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.