrant holders that are option oriented to hedge by shorting ROIC stock; the delta of the warrants goes higher, and they can make profits selling stock at 12 and covering at 11.50, without a lot of risk that stock goes higher. This is also capping the stock some. IMHO, these will work out great if management ever takes some action to address the overhang. But we have had quite a REIT rally already and multiples are not low. And it is hard for the stock, and thus the warrants, to get to fair value if the overhang is not managed down.” Tomorrow: Free Masterpieces and Your 17-Minute Feedback
The Road We’ve Traveled March 19, 2012March 25, 2012 If you haven’t already seen it, here is Tom Hanks narrating the 17-minute story of the last three years. I have lots of other items to post, but asking for 17 minutes of your time is already a stretch. Let me know what you think.