Gumby Fresh

M180 Boogie

2010-10-16T09:05:00.006-04:00

It's been a little over a year since I last updated this blog, and the only activity that anyone would have noticed has been the occasional squeal from the bottom of the Ambit Energy pyramid. There have been a few reasons for this. The Atlantic Yards saga moved into phase about which I could not ethically comment, and then beyond that I had much less to contribute anyway. I stand in awe that Mr. Oder is still on fire.

Once I acquired offspring I stopped going out much, and the few gigs I went to could be reviewed just as economically on twitter. Under my real name. Despite the fact at least four or five very fun bars and restaurants opened up near me, I didn't really have the enthusiasm to review any of them (For what it's worth, here's my take on Fornino Park Slope: "Please end your quixotic grilled pizza crusade. La Villa can't be paying you that much to eschew tasty Neapolitan crusts.")

In any case. I've moved. To hereabouts. And will have to stop being accustomed to instant, plentiful stimulation. Books will be read. Records will be savoured, just as soon as the next consignment from All That Is Heavy arrives. This is an area that doesn't do renewal, or gentrification, or any real estate greed at all really. If you would like to build an arena there, I'm sure you could find the space pretty easily, and you wouldn't excite much resentment, so long as you left the mighty Iron be.

It might make a good subject for a blog, though I will probably need to settle a lot longer before I put pixel to screen. I'd sound a little too condescending or wistful for now. Or alternatively, I could set up a pirate radio station - blasting the latest rock sounds I'd picked up on the East Coast to the hungry natives. "It's been done", you say? There's the internet, you say? Don't you have automobiles, washing machines, modems and other symbols of a sick society to procure? True. All true.

Anyhow, Gothamist is gone from my RSS feed. At some point No Land Grab will be too. I'll be left with a grab bag of doom metal and finance feeds, and my perspective on life will be the poorer for it. Or I'll get heavily into animal-raising or furniture restoration.

A few weeks before I left I went on a lone bar crawl of the five boroughs. Before you criticise me for embarking on what was essentially a day-long, transit-heavy schlep with fairly minimal boozing beyond that contractually required to visit an open-air drinking establishment in each borough, you need to realise that it was a day-long, transit-heavy schlep with fairly minimal boozing beyond that contractually required to visit an open-air drinking establishment in each borough. I don't think I have any friends that like to spend three hours on the Lexington line, or an hour on the G train replacement bus.

But the bars weren't really the point. The idea was to get a half-decent cross section of the New York I was leaving behind. I don't think I really went through it like rock. I always erred on the side of the picturesque. From the walk through Pelham Bay Park from the 6 train to the Reef Fish Bar on City Island, through to the cheeky pint at Stone Street's Ulysses on Manhattan, then via the Staten Island Ferry to the World-flattening Killmeyers, I took my fill of the view from sundry buses, subways and ferries.

From there it was pretty much all downhill. The nearest bar I could find to the S79 bus stop was so bad I decided that I would have to tack on another Brooklyn bar to the end of my trip, and the R train and G train were tantrumming so badly I took a good couple of hours to make it to the Bohemian-Beer-Garden-goes-Disney called Studio Square. I finished at Mission Dolores, one of those places I'd have called a local four years ago, but it didn't feel right. Too many youngsters.

When it comes down to it, there's only ever been one bar I felt truly comfortable walking into on my own, or somewhat inebriated, or both, and that was Freddy's (The link has automatic sound. But Freddy's can do what the hell it likes, K?). When I started work on this post late last year (gives you an idea of where blogging stands in my list of priorities right now), Freddy's did not exist in any form.

Since then, not only has it opened up in a new location in Sunset Park/South Slope/Greenwood Heights, but I've been back to New York and had a chance to visit. And it's wonderful. Even at 3am in the morning and not that busy. It was nice to hear the staff talk about how they were going to bed down in the community, and grapple with what to do when there's not a built-in fan-base of starry-eyed hipsters nearby. All of these issues are important, and it's not often that a bar's management has to sit down and think about its role in quite such an abstract fashion. In any case, I wish them well.

New York Times Plays Nuclear Gotcha. Badly

2010-02-16T16:27:00.003-05:00

Time to reacquaint myself with the mysteries of blogging, and there's no better way to do that than by jumping down the throat of the New York Times, which just lost a finance writer under unpleasant circumstances (Email me, guys, my rewrite skillz are unstoppable. And untraceable).

Behold, the New York Times, on the new nuclear loan guarantees. Southern Company, the utility that Boss Hog from the Dukes of Hazzard would be if he was a utility (See Greg Palast here), has received a guarantee for $3.4 billion in financing for two new nuclear units. For some reason, the Times has managed to inflate that figure to $8.3 billion, maybe by including both potential interest and principal payments, even though Southern is quite clear (pdf) on the number.

But the reporter's most conspicuous boo-boo is right here:

The new aid for the nuclear power industry serves many of the Obama administration’s objectives, helping broaden support for its energy policy proposals, which face obstacles in Congress; helping control emissions of greenhouse gases; and to some extent bolstering employment and domestic energy production.

Mr. Obama said, “Make no mistake: whether it is nuclear energy, or solar or wind energy, if we fail to invest in these technologies today, we’ll be importing them tomorrow.”

But these reactors were designed by Westinghouse, a subsidiary of Toshiba, and many major components will be fabricated abroad. And nuclear power is of limited use in offsetting oil imports.

This is, to say the least, rather unfair. I've been very critical in the past of politicians conflating the debate about how the US generates its electricity with that about where it gets it oil from, since so little of the US generating fleet runs on oil. But Obama didn't say that. Obama, notes the reporter, wants to bolster domestic energy production, without specifying what kind of energy production it wants to bolster. He then notes that Obama says "if we fail to invest in these technologies today, we’ll be importing them tomorrow.

Our reporter took one look at the word "import" and thought he would like to take the president down a peg. He notes, correctly, though huffily, that "nuclear power is of limited use in offsetting oil imports," though he could have said the same about any source of fuel for generating capacity. But Obama was talking about importing technologies, not hydrocarbons. I'm not one for squealing about moments of laisse majeste (as I never tired of saying yesterday, I wasn't allowed to vote for the bugger), but this is weak fuel for a hail of peanuts.

UPDATE: The article has been revised with the gotcha nonsense removed. Fortunately, the reporter has added a new bit of nonsense for me to pounce upon. This time, he's positing the notion that "banks", by which one assumes he means commercial lenders, will be funding the loans guaranteed by the Federal government. WRONG! Lending money to a project with the full faith and credit of the federal government is just not profitable. One can simply buy government debt to earn pretty much the same return with fewer headaches. Soooo, as again the Southern press release makes clear, the actual money for the loan will come from the government-owned Federal Financing Bank. Since the government is taking on the credit risk, it might as well front the cash itself.

You Genius Onexim

2009-09-17T22:47:00.002-04:00

The country whose corporate finance market gave us the Aluminium Wars vomits forth a hunk of ill-informed conjecture on the Nets stadium financing so wacked-out I just have to say "bravo"! I'm almost envious.

Via nolandgrab, we hear that, like some low-rent London estate agent, the Atlantic Yards stadium finance coterie is hoping that mentioning a wealthy Russian in the same sentence will make their stinky Pimlico maisonette of a stadium financing look more appealing.

Mikhail Prokhorov, a nickel magnate, is apparently interested in a Nets bailout, though his recently-founded Onexim Group, whose website lists no financial information, and whose press release page is dominated by news of legal actions. I note, as nolandgrab notes, that his name often seems to be waved around near flailing sports franchises, and why the man wouldn't buy an equally crap team with a better balance sheet is beyond me.

I'm not even going to even start speculating about how this fantasy wormed its way into the cranium of Reuters' ace Moscow reporting duo. One can read, in this profile of the estimable finance blogger Felix Salmon, that Reuters, since its acquisition by Thomson, has regained some of its mojo of late.

Could be so, and its capital markets coverage has been much more prominent on the web the last few months. Its municipal finance coverage, however, has suffered from Thomson's disposal of the Bond Buyer some months before the Reuters purchase.

When one reads the following it's fairly apparent that there's no-one inside the Reuters brain trust to talk to any more about municipal finance:

Prokhorov is considering issuing a bond worth $700 million through Onexim to help fund the project, one source close to the deal said. The source said the bond must be issued before the end of 2009 so it is exempt from government taxes, adding: "This is a pure business story. The value potential of the club and arena are very high."

That said, any reporter that will allow the gibberish that is that final quote to make it into their story may have more immediate parts of their reporting toolbox in need of an upgrade.

But back to the first sentence. "Through" is the wrong preposition, pure and simple. The bonds would be issued through the Brooklyn Area Local Development Corporation as part of the hastily-approved corporate welfare package put together by the city and state for Atlantic Yards. The bonds can't be tax-exempt if they're issued by Onexim. I thought briefly that Onexim might borrow the money on a taxable basis and lend it on to the project, but that isn't what the article suggests in the sentence after.

So let's assume the Reuters guys aren't too hot at verbs or prepositions. Could they mean that Prokhorov is buying the bonds through Onexim? It would mean that Prokorov might decline to demand a prepayment penalty on the bonds, although I doubt that he would be able to avail himself of most municipal bond interest breaks, since he's not presumably paying much in the way of US tax.

He is far from the most suitable buyer for a tax-exempt bond, unless the arena bonds are Build America Bonds, where the tax subsidies are paid direct to the issuer, but I don't think they are.

They could have been told that Onexim is considering guaranteeing the bonds, by putting up a performance bond, in exchange for a substantial stake in the Nets or arena company, though I have no idea whether Onexim has the resources to make a $700 million contingent commitment like that, and whether the ratings agencies would believe them.

Still there must be a reason why someone close to Onexim or Ratner is babbling about bonds when no-one asked them to. I hope you will agree with me now when I say the Reuters reporters don't sound like capital markets vets. What we're hearing, via an elaborate and far from lucid chain of whispers, is that the bond financing is looking as hairy as the Net's team finances. This should be far from reassuring to Ratner's pals at the ESDC.

"Odd", Eric, ain't the half of it.

The Ratner Hat Syndrome

2009-09-10T16:01:00.002-04:00

Just got back from a trip to Canada. So it's taken me a little while catch up with the Atlantic Yards hullaballoo. Saw the renderings in the Times on the way home.

I must say the first thing the new arena put me in mind of was the funny helmets the rebels used in the third Star Wars movie. Which makes the new arena mid-80s futuristic, I guess. It also looks a little more low-slung, which is in general a good thing. If the man managed to put it up nearby without throwing people out of their homes and gorging on public subsidies I might even learn to love it.

Two small details intrigued me. The first is that Ratner's moving the team offices out of the arena, which sounds like a pretty desperate stab at cost-cutting, and may well reduce the attractiveness of the arena to another buyer. I'm sure Ratner has lots of Brooklyn office space standing by idle right now, but am not sure that whatever mug he manages to dump the team on will be similarly, um, blessed.

The second is that Ratner has decided that the new arena will include retail space. This is interesting, because, again, and this can be confirmed fairly quickly by a quick stroll through his two ugly malls, Ratner's not hurting for vacant retail spaces in that part of the world right now. Is Ratner, or his bankers, or the agencies, so worried about the revenue that the arena will produce, that he's trying to juice it with some retail rentals?

Alongside the release of the new rendering, Ratner also granted Eliot Brown, the only professional journalist spending much time writing about the arena financing, an update on that end of things. There's not much new in here, more a sort of confirmation of some of the proposals that Ratner's been floating around the last few weeks and months.

He confirms that he does have a $200 million equity gap, but seems to indicate he's looking for outside providers to take equity in the project company, rather than pay Ratner for a stake in the Nets, which Ratner would then contribute to the project as equity. This could be smart, since there are a couple of private equity and real estate investors that might like a direct stake in an asset like this.

They'll only do it, though, I imagine, if the Nets sign a long and expensive lease on the arena, which would doom his chances of trying to sell the team for a while. Of course, Ratner says that FCE could meet this $200 million from its own resources, but I think a commitment that large would put its return on capital so far in the toilet it might as well go back to building strip malls in Cleveland.

Then there's this issue of issuing the bonds to finance the stadium and then holding them in escrow until the litigation can be resolved. Ratner has told Brown that he can do this. I'm still not sure how that will work. I'm fairly certain the tax consequences for investors of being made whole (paid back early) on these bonds would be horrible. But it might be possible, and FCE, in one final throw of the dice, might be able to put up the premium to prepay the bonds itself. Certainly it would be easier to find that kind of money than $200 million in equity.

But the process is likely to be hideously complex. Go look at this page to get an idea of how difficult refinancing municipal bond debt is. Yeah, I'm copping out a little bit here, but I had a rather large lunch, and municipal finance terminology is not my strong suit. Let's just say we're getting a clearer idea of what route Ratner might be taking, his likely gearing, and his timeline. It's a pity Brown didn't ask if he was talking to Assured Guaranty about bond insurance, though.

Oh my god, municipal finance commentary and Star Wars references. This really is turning into a low-rent Accrued Interest, isn't it?

Soon You're Talking Real Money...

2009-09-04T16:36:00.002-04:00

I finally got round to picking through this extremely interesting, timely, lucid, and well-reported Q&A at Nets Daily post about a potential sale of the New Jersey Nets basketball team. It's awesome. Go read it. Go read it again. Go pick through it yourself like an episode of The Wire. There at the bottom is a comment from me. I'm going to elucidate here on what I wrote there.

The blog's pseudonymous author has worked out that there are a lot of rather angry investors in the Nets ready to vent at the nearest knowledgeable Nets fan, and the author has done a very good job of tracking them down. They also have appeared to have gleaned a pretty convincing idea of the Nets team finances.

But buried down in the information is something pretty momentous - Ratner needs to scare up another $200 million from somewhere to finish his new stadium in Brooklyn.

According to one insider, half the $400 million [sales proceeds] would go towards the down payment on the Barclays Center and half towards reducing team debt.

I'd been working on the assumption that the $150 million that he'd sunk into the project - on land acquisitions, fees and site work, would be considered an in-kind equity contribution, its "down payment", as the Nets Daily writer put it.

Looking back at that assumption now I should have realised that FCR, which has mortgaged a lot of the footprint property to Grammercy Capital, would probably have to pay back that financing before the site could be considered equity, since I can't imagine that Grammercy would find it very entertaining to try and foreclose on land that's got a massive arena on top of it.

But there might be more to this. I've always thought that at some point the ratings agencies, no matter how supine they can be when confronted by the considerable charms of the Goldman Sachs sports financing team, might start to bite back. This is a tremendously over-leveraged developer trying to pitch a tremendously over-leveraged project to the market.

My assumption was, without knowing much about the conventions of sports team financing, that the Nets would throw whatever revenues they had at their disposal into the mix until the arena looked like it could cover its debt comfortably. TV, advertising, sponsorship, concessions, and so on. Which they may have done.

No matter. Credit markets have thawed a little, and it looks increasingly likely that the Nets - if they get the right financing structure in place - could get the bonds done at an interest rate of no more than about 2 percentage points higher than the other New York team stadiums did. But they won't be able to put in a token equity contribution.

What the agencies might be saying is that the project is so speculative, or the economic environment is so poor, that the developer is going to have to kick in some more cash to absorb revenue shortfalls before bondholders do. When the Jets and Giants are struggling to shift some seats at their new stadium this is an understandable position to take. So Ratner needs to sell the team to get this equity contribution, suggesting that additional stock or bond issues by FCE to fund this commitment are not feasible.

Now go back to the Nets Daily article and take a gander at the logistics of this. Ratner wants to sell the team, and use the proceeds to fund the stadium. But buyers - with the NBA's support, apparently - do not want to be locked into an above-market lease for a Brooklyn arena. They want to own the arena, but probably don't have the resources to convince the agencies to follow through.

The Nets losses then, are only part of the reason Ratner needs to sell. But Ratner might not be able to sell the team until the financing is in place, but needs to sell the team to conclude the financing. Can he bundle both into a single instantaneous transaction? Watch this space.

RIP Ellie Greenwich

2009-08-27T11:16:00.002-04:00

Pop genius Ellie Greenwich is no more. She's probably the reason why, despite his crimes, I'll never stop listening to Phil Spector music. Off to the Brill Building in the sky.

Even The Ramones treated her compositions with respect. Though in that case they were encouraged to behave by the presence of one Phil Spector sat behind the control desk and presumably waving a BIG BLUDDY GUN around. Here they are being all respectful on Top of the Pops. If you look closely, you can see Spector on the sidelines pointing a bazooka at them.RIP Ellie Greenwich

Glue Me Baby

2009-08-12T13:42:00.000-04:00

Falls into the category of too big for twitter, too political for Facebook, and too personal for blogger. But I'm going to settle on blogger, since it is, aside from occasional AY-related link love, where I have the fewest followers. Probably because I'm pseudonymous.

Was getting my daily fix of the Guardian this morning when I chanced upon this article about how opponents of US healthcare reform are using the UK to demonstrate how poor a job government does at providing healthcare. This is a laughable claim, and I'll come to some substantive criticisms in a moment, based on my experiences of both systems.

But first, this little nugget:

To the dismay of British healthcare professionals, US critics have accused the service of putting an "Orwellian" financial cap on the value on human life, of allowing elderly people to die untreated and, in one case, for driving a despairing dental patient to mend his teeth with superglue.

I found this particularly funny since I have false teeth and have indeed been driven to fix them with superglue. Here's the thing. It sure as hell wasn't in the UK where this happened, and it was at the suggestion of a US dentist that I resorted to this fix. When I finally got round to getting a new one, I gently reminded the dentist that whatever impression he took of my gob should take into account the wonky teeth I'd had in it the last few weeks.

But US dentists essentially just subcontract all this sort of work to outside makers and have very little interest in the details of this work. It's also telling that the denture I got in the UK lasted for about seven years, while my two US ones have managed maybe three years each. [Actually, it turns out that that the UK anecdote involves a man supergluing a crown to his gums, which is a little different]

Of course what any of this has to do with US healthcare is beyond me, because there is no such thing as publicly-funded dentistry in the US. Dentists have little interest in being subject to any kind of cost control, government supervision, or the demands of common sense. They are, if you will, all thieves.

But it segues nicely into my larger observation about healthcare reform: how on earth do you have a sensible conversation about the proper functioning of your body and money at the same time? Now a supporter of the hopelessly bloated and unequal US system would say "how can you have a sensible conversation about the necessity of medical treatment?" They'd also add, and I confess they're entirely right, that the UK has built a medical system around its founders' inability to discuss money with its medical practitioners, and it's had the fortunate effect of being very fair too poor people.

And they're sort of right, but they very rarely say that the US is super-awesome at treating rare and expensive diseases and awful at dealing with the more pedestrian ones. We're talking about huge copays for drugs that cost pennies to produce, little attention paid to preventative medicine, this weird way that America is proud of Medicare and the VA system and seems to hate public medicine.

I'm biased. I'm writing this as I'm trying to work out how to settle some BS copay for a chest x-ray that diagnosed me with walking penumonia rather than Swine Flu. Was I informed about this when treated? Nope, via a snotty letter that says I'm inches from going to a collections agency. It's by no means a horror story along the lines of a lot we've had, it just indicates what a wasteful and time-consuming process private healthcare can be. We focus too much on the cost in money of employer-provided healthcare and not enough on the time cost. Maybe if we did, there would be companies other than GM prepared to face down the private health lobby.

I am the god of capitalism, and I give you nonsense

2009-08-10T11:38:00.007-04:00

They say that the future of publishing lies in occupying your niche properly. In which case I would like to make my case as the Best Blog Speculating About The Atlantic Yards Arena Financing Evar. To those pedants among you saying that the proper name for the arena is "Barclays Center", I would say, it ain't called that till it's built, and if Barclays wants me to advertise its execrable banking services it can pay me directly.

Anyway, the cause of this haste is a workmanlike update on the arena financing from the Times' Charles Bagli, FCR's go-to guy for expectations management. Oder teases out the juicy bits so you don't have to. But it's fairly thin stuff.

Ratner's meeting the ratings agencies, which we knew. What we don't know yet is if he's trying to put something together with Assured Guaranty, the least crap bond insurer in the whole of America. He's scrounging for cash from the public and outside investors, both of which are fairly well-known.

Which leaves us with the last paragraph of the story:

Some real estate executives and critics said it would be hard to sell the bonds for such an uncertain project. But Jay Abrams, a bond analyst at FMS Bonds, said there “is definitely an appetite for tax-exempt bonds in New York, and elsewhere.” The lawsuit, he added, “is not necessarily a game-killer. At the right price, there’s always a buyer for bonds.”

I don't know whether Bagli tried to ask Ratner whether he had a plan for getting the bonds out ahead of the litigation being resolved. I suspect Ratner would have been deliberately vague in any case. The reasons being that any way round the December 31 deadline for a bond financing would be fiendishly convoluted.

But let's go back to this Jay Abrams at FMS Bonds. He seems like a contrarian sort of fellow. Maybe they should give him a spot at The Big Money. It could well be that he's privy to the machinations inside Goldman Sachs' sports finance shop. More likely, though, he doesn't have a clue what he's talking about.

I had a quick gander at the website of FMS Bonds, which appears to be a South Florida-based brokerage with a decent online presence whose bread and butter is persuading retail investors to pile into municipal bonds. Nothing wrong with that. Highly patriotic behavior, encouraging dumb retail money to crowd the market and lower government borrowing costs. Give them a knighthood, um, I mean, Presidential Medal For Virtuous Bond Pimps.

I'm just not convinced, they've spent much time on non-recourse private activity bonds. Which aren't like regular muni bonds. Which is fine, because they're aren't that many of them, and after the end of this year there will be even fewer, at least for speciously useful sports facilities. No, the real money will probably be in clean energy, but I will pull up there before I digress.

I'm very tempted to speculate on, maybe even recreate, the conversation. In fact, I'll do it, at least in outline. I'll assume that Bagli washed up at their door through the intervention of that wise old capital markets pro we call The Google. He probably outlined a slightly risky and speculative bond issue, maybe mentioned the threat of litigation, and our bond analyst, putting up his feet and donning his Wise Capitalist glasses, assured the reporter that in any market there is a price at which a good clears, and municipal bond markets are no different.

There are a couple of issues with applying this theory to the AY bonds, however. The first is that equity also has a price, and the more expensive the bonds get, the less attractive the project becomes to FCE's, and the Nets' long-suffering shareholders. I dare say that the bonds would clear the market with a 15% interest rate, but nether the arena, nor FCE, could sustain that rate. Abrams is assuming that the "how desperate are you for the cash" metric, which is pretty much the only one a municipal treasurer cares about, can be applied to these bonds.

But the arena company is a private borrower. I say borrower rather than issuer, because the NYIDC, or the ESDC, I forget which [it's the BALDC, an ESDC subsidiary, I have been corrected], will be the issuer. But they'll lend the funds on to the private stadium company, and the private stadium company, not the state, not the city, and not FCE, will be responsible for paying the bonds. The arena financing will not be like poor Jefferson County, Alabama, which started off trying to deal with a poorly-structured sewer bond issue, and ended up laying off two-thirds of its workers.

There's only a certain number of people that a struggling arena could lay off before hordes of Brooklyn Beer-starved hordes descend on the arena for FREE SPORTS and FREE HOT DOGS and FREE BROOKLYN LAGER with not enough staff to stop them getting in. Sort of like a less entertaining Dawn of the Dead. Jacking up the rate, beyond a certain level, is just not an option.

Maybe this Abrams guy is talking about discounting the bonds. You issue $780 million in bonds but only bring in $700 million in proceeds. Possibly, but the practical effect of discounting the bonds is to increase their interest rate.

What Abrams didn't say was "give them a juicy enough prepayment penalty and they'll pile in". He would have been referring to the idea that the proceeds of the bonds could be kept in escrow until the litigation is settled, and if FCR loses the litigation then the proceeds would be returned to the bondholders, as well as a fee to compensate them for their trouble. There are, possibly, a few reasons for his omission. Muni issues are not very frequently repaid early, and there is an entire class of muni bonds, called refunding bonds, that exist on top of outstanding, more expensive, bond issues.

It's possible that the arena could issue tax-exempt bonds with an eye-watering rate of interest before the end of the year, and then try and refund them, though I doubt those bonds would be tax-exempt. More importantly, at some point, the interest rates on a badly-assembled tax-exempt financing would be so high that Ratner might as well wait and just issue the bonds in the taxable market if it takes until 2010 to get the litigation dismissed.

But our assumption is that the 2-3% saving from tax-exempt treatment on the arena debt is critical to the economics of the project, though maybe less important than the legal authority to seize other people's property for it.

So, back to prepayment penalties. Very well-regarded municipal issuers can avoid paying them. Sketchy arenas can't. It takes time and effort to read through whatever nonsense the underwriters marshal in support of the bonds. The guys that buy these private activity bonds don't tend to allocate much of their time and money to them. So the issuer needs to offer to pay them at least 2% of the proceeds, probably more, on top of handing back what they've borrowed, if they want to pay back the bonds early. If, say, the arena doesn't get built.

If you're a local government, then fine. You can fire a few teachers and use the savings to pay back the jackals of Wall Street. If you're a corporation that is bringing in revenues, you can take the same route. But the stadium won't have been built. Won't be making revenues, can't even be sold to make the penalties.

There's a glimmer of an idea. FCE might be persuaded to promise to pay the prepayment penalty. But FCE's well below investment grade. Assured Guaranty couldn't counter-guarantee this promise, and the promise might even drag down the bonds' rating. So Goldman Squid will have its work cut out here.

UPDATE. Of course it was a short while after I hit Publish that I remembered that The Florida Marlins got a financing for a new ballpark done in July. It doesn't alter my thesis, because the Marlins bonds were backed by tax revenues, not stadium revenues, and there's no indication that the city is looking at shoveling the Nets this kind of support. Just as well, cos according to this lady, the flipping thing's half-empty most of the time

Pity The Goldman. But Still Destroy It

2009-07-30T16:09:00.001-04:00

There's been a yawning gap in financial journalism ever since Andrew Ross Sorkin went on book leave. At least he might be on book leave, or I might just have stopped visiting Dealbook, on account of there being no mergers right now. I'm referring, of course, to the post of Chief Investment Banker Water-Carrier.

I've been obviously bitterly envious about Sorkin for a while now. Which is a shame because he's charming and hard-working, and god knows what the investment bankers would get up to without him to talk to. He serves, in other words, a powerful societal need, almost like a sin-eater.

Which doesn't mean, however, that he needs to be replaced. Still, if anyone's going to do it it's Heidi Moore, whose best stuff at the WSJ's Deal Journal always focused on the comings and goings of bankers rather than that pesky context stuff. She's noticed that there might be an opportunity for a backlash-backlash where the subject of Goldman Sachs is concerned, or at least room enough for the sort of entertainingly contrarian piece that Slate and its offspring go nuts for.

Here she is then, channelling Bill O'Reilly at The Big Money. Of course, the advantage of having such an emptily belligerent headline means that she doesn't even have to set up a straw man Goldman Sachs-hater as opponent. I think we can assume that she has the Matt Taibbi article in mind, although no proper journalist would spend so much time taking down a single article, so she's free to swing a little more freely.

Much like the new scamp in prison, she's already gone after the prison-yard bully, in this instance the Epicurean Dealmaker. Thus Mr Dealmaker is strangely muted when discussing the piece. Which is a shame, because, aside from the reporting, the argument (and yes, it is an argument) is a horrible mess.

Moore's argument relies heavily on the idea that Goldman Sachs isn't infallible, that its alumni have a rotten time of things when they leave the firm. Sure, says Mr. Dealmaker, they're not that smart. They're modest, they communicate effectively by voicemail (lord knows how they made so much money in China), their performance reviews seem to be genuine.

What I think she's doing here is conflating some of the specific criticisms that Taibbi and others have about Goldman Sachs, with the more generalised hatred of investment banks that existed before, during and after the crash. I don't think anyone has been claiming that Goldman Sachs bankers are flashy degenerates, and I think that criticism of the firm is not dependent on accepting the idea that they're geniuses. We did the whole, smart, modest guys screwing up and taking thousands of jobs with them thing when we noticed that Stephen Feinberg existed.

In fact, Moore highlights, and TED fails to pick up on, the most terrifying thing about Goldman - that its employees are selfless, loyal, and utterly disciplined. Goldman's existence is problematic not because it's large, not because its people are smart, and not because its alumni crop up in government, or at least not primarily. It's problematic because Goldman Sachs has assembled a group of rich, motivated, ambitious people whose loyalty is primarily to Goldman Sachs and Goldman Sachs alone. Sort of like the Jesuits crossed with the Fuggers.

When Goldman has molded its employees so much in its image that they'll resist often quite astronomical short-term monetary rewards out of loyalty to the firm, is it so weird that they'll carry this loyalty over to the public sector, or that the firm will engage in actions really quite detrimental to their clients and society at large because its best for the firm?

Or let's put it another way. I'm actually rather happy with bankers being short-termist, greedy and egotistical, if only because it's unlikely they'll coordinate their actions in a sufficiently dangerous fashion to subvert government or bring the world financial system crashing to its knees. Before you note, quite rightly, that these bankers appear to have done just that, I'll note in advance that these bankers had lots of help. Agencies, government, mortgage pimps, and so on.

You might also suggest that Goldman alumni haven't been massively successful in the private sector. As Moore notes, they seem to be rather ineffectual when adrift from the mothership. But then that isn't the point. The point is that they're trying. Can you, after all, imagine a gang of Morgan Stanley doing much more after their stint than running a hedge fund?

So, Goldman must be destroyed because it's so effective. What's good for Stalin's Army isn't good for American capitalism. Actually, it's probably not even good for Stalin's Army, but you get my point. We want our weasels back.

Ratings want to be free

2009-06-17T16:18:00.002-04:00

Embedded video is unfortunately not a very efficient way for me to absorb information, particularly when this video does not show up in my RSS feeds. But I not only clicked through, but watched the whole damn thing when Barry Ritholz' Big Picture pointed me to a video of two gentlemen proposing an alternative to the big ratings agencies.

The two gentlemen - computer scientists Jesper Andersen and Toby Segaran - have formed an open-source venture called Freerisk, which describes itself as "project with the goal of making freely available the data, algorithms and tools necessary to perform risk modeling". More bluntly, the founders, as you can see from the above-linked video, want to loosen the stranglehold of the agencies on credit analysis.

This is a timely, worthy, necessary and maybe even feasible goal. The founders acknowledge that access to the data necessary for debt analysis needs to be improved, and that this data should be provided, presumably to the SEC in a machine-readable format. The algorithms necessary to perform this analysis would be open source.

I say timely because the Obama administration's instincts have been to ask issuers and agencies to provide a greater amount of information, and I say worthy because, as the Freerisk founders demonstrate persuasively, investors need to have access to better means of measuring credit risk. The current system of semi-regulated, issuer-paid, nationally-recognised statistical rating organisations is simply not stable.

I say maybe feasible, because if you're going to start trying to chip away at the agencies' dominance, you'll start, much as newer outfits like Gimme Credit and Egan-Jones have, by looking at corporate debt. The models are simpler, and the inputs and assumptions are much more transparent.

But let me look now at some of the potential pitfalls. I have no idea, for starters, whether publicly-registered bond issuers provide the right information in a homogenous fashion, in the same way that registered equity issuers do. Issuers of bonds that can only be bought by accredited large investors (Rule 144A buyers) do not have to disclose any information at all. You might say that 144A buyers are presumably less in need of this sort of protection, but then you wouldn't have been reading the papers much recently.

Then there's the fact that agencies have not had a particularly horrible time with their corporate ratings of late. Now this is all relative, and their work on financial institutions has been, at the very least, far from timely, but the agencies' biggest failure has been in the rating of structured products.

The Freerisk principals say quite clearly that having proprietary and closed algorithms was one of the factors that got us into this mess in the first place, but if Egan-Jones can't work out a way to break into the rating of structured products, you can assume that the barriers to entry in that business are fairly high. It could be that it's easier than the big boys make it out to be, but he way the industry developed suggests not. Which is not, of course, to say, that issuers can or should be concentrating on structuring fiendishly complicated instruments these days.

They do do things differently in debt markets, this peculiar mixture of wild west and gentleman's club. In equity markets the assumption is that any idiot should be allowed to go out and own any stock they like. In debt markets there's an assumption that some products are definitely left to the professionals. which doesn't make a massive amount of sense because debt products - in general - provide a much more stable income stream and better recovery prospects, though they also require a bit more supervision of issuers, whether directly or by a trustee.

Regulators have traditionally enforced this distinction by leaving the decisions to the agencies, and there's no sign that they will either let investors buy whatever debt securities they feel like or staff up in a sufficient fashion to make these distinctions themselves. That decisions still confronts them.

But chipping away at the edifice of ratings agency dominance will be a gradual process (I see challenges to their use of First Amendment protections to be another means of doing so). I see Freerisk being complimentary to efforts by competing agencies to check their rivals' work by offering unsolicited ratings. Regulators have traditionally frowned on unsolicited ratings, seeing them as a form of blackmail (hire us or we'll put out an unsolicited rating that makes you look bad). But they're probably the quickest way to establish a means of checking ratings shopping among the big agencies.

It would also get investors used to the idea that even if a competitor, whether paid for or free, doesn't have the best analytical tools, then if it has a better record with the way its using assumptions and inputs it could still provide an alternative to the big agencies. I'll be curious how it works out.

Hanger Wan

2009-06-05T17:02:00.004-04:00

About the only thing that can rouse me from my blog torpor these days, aside from Doom Metal, is the latest series of exciting gyrations at the Atlantic Yards project.

I happened to be out of the country acting as a heritage management professional when Senator Perkins called a massive public meeting about the project but neglected to stock it with any useful questions or event security. The result was a meeting that by all accounts managed to be both rowdy and substance-free, not unlike the empty theater that is the city's rent-review process.

I'm still unsure about the provenance of the people who were so insecure about the Atlantic Yards rationale that they needed to drown out a rather milque-toast set of interrogations. I read variously that they were genuine unionised construction workers or a mob assembled by the community groups that Ratner has paid to support the project. That said, I have an enduring fascination with the iconography of the American hard-hat. That the use of the hard-hat in the practice of wedge politics still has an edge even as America's native working class has largely abandoned the construction sector to recent, usually non-union, immigrants, and the country's heavy industry sector has hollowed out.

I thought about this as I read Rick Perlstein's wonderful Nixonland, and his account of the occasion when the city's construction workers acquired a taste for hippy blood. Perlstein's book has been much praised by bloggers, usually as way of explaining the yawning cultural chasm that exists in American politics. I liked it because my entire knowledge of the politics of 60s and 70s America comes from Hunter S. Thompson books, and I know, deep down, that that isn't healthy.

Some of the most fascinating bits of the book are those that illuminate just how culturally divided New York City was. I'm referring, of course, to a period before the flight to the suburbs, a time when the city was host to a huge white working class population. Sorry, I should have said, huge violent white working class population.

I'm thinking about the photo from 8 May 1969 of the stockbroker and hardhat apparently joining forces to beat up a student protester. You can see it here. I'm not going to be crass enough to compare arguments over an undistinguished basketball arena with the Vietnam War, but it's a nice and visceral illustration of the marriage of labour and capital in action.

The hard-hats kicked off the beating, and the white-collar worker joins right in. It illustrates the coalition that Nixon assembled to power his two presidential victories despite being massively weird, old and dishonest. So why does this tactic still endure in the Brooklyn of 2009? I mean, this is Old Skool.

It's possibly not that weird though, since Bruce Ratner learned his lessons about urban development as director of a Model Cities program for the Lindsay administration, which was the hapless bystander to the unrest of the late sixties in the city. He presumably learned the value of keeping labour onside, as well as, presumably, the value of dubious, though deniable, racial rhetoric in undermining opposition.

I doubt, though, that portraying construction workers as the stooges of capital would have any more force now than it did in 1969. It would probably be even less effective than following the marshmallow-brained Marty Markowitz about while dressed as a gigantic phone and screaming "MARTY! IT'S BROOOOOOCE" every time he tried to get on television (it's a reference to a moment in a New Yorker article when he had a very obsequious phone call with Ratner. Oh, never mind.)

I was tempted to carve out the news about the replacement of Frank Gehry with the hanger-building hacks into its own post, but the pub beckons, and I don't have much to say about architecture.

I'll just leave you with this datapoint. Last year, the Louisville Arena Authority started construction on a $238 million arena with a capacity of 22,000 seats. That can host ice shows, concerts and swimming. Even after tossing Frank Gehry's design and "value engineering" the hell out of the arena, they've managed to come up with an $800 million arena that won't host ice hockey and has a capacity of 18,000. AND IS UGLY AS HELL.

I'm not going to go over the model again. I'm not even going to argue about whether New Yorkers are going to pour three times as much love into a second-rate NBA basketball franchise as the good people of Louisville will into their top-ranked NCAA basketball franchise.

Let's remember the lower naming rights payments from Barclays, the slowing economy, the lackluster suite sales, the crumbling political support and say: Good. Luck. With. Your. $800 million. Hanger. Brooce.

[Addition: It occurred to me, several days after completing the post, hitting the pub, and trolling for link love, that there's an excellent way to tie the two halves of this post together. There reason why Ratner is saddled with an $800 million hanger, despite plumping for the most functional design he could get away with, is the cost of his unionised construction workforce. Those same guys who wrecked the Perkins hearing. That, my friends, is karma.]

All Hail The Doom Claw

2009-05-20T11:03:00.002-04:00

I've been somewhat busy with offline activities of late, or at least activities that don't require the use of this internet persona. It would be remiss of me not to big up the new Sunn O)) album. However, I have yet to acquire the album, at least a physical copy, and have also yet to listen to it.

I was very close to doing so last night, and was all set to take advantage of Mrs. Cutesome's absence last night slurping ramen. So, I gently warmed up with a listen to the Earth 3: Thrones & Dominions. By the time this was finished and I had cued up the aforementioned "Monoliths & Dimensions" my lovely wife had returned, and she has very little patience for drone metal, even played at polite volumes at barbecues, as Miguel attempted the other day with Domkirke.

I'm off to the old country for a few days, with little access to high-end audio equipment capable of the volumes that drone metal requires (a blown pair of Mission 760i speakers and a 30-year old pioneer amp with rusty innards will not do the work). So I will have to wait for a while, and possibly save my cash for the inevitable deluxe vinyl pressing. Vinyl fans really are the last readily exploitable niche in music.

But while looking for Sunn O)))-related content I stumbled upon this weird internet meme being spread by self-described rock music and pop culture website The Quietus - the Doom Claw. It was moderately funny for a while, and then it was applied to top British Islamic extremist Abu Hamza, and it got very funny.

But needless to day, doom metal, if not for the spurious economic reasons advanced by New York Magazine, is gaining strength. All hail!

Stop Me Before I Cook Again

2009-05-07T16:55:00.005-04:00

Was jolted out of my month-long reverie by a Double Threat. The New York Times has written something dumb about bond insurance. Not any old dumbness about bond insurance, but special dumbness about stadium finance bond insurance (h/t nolandgrab.

Here's what happened. The company that insured some of the bonds that were used to finance Citi Field has been downgraded. (By way of digression, I keep referring verbally to the Mets' ballpark as "Shea". Normally I'd spend hours practicing how to adopt such an antediluvian affectation, but this one comes really naturally.)

Quelle domage, as they say in Paris, where the parent of one of Moody's competitors, Fitch, is headquartered. And what does the unstoppable New York Times manage to extrapolate from the news that Ambac has been downgraded:

"Moody’s Investors Service said that $613 million worth of the municipal bonds that were issued to pay for the construction of Citi Field could be downgraded to junk status." WRONG. The bonds could be downgraded to bond status, just as they could be transformed by passing aliens with a peculiar sense of humour into Yankees bonds. But any downgrade to junk, or below investment grade status, will be entirely separate from the issue of the downgrade of the bonds' insurer.

This is because the Mets' stadium bonds have their own underlying rating, in this case one of Baa3, which is the lowest non-junk rating, but is not junk. It's the rating the bonds would have if there weren't insured, which is basically what has happened because of the downgrade of Ambac. This underlying rating is important, because unless it was not junk at the time of issue, the hapless Ambac would not have been able to insure the bonds. This rating, as Moody's stresses in its report, is not under threat. All that happens after Ambac is downgraded is the poor Mets are paying for insurance which is about as useful as a chocolate fireguard, because the insurer is worse rated than the Mets stadium.

There are plenty of scenarios under which the Mets bonds' underlying rating might be downgraded, particularly if the New York economy stays in the doldrums and the stadium does not generate as much revenue as it should. But let's remember this is a popular franchise in a large city with a very patient fanbase that gets plenty of excitement in September, if not in, ahem, October. Don't try and pretend that any Nets financing could get a rating like this as easily. I love the Mets, but they're a bit trashy. Compared to the Nets though, the Mets are that really classy lady in the black dress and pearls that fronts the Lexus dealers' adverts. Yes, that classy.

Couple of bond basics. The interest rate that a stadium pays, provided that it is fixed at the time the bonds are issued, is basically immune to the effects of a downgrade. There are plenty of financings that can be the victims of insurer downgrades particularly in the floating-rate market, but the Wilpons didn't hold with that nonsense, so we've got pretty boring bonds, except for the whole crappy bond insurer issue.

If you're holding the bonds you've got to be pretty sore, because you have to remove them of the metaphorical liquor top shelf and stuff them down behind the bar with the other chemical aftertaste no-brand Military Special gin type stuff. But the holders have been getting these shocks ever since Ambac stopped being triple-A, and are probably resigned to it now. The holders just act now as if they own bonds without insurance, which is hardly the worst thing in the world to be owning. I mean, they could own CDOs or Chrysler bonds.

Maybe, you're thinking, and I know the Times reporter must have been thinking when he realised that the Ambac downgrade meant nothing to the Mets, that this might prejudice their future access to the capital markets, what with only being low investment grade and all that. For saddling investors with bonds that collapsed in value they will be be punished! "If they are downgraded to below investment grade, or junk, the team may have to pay higher interest rates if it issues new debt notes the reporter, seeing the light at the end of the tunnel of irrelevant conclusions.

"Um, Mr Belson," screeches your blogger, reaching into his draw for the bag marked 'NASTY AD HOMINEM DEBRIS' "you HAVE toddled up on the seven train to Shea of late, yes? You have noticed that the damn thing is built, and there are people wandering around there working out how best to funnel their savings to Danny Meyer? You have noticed, because you wrote it, that they have already come up with the financing to meet the cost overruns? Why on earth is the the stadium going to need to raise more financing? Because they think that that the 5% they are paying in interest (plus I should note, in the interest of fairness, the premium the Mets are paying for bond insurance that doesn't work) is utter usury and needs to be refinanced? It ain't.

In fact, now I think about it, the only reason I could think for suggesting that "the Mets" might ever be looking for additional financing, is if the reporter is completely unaware that the issuer for the stadium bonds and the Sterling Mets organisation are entirely separate entities, which do not guarantee each other's debts, and is wondering how on earth the Mets are going to scrape together money for the next big shipment of Jose Reyes bobblehead dolls.

Companies, and countries, that issue bonds get downgraded. Sometimes it's a big deal, sometimes it isn't. The Mets bonds and Ambac isn't a big deal, unless you own the bonds and there aren't that many of you and you were presumably well aware that Something Was Up with your bond insurer. A Times reporter resorting to ambiguity and insinuation to stretch a one-line nib to a nine-paragraph laugh-fest was woefully under-employed yesterday.

Before anyone says (not that they will, this is hardly a popular blog with the pro-stadium crown, well it's hardly a popular blog at all, what with the infrequent postings and paucity of stimulating subjects, but you get my drift) that the preceding might be construed as a clean bill of health for the business of New York sports, please read the bit about the Mets' resilient brand, and note also that the Mets attracted new financing from the one standing bond insurer (Assured Guaranty) for a small amount for a pretty much complete stadium for a solid team. It won't do the same for the Nets. The New Jersey Nets are the Typhoid Mary of High Finance, and no-one wants to eat their delightful cooking.

The New York Times Fluffs Bond Insurance. Again

2009-04-08T11:27:00.005-04:00

Oh, lordy, almost no posts for ages, and then two days in a row. Both about the New York Times' ability to come to quite witless conclusions based on fairly straightforward information. Today, Don Van Natta has a go at probing the municipal bond market. The results are far from good-looking,

Now I'm a bitter, angry person. You can see it in my treatment of by all accounts blameless, and occasionally impressive, Times reporters such as Andrew Ross Sorkin and Gretchen Morgenson. You can probably dismiss a lot of this as needless sour grapes, if the Times didn't pump out awful adverts talking about how "the Times employs the best journalists in the world. Period." So screw 'em, they can take it.

I must say, I thought that I would soon have to hang up my "slightly ropey monoline bond insurer expert" hat, accept that being familiar with bond insurance now ranks up there with being an expert on the workings of the VCR. Had my fun with the Times and bond insurance. Time to move on.

Apparently not.

Mr. Van Natta is not that familiar with finance, beyond a stint covering some of Eliott Spitzer's antics. As far as I can tell, he's the nearest thing the Times has to a Clinton expert, so he deserves more than a little credit for trying to find a more stimulating beat.

But really. Guys. This is bad. But let's get through some of the useful angles first. No doubt about it, the cozy collusion between local municipal bond underwriting firms and state governments is an accident waiting to happen. It's not at all reassuring that the only major casualty of a probe into this collusion is the nomination of Bill Richardson as commerce secretary.

No doubt that the private sector's tutoring of public sector employees is not as thorough as it should be. Still, let's see how taxpayers react when they try and go on some $2000 a head external training course. Maybe the ratings agencies could run it for cheap. Heh.

First we have a couple of paragraphs telling the story of what happened to the town of Lewisburg, Tennessee. Then we get the lede:

Lewisburg is one of hundreds of small cities and counties across America reeling from their reliance in recent years on risky municipal bond derivatives that went bad.

Crikey! They mentioned derivatives! Case closed, Orange County all over again. [Quick note at this stage - Orange County was using derivatives as investment products, not as part of its debt issuance]

I'm now going to quote the offending paragraphs in full, where the reporter tries to explain what happened:

For decades, the tax-exempt municipal bond was considered as safe a way to raise money as it was to invest money. If a city wanted to build a bridge, a hospital or a school, it raised the money by issuing a bond and repaid investors over decades. Bonds were considered conservative and dependable.

[If this was a Michael Moore documentary we'd be hearing perky 50s music and grainy scenes of nuclear families gambolling in the suburbs. This paragraph is not too objectionable, though somewhat loosely-written, possibly to make the contrast between then-prevalent and current municipal finance look greater than it really is. I mean, most municipalities are still issuing long-term debt to build bridges, schools hospitals, sewers, even power plants. Most of these bonds are still considered safe and dependable.]

Beginning in the late 1970s, big states like California began to use variable rate bonds as a way to save money. By the late 1990s, some rural counties and small towns jumped on board as a way to avoid raising taxes.

[See, this is where things might have got interesting. Why did munis switch to the floating rate market? Where did the demand come from? Why, for instance, did the market not have some helpful financing corporation like Fannie Mae propping up 30-year fixed finance?]

Not long afterward, interest rate swaps were introduced.

[At this point the Darth Vader March kicks in. Needless to say, an issuer with revenues that are not correlated to movements in interest rates might want to look at hedging this interest rate exposure.]

A swap allowed a municipality to keep a portion of its debt at a fixed interest rate and a portion at a variable rate [Or all of it]. The municipality was, in effect, betting that interest rates would move in its favor [No it wasn't. It was hoping that they wouldn't go lower than the rate at which the swap was struck, at which point letting the bonds float would have made more sense. This is called being out of the money. At this point, you're kicking yourself, but you're hardly in the poorhouse. You might even be able to reassure yourself that while you are paying a little bit more in interest you're not going to suffer if interest rates shoot up again, which they well might over the term of a 20-year plus bond]. Investors protected themselves by taking out insurance that guaranteed they would be paid [Gari's head explodes. No. No. No. No. No. The state and its underwriters set up the bond insurance. It's one reason, alongside hitting up the variable rate market, that the bonds were so cheap.] But as the nationwide credit market collapsed, most of the bond insurers’ credit ratings were downgraded, including the Ambac Financial Group, the primary insurer of Tennessee bonds. That allowed the investors to accelerate the retirement of the debt, usually from 20 years to 7, leading to a steep increase in the interest rate.

Although such a provision was in the swap contract, several local officials said that possibility had not been explained to them.

[By now, the explanation has not so much gone of the rails, but is trundling through a fifth dimension breaking all laws of physics, and the driver's natty striped uniform has morphed into something from George Clinton's band]

Please, Don, you're going to have to lay out what happened. Either you, or one of the interns, or one of your sources is going to read the bond indenture. Because this makes no frickin' sense. Was Ambac insuring the issuer's obligations under the swap contract as well as its obligations to bondholders? Could well be. But it ain't what you wrote. The bondholders have the right to accelerate the bonds in the event that the insurer is downgraded. That, my friend, is a story that has already been written, it's about the perils of relying on bond insurers, who buildt a business model built on inaccurate ratings, and it has zip to do with derivatives.

Should a municipal treasurer have said "sod the .3% saving in interest costs, I think these bond insurers might go bust'? Maybe. Should he have avoided tapping the auction rate securities market? Maybe, in fact, I'm still not 100% certain that Van Natta isn't describing an auction rate deal gone wrong (The link, by the way, is to a more lucid Times story to which Sorkin contributed reporting. Can't be hating all day long). But then I haven't seen the indenture.

[I have, by slim way of qualification, recently turned down the offer of an interest rate swap on a largish agricultural loan. This is because I think that rates will stay low for quite a while. But if they do head up, I will not complain to the papers about how evil derivatives are. I promise. But I digress]

I can lay out a couple of scenarios under which derivatives might have become part of the story. The swap counterparty - the guy taking the fixed-rate payments in exchange for making the variable rate ones, might have had the right to accelerate, or even terminate, the swap, in the event of an insurer downgrade. Happens to a bunch of people, I'm sure. This might, in turn, have allowed the bondholders to accelerate their bonds. Or the swap had nothing to do with it. I don't know, I don't have a copy of the bond indenture. I pray that Mr. Van Natta did.

The article's reporting seems to follow the underpants gnome strategy:

Step 1: Load up on risky stuff like "derivatives" and "bond insurance"
Step 2: ?
Step 3: Ruin

If the Times wants to suggest that too much diversity in municipal finance products is a bad thing, have at it. I think my inability to discern from the article exactly what happens gives you an indication that there are several ways to skin a muni. Ditto for inveighing against bond insurance, dubious statehouse-prowling bond firms, floating rate debt and genial but clueless state treasury officials.

But don't, for the love of all that is sweet and beautiful, fling out a premise like "derivatives are some scary sh1t, run for your lives", and then fail to explain what went wrong with using an interest rate hedging strategy. This is financial illiteracy of the highest order. Epic fail.

[Accrued Interest has the adult explanation here]

The geography of nasty scummy celebritards

2009-04-07T11:38:00.001-04:00

The New York Times excelled itself this morning with a hamfisted attempt to read more into a neat geography project than it should have. This is, in a sense, reassuring, because if there's one cultural touchstone that we'd like to survive the current unpleasantness in New York, it is that the NYT is the house journal of thousand-year-old white Upper West Side-dwellers.

We'll give you the lede in full:

Apologies to residents of the Lower East Side; Williamsburg, Brooklyn; and other hipster-centric neighborhoods. You are not as cool as you think, at least according to a new study that seeks to measure what it calls “the geography of buzz.”

The Times has come to these conclusions based on where in New York people get photographed by Getty Images photographers. Which is rather like measuring the depth of religious feeling in New York by counting the number of people coming in and out of St Patrick's cathedral. The Times says that "It was not a culturally comprehensive data set, the researchers admit, but a wide-ranging one."

No, it's a very wide-ranging data set covering where celebrities are most likely to want to get photographed. Note I didn't even say "appear", since I dare say Getty is not going to pay some poor sap to stand around outside the Bowery Ballroom in the hope that Ric Ocasek from the Cars drops by to catch a show. OK, OK, he's not really a celebrity, and I don't even know if he hangs out at the ballroom any more, but you get my point.

Appearances by celebrities constitute the least useful measurement of a city's cultural health since People Magazine's Club Toilet Coke Price bar chart (I made that up, presumably). This is why orange E News anchors, who don't know better, strive to maintain a kind of equivalence between New York and ghastly places like Las Vegas and Miami.

If there was ever a moment for the Times, in its constipated, pooterish fashion to say "nice charts, but you're talking out of your derriere, lady", then this was it. Instead it got all excited because the study apparently showed that the Lincoln Center was minting cultural currency by the bucketload. Rather than just attracting a lot of socialites.

Further down there's a somewhat impenetrable and needlessly jargon-ridden discussion of the news media as cultural gatekeepers, with a further concession from the organiser of the study that these locations represent "buzz and desirability hubs". Which is kind of a condo-developer's way of describing cultural currency, like those listings you see for Wall Street developments that say "Lindsay Lohan might have been prepared to use the bathroom here."

Now I shouldn't get as excited as this about a piece of rank trollery from a major newspaper adapting rather awkwardly to the internet. But it's been a while since I posted. What can I say?

Name Over

2009-03-27T17:50:00.003-04:00

Intriguing little nugget in the UK's Independent (h/t nolandgrab). The article discusses the disquiet in our fair Borough over Barclays' deal to buy the naming rights to the proposed Nets arena in Prospect Heights.

We'll leave to one side the hackneyed "grows" headline, on the grounds that British people won't yet be sick of it, and take a look at this sentence towards the bottom of the article.

The deal is a 20-year commitment, originally valued between $300m and $400m, but the bank is believed to have renegotiated the cost down since then.

This is, I'm fairly certain, the first time we have heard any indication that the naming rights deal might bring in less cash than originally anticipated.

Still, we're talking about a gap between two unknown numbers, since we only have rumour and guess work to go on about the size of the original deal. The conventional wisdom, echoed by this Independent reporter, is in the region of $300-400 million, over 20 years, or $15-20 million a year. By comparison, I think Citi paid the Mets $20 million per year for 20 years, and I'm tempted, given the Nets' weaker franchise (Mets fan bias here) to assume the Barclays number is nearer $15 million a year.

That the deal might have been renegotiated comes as little surprise, given the repeated delays, and the fact that the original naming rights deal had a deadline that had to be extended. Then there was the "value engineering" plan, which involved making the stadium cheaper and less shiny. Finally, there's the lingering suspicion that Frank Gehry isn't really working on the project anymore. I'd want a discount on my naming rights for a discount stadium.

I'm going to speculate a little about why this little nugget got out there at this moment in time. If you have the time, go read my earlier rant about the relationship between financial journalists and their PR handlers. I'm guessing that the reporter, not unacquainted with matters of reporting hygiene, went to Barclays for comment. Now when a US-focused scumbag (I use the term fondly) asks Barclays PR about their deal, they're bound to say "we remain fully committed to the fragrant Mr. Ratner. Screw those Brooklyn swine, they don't buy enough ETFs anyway" (I made the last sentence up, of course. Anyhow, Barclays' ETF business is up for sale, they say). The intention here is to keep the heat off Ratner and his political catamites in New York.

But the Indy doesn't have that many readers in the US (it doesn't have that many readers in the UK, either. Bad-Um-Chah! That's why they pay me the no bucks). So one assumes that if their man in New York goes to the PR, the PR will guess that the bigger story for the Indy readers is why a venerable UK high street bank is flinging money at a second-rate sports franchise in the middle of a financial nuclear winter. I imagine the bank PR might have said something like "this is strictly not for attribution but we're not on the hook for anywhere near as much. We're not that mental".

I could very well be wrong, and I apologise profusely in advance if I have traduced the reporter, who in fact has been working on a source inside the Empire State Development Corporation for many months. But if I'm right, then opponents of the arena might indeed have an ally in the form of the Great British Public, and its lack of tolerance for spendthrift bankers. And its poor impulse control.

Let's go back that old set of arena projections, shall we (you can find a discussion here)? We see that the developer was looking to meet between $30 million and $35 million of the arena's then-projected (and probably too low) $43 million in yearly debt service with sponsorship revenue, which would presumably include the naming rights. Any reduction in the naming rights' contribution to this already meager total might be fatal.

A Ratner moment

2009-03-26T11:29:00.001-04:00

No, not that one. A reference, and not my first, to Gerald Ratner, who made some unkind comments about his own firm's products, and suffered the consequences.

Who would ever again engage in such self-destructive language, especially after a recent painful restructuring? Why, it's the gloriously named Mads Nipper, an executive vice-president at Lego, calling his best customers "bastards".

So Which One Is It, Clever-Clogs?

2009-03-23T12:51:00.000-04:00

One AIG headline in each of New York City's two quality newspapers.

The WSJ: "AIG's Rivals Blame Bailout For Tilting Insurance Game"

The New York Times: "At A.I.G., the Brand Is Tarnished"

Which I guess means they cancel each other out, only you still shouldn't be seen in public with any AIG merch (can I keep my AIG Highstar discount mini-Maglite?).

Towering inferno

2009-03-20T16:41:00.001-04:00

Today I'm going to try and apply some of the garbage I've picked up following various kinds of financing transactions and apply it to the residential real estate market in New York. Uh-oh.

So, I read that the Beekman Tower project, designed by one Frank Gehry and developed by one Forest City Ratner, is struggling. Not a huge surprise, since I hear that if you're a big-ass condo and you're not struggling people look at you funny, like there are crack fumes in your central air or something.

Norman Oder, needless to say, has the gamest stab at working out what's going on, with actual reporting and everything. He remembered that the thing was financed with Liberty bonds, and sensibly asked the city's Housing Development Corp how those are going to work out.

The HDC (board member one Martha Stark) replied that the Liberty bonds are issued in tranches, and that if Ratner wants to build a smaller project, then he could simply not issue as many as originally planned.

From looking at the most recent bond prospectus (which can, I hope, be found here. If not I might be persuaded to post it, but I'd hate to inadvertently violate any securities laws), we see that on 28 March 2008 the HDC issued $203 million in bonds, that it is issuing another $238 million in bonds this year (I do not know for sure if these have closed, since the prospectus does not have the interest rate written in, but I think they have), and it says that it expects to issue another $238 million in bonds in 2010. Some of these are tax-exempt Liberty bonds, but some are regular taxable bonds, on which you'd have to pay taxes on interest payments.

What's the other interesting bit of information about the bonds? Well, they're being issued by Goldman Sachs, which is still nominally in the frame to run the Atlantic Yards financing, as well as Fifth Third Bank. But that's not the interesting bit. The banks that have promised to repay bondholders, in the event that the project does not, are led by Eurohypo and RBS Citizens. We also note that of the 2009 bond proceeds, which my best guess has having closed earlier this month, only $12 million will be used upfront, with the rest put to work down the line.

Now it's really easy to point out right now that such and such a bank is working on a financing and then highlight that they're having financial difficulties and then wail "but what happens to the deal"? The short answer is, if they don't have the money to finance the project and it hasn't happened yet, the project doesn't go ahead, but if they've already put up the money then it doesn't matter a damn what financial condition they're in, with a few exceptions, which I'll get to.

But the Beekman situation is a tad different. the banks aren't providing the money. They're just promising to be around and be healthy enough to put up the money if bondholders need it. In this instance it is perfectly reasonable to unleash the hounds of snark and point out that Eurohypo, a unit of Germany's Commerzbank, lost 1.4 million euros in 2008, and that RBS is a legendary UK government-owned basket-case brought low by its expansion into markets it didn't understand. Ahem.

What also happens to sick banks is they start to become really finickity about borrowers sticking to their promises. And if I had to hazard a guess, I'd say that the banks are the guys slamming on the brakes. My initial thought was that they might have the right to step in if unit sales are not holding up, but I see the building is rental. I don't know whether there could be some kind of metric for measuring lease commitments, or whether banks have the right to rein in the financing based on new market studies. Probably not.

I do notice that Forest City Enterprises has provided a guarantee of the project being completed on budget. I can't imagine that their costs have increased much in the current economic climate, but a spike in costs would be the most obvious reason for cutting back the size of a rental project. We also note that the bonds are variable rate and their interest rate resets periodically, and holders, from my unfortunately brief scan of the prospectus, could compel the letter of credit providers to buy them in the event that they could not be sold. The existing letter of credit expires in 2012, and if they can't replace this the bonds get put to the existing banks. I think.

You can find a list of events of default on p42 of the prospectus if you're so inclined, and there seem to be a few this might be applicable. This one looks particularly tasty: "any survey required or requested by the Agent shows any material adverse condition not approved by the Agent and such condition is not removed within the applicable time period after notice by the Agent to the Mortgagor." Hard to tell how applicable this is, and it could just apply to the physical condition of the property, but it might be applicable to the financial state of the project. If the banks call a default, then they take over the project.

What does this mean for the Atlantic Yards situation? The differences are legion, in particular the fact that probably the first bit of AY to come to market is the arena, which will have a different, though not necessarily better, economic profile than Beekman. But the fact that a project with this bank letter of credit enhancement is struggling quite probably blocks off the last best hope of finding someone to guarantee the AY bonds, since the bond insurers really aren't that interested in terrible basketball team relocations right now. A commenter ages back pointed to the Beekman financing as one model for what FCR might do on AY. I think by now it's a shining example of the perils of applying such a solution to the doomed Brooklyn arena.

Pay To Not Play

2009-03-16T12:14:00.001-04:00

While I'm on a roll, and encountering subjects about which I know something. Ratings. Those little letter grades you find attached to bonds, and which have not been amazingly good predictors of how safe the bonds are.

San Diego Law's Frank Partnoy, the nearest thing academia has to a ratings expert (Duke Law's Stephen Schwarcz comes close) has an op-ed out asking why we're still dependent on ratings agencies, even after they failed us so badly. Partnoy says, quite rightly, that ratings are much too entwined right now in the corpus of financial markets regulation.

All good. And then he gets here:

The financial markets can function without letter ratings. Instead of relying on arbitrary letters, regulators and investors should consider all of the information available about an investment, including market prices.

Finally, regulators and investors should return to the tool they used to assess credit risk before they began delegating responsibility to the credit rating agencies. That tool is called judgment.

Which is sort of like wishing that all financial regulators were unicorns. I don't doubt that this novel "judgment" substance he speaks so highly of can be bought in by firms and regulators. But this has a price, and it will need to be passed on to market participants somehow. The hiring of large numbers of buy-side analysts will add appreciably to the fees charged by money-market funds. The hiring of more and smarter regulators will similarly be borne either by some kind of investor insurance scheme or by tax-payers. It may also, and you may think that this is a feature rather than a bug, restrict the types of debt securities that are available to all but the richest and most risk-thirsty private individuals.

These developments could all be desirable. I've got more skeptical of late abut the ratings' agencies arguments that they're the only hassle-free game in town. I am, like many people, now convinced that opaque debt markets were a sufficiently major cause of the crisis that the additional expense of an overhaul is now necessary. And I'm one of the agencies' water-carriers. But a huge cost there will be. We can't pretend that putting on a tough face will be enough.

"I'll Get Back To You"

2009-03-16T11:49:00.001-04:00

I note that the FT's estimable Alphaville blog is losing patience with financial public relations professionals. I'll give you some illustration of the fact that these poor sods are all that stand between their employers and ritual evisceration in a haze of populist anger. This morning on NY1's In the Papers, coverage of the bonuses paid to AIG dominated the first couple of minutes.

But the media relations people working for these organisations are unaware that their audience has changed. Financial PR used to be a very sweet gig, mostly because it involved trading favours and locking horns with a set of journalists with their own pretty small and focused readership. At most, when dealing with, say, the Wall Street Journal or Bloomberg, you'd have exposure to, well, most financial services professionals. But those guys don't write angry letters to congresspeople, they just write cheques, or they don't.

The thicket of securities and disclosure rules surrounding financial transactions, not to mention the prevalence of non-disclosure agreements, to which I alluded in this comment at the Atlantic Yards Report, together with financial institutions' increasing willingness and ability to enforce message discipline on their employees, has resulted in the creation of a horrible symbiotic relationship between financial journalists and the PRs that service them.

I must stress, there's plenty of information sloshing around outside the usual channels. Only it's a) rumour and b) usually being spread around for financial gain. The sort of public-spirited leaks we tend to encounter in national security and political reporting are much less common in the world of finance. Even Harry Marokopoulos the hero of the Madoff scandal, looked over Madoff because he was a competitor.

Given that the corporations tend to have access to much better legal help, though much weaker libel protections, than private citizens, these PRs tend to enjoy considerable power as gatekeepers. In fact, as far as I can tell, the London Stock Exchange seems to make employing an outside firm, or at least having a substantial PR capability, a condition of listing.

So reporters get hopelessly reliant on PRs to confirm, off or on the record, the stuff that's swilling around as market rumour, or at least to immunise themselves from charges of sloppy reporting. Kudos, then, to Alphaville, for giving us an example of the PR sausage factory in action. Their reporter, Neil Hume, got a tip that Barclays was trying to sell its asset management arm, but couldn't even get an off-the-record nod either way from Barclays' PR people. A nod, in the negative, that the PRs were happy to provide other reporters.

Turned out to be (at least partly) true, and that Barclays is trying to work out whether it needs a UK government bail-out, whether selling its asset management arm would be enough, or whether selling its asset management arm might be needed to pay for the government insurance.

As an aside, because this isn't really an Atlantic Yards post, either outcome is not very good news for the Nets arena naming rights deal. A UK government bailout would increase pressure on the bank not to be subsidising Brooklyn real estate ventures. Bt if the asset management sale goes through, there's very little need for Barclays to slap its name on a sports arena. You might sell mutual funds by beaming your logo at basketball fans, you sure as hell don't sell investment banking services. That all said, Barclays might be fine, and neither option would be necessary. But banks' records on insisting they're not in trouble are pretty rotten.

Which brings me back to Goldman Sachs, which was also making, this time very public and strenuous, denials about its benefiting from a US government bail-out of AIG. Which turned out to be not entirely operative.

Egg on the face for Goldman PR Lucas Van Praag, then. He's now locked in a deathmatch with Goldman's other principal PR, Michael Duvally, over who can come up with the most ridiculous statements to the press. Duvally is a former reporter and, like the Inspector Highland character in Patriot Games can expect NO QUARTER. Head over to Dealbreaker for one of his bundles of amusement.

But the best one by far is his insistence that it was an entirely different type of money that Goldman used to pay bonuses after receiving TARP money. This I sense is one of those moments where a financial PR tries to get a handle on how financially illiterate his new audience is.

In Goldman's retelling of the bonus story earnings, the source of the bonuses, and capital, the destination of the TARP money, are two entirely different tthings, and are not at all related. This is humorous because banks' earnings are a key way by which a troubled financial institution could rebuild its capital. By noting that Goldman bonuses were paid out of its earnings, Goldman is saying "we could have used all that money we made prop trading and skirting conflicts-of-interest issues to beef our capital base. But the US government did that for us. So we'll keep paying the bonuses. Cheers!"

I'll end this only-slightly-erudite discussion of the trials and tribulations of the financial PR business by noting that financial PRs have at least as difficult a time in their dealings with the institutions they represent. For each of the episodes I mention there's probably a tangled backstory that involves the person in question trying to get sense out of their own people. But then again, that's why they pay them the big bucks. Dealing with scumbag journalists should be comparatively plain sailing.

Gowanus Lounge -> Vallhalla

2009-03-05T16:44:00.001-05:00

RIP Robert Guskind. This from a much less dedicated, and much less generous-spirited, blogger. I feel bad that my last interraction with him, by Twitter, was far from sympathetic. I'll miss him. He had the best blog in Brooklyn. And now he's gone.

On The Middle Class and Its Lack of Utility

2009-02-08T21:47:00.002-05:00

I think the current economic crisis has exposed how useless the American conception of "middle class" has become. Now we British, it is true, take the gradiations of class much more seriously than anyone else, although it's interesting how little definitions of class crop up these days either in conversation or print in Great Britain. I think that's in part a function of how divorced the super-rich have become from the other strata, and how irrelevant the British aristocracy has become.

In America, on the other hand, the middle class stretches to include everyone on the socio-economic ladder between the Eddie Murphy character and the two old rich dudes in Trading Places. Neither lower class or working class has much application in the US, with more culturally laden terms such as "blue collar" or "redneck" taking precedence. A lot of this has to do with race and class being so interlinked (anyone who says they're using the word "ghetto" pejoratively but with no racial connotations, is lying)

This super-elastic definition of the middle class only really suits politicians, especially those who like to pitch policies most properly targeted at the upper middle class to a constituency that might more properly be described as working class but desires to join the upper middle. It's rather telling that the politicians' own spin-doctors tend to focus on smaller sub-categories, or pat labels such as "soccer Mom" or "Nascar Troglodyte" and so forth. I mean, I'm not asking for the labels that the UK's ONS uses, just that the US learns to talk about class in a way that prevents Joe Biden from ending up as "middle class Czar".

Take Joe The Plumber (please). Joe was making maybe $40,000 a year, but because he aspired to buy a $250,000 business, he convinced himself that a tax plan designed to tax people with incomes of more than $250,000 was going to leave him worse off. I don't want that man anywhere near my grouting.

This all came back to me when reading the recent profile of Chuck Schumer in the Atlantic. Schumer, about whom I was briefly unkind a while back (I'm sure he's over it), has a notion of what the middle class is that hews much closer to the rich end than the Joe the Plumber end.

There's one very good reason for this: Schumer lives in Park Slope, where you can be much richer than lower middle class and still not feel that rich at all. The obsessions with children's education, the consumer-oriented initiatives, the idea that upward mobility comes through less tangible means. Still, I'm not saying that these are not middle-class concerns, just that Schumer will probably use the cover of the broad middle class definition to implement policies that are priorities to only a sub-sector of this.

It's the clearest indication yet, better than speculating on the economic inclinations of Obama's treasury team, that what emerges from the new administration will be a concern for the people that need to be bribed, rather than those that should be bribed. That might sound a tad class envious, but I'm feeling very tenuous right now.

Ripping Fun

2009-02-02T14:27:00.002-05:00

The only real rule this blog has is that if I promise to write a post on a particular subject I will never, ever come through on it. The reason I make these promises is that sometimes I don't have the time to put up something substantive, decide instead to put up something scrappy and meretricious, and to bolster my intellectual credentials then promise something really heavyweight later.

To whit: Very soon I'm going to put something long up on the massively unhelpful way Americans think about economic strata. Really.

But for now, I just want to note that bang in time for top swimmer Michael Phelps to be photographed taking hits from a marijuana bong while in line for massive amounts of sponsorship, the mighty Stonerobixxx blog decides to put up a couple of releases by doom rock titans Bongripper.

Who says stoner rock fans are too wasted to know what's going on around them?

Hopefully some kind of nadir

2009-01-27T17:26:00.002-05:00

God, as if today wasn't grim enough already. Another slew of lay-offs, a grim missive from my superiors about cost cutting,and more successful people saying silly things.

I learned today, in quick succession, that the creator of the doner kebab is dead, and that his delicious and nutritious invention is only one of those two things.

This news isn't even comfortingly grim, like listening to Earth 2. It's just a straight-up bummer

Cope's Corner

2009-01-26T14:11:00.000-05:00

I had planned in the next couple of months to write a long old article about stoner rock, and how it really can be enjoyed by people who aren't stoners. But this morning I chanced upon this review of Sleep's "Dopesmoker" by Julian Cope. This has led me to two conclusions:

1) Maybe you do need to indulge to enjoy this music at its best
2) Maybe I don't need to buy a fancy old turntable right now.
3) Maybe I should stop trying to write about weird music at all

Here's an excerpt:

"Although the double vinyl artwork is huge, gatefold, magnificent, the CD version of DOPESMOKER is the best option overall because you can get utterly narnered once you’ve put it on and not have to get up for almost an hour and ten."

I was present during an interesting workplace conversation the other day. One of my colleagues swore blind that the long digressions into the history of 80s rock in American Psycho are not meant to be read at all, but skipped over my the reader, so long as they have absorbed sufficiently the idea that the narrator is an obsessive compulsive, although why the reader would not have picked up on that before then I do not know.

So, read Mr. Cope, listen at Mr. Robixxx' place, and death to false doomers

They Bring Peace

2009-01-24T15:42:00.006-05:00

Nah...surely...they couldn't be related?

I think they could. The covers of the majestic "Pilgrimage" from doom metal titans Om, and the "Little Bee Finger Puppet Book", sharing divine inspiration and a curious calming effect.

HM Yards

2009-01-21T17:46:00.001-05:00

Nolandgrab has a post up today noting how badly Barclays shares have been performing of late, and speculates whether this might lead the UK government to become, unbidden, the sponsor of a Brooklyn sports arena (sounds like a sitcom waiting to happen). The performance is truly weird, because Barclays is still putting up reasonably good numbers. I mean, it's still a horrible bank, just not in as awful condition as most of its peers, bar HSBC.

So, what does deep financial distress do to a bank's appetite for sports sponsorship? If you're curious about Barclays' commitment to sponsorship of the Atlantic Yards arena, and read my epic post about how dependent the project's financing structure is on such revenue, there's one good indicator out there. It's called Royal Bank of Scotland.

RBS has fallen much farther and much faster than Barclays because, and it pains me to couch it so, it had less prestigious investment banking operations, among other factors. The UK now owns, by some calculations, 70% of its equity. So, what's RBS doing with its sports sponsorship? Yes to Rugby, no to Formula One, in short.

The first lesson seems to be that under government ownership a bank will need to be more highly attuned to the Great British Class System, only in reverse. Rugby has succeeded it dragging itself out of its upper-class niche to become a reasonably popular sport. So much so that its stars can support expensive drugs habits.

Formula One, on the other hand, caters to a clientele that not only thinks that the kingdom of Monaco should not be pushed into the sea, but that running a race through its streets might be an enjoyable experience. It would simply not be good politics to be spraying marketing pounds at such an audience.

Difficult to work out what Her Majesty thinks of marketing a US business. RBS, which you will now recall is the dim(mer) one, was throwing its money at golfing sponsorship, which made sense if you were chasing after investment and corporate banking business. It's always been rather difficult to tell what business Barclays was looking to develop by sponsoring a basketball arena. Maybe it assumed that net of underwriting fees on the arena's bond financing it would be a fairly trivial commitment.

I don't have much of an insight into the mind of Alistair Darling, the Chancellor of the Exchequer, and now, presumably, the Grand Vizier of All UK Banks. I mean I've tried to stare into his mind and the colour difference between his hair and eyebrows has freaked me out. We'll have to wait for Barclays to fall into the welcoming arms of the government to see how it will play out, but if I were Mister Ratner I'd try and get the funding agreement active before my compatriots start asking awkward questions.

Tool time

2009-01-15T13:36:00.000-05:00

Follows a slightly-misty eyed set of reminiscences of my time as a Grunge-child.

London's Astoria music venue is no more. It is to be demolished to make way for the worthy venture that is a functioning rail service for the capital. Just as the owners scramble to organise farewell events, a lot of music journalists are scrambling to try and put the venue in its proper context.

The Astoria was not one of those toilet venues where you could boast of seeing a band before they were famous, alongside 12 other people. It wasn't a legendary arena-like structure where you could witness a band's emergence to the big time.

No, it was the place where middling bands plied there trade, where US imports uncertain of their reception would try their chops, or where megastars that bloviated about "taking it back to the clubs" would go to search for nebulous indie cred.

I can't remember much of the club's interior - dark, awkward-shaped, smelled of (usually rather expensive) lager. I was, I'm afraid, a very drunken teenager during most of my visits, and since I had a hard curfew of about 11.00, so as to meet the last train to Lovejoy Country, I would drink with a certain aggressiveness, at the memory of which my present scotch-sipping self guiltily recoils.

It looks, though it's little comfort now, that Crossrail would reduce the number of stops between the West End and Liverpool Street to one, which would have been of benefit to my drunken teenage self. And there will be other venues to visit, even as the eternal struggle between North London and the West End for the indie soul of the city endures.

The first gig I ever saw was at the Astoria, and gathered together an Undertow-era Tool, Headswim, when they were aping Pearl Jam rather than Radiohead, and Paw, one of the unsung heroes of grunge. It was 'triffic, and I remember being especially taken with the way Paw's lead singer handed out a whisky bottle to the people in the front row.

I also saw Rocket From The Crypt play there, with Thee Headcoats supporting, though it was some time before I learned to love the punk-skiffle-rockabilly fusion of the Headcoats. Possibly because I got drunk enough to pass out a while during their set. What I'm getting at is that the Astoria was a fantastic place to see second-tier American imports during the mid-90s. And before you get sniffy, one of those was a bunch of no-marks called Mudhoney, and they had some band called Nirvana in tow...

By the time I moved back to London in the first year of this century I'd shifted my attention further North, to the Barfly, Scala (where I saw Royal Trux and some terrible band called Coldplay with a following composed exclusively of teenage Japanese fanzine writers). I'd learned to pace my drinking by then. It was much less fun.

I Wish I Could Quit You, Marty

2009-01-13T22:50:00.001-05:00

I thought it was time to blog about something else. Maybe that wrong-headed story in the Wall Street Journal that wanted to pat Exxon on the back for ignoring global warning and alternative energy, but then overreached by suggesting that Exxon was therefore in a good enough cash position to dictate terms to state-owned oil companies (It isn't, even with lower oil prices).

And then Marty Markowitz said something witless, and I had a Michael Corleone moment.

[Obligatory digression. Top local cable news channel NY1 (Mrs. Cutesome won't allow News Channel 12 in the house, and I don't think that has anything to do with the channel's Dolan-ownership, but I digress within a digression) has a section of news designed for the viewer's particular Borough. For some reason I'm getting Queens News Now, from the delightfully ginger Jon Weinstein, despite living far in Brooklyn from Ridgewood or Greenpoint or some other disputed ground. I thought of complaining to Time Warner Cable, who I guess regulate this kind of thing before I realised that Brooklyn News Now would double my exposure to Marty Markowitz, and therefore triple my blood pressure. I'm learning to love Mr. Weinstein. Oh I see. there is no Brooklyn version. They've abandoned us to Cablevision. The bastards.]

Anyhow, as I'd predicted, leaking news of this proposed reduction in the size of the arena at Atlantic Yards served to warm up the local politicians rather nicely. Only Marty was shameless enough to pretend that this is all his idea. He did a similar thing in calling for the reduction in height of the project's largest tower after the decision to reduce it was probably made. Now THAT"S leadership, kids.

Here's part of the statement:

"To that end, I am asking Forest City Ratner and the Empire State Development Corporation to give Barclays’ design a second look, and conceptualize a sports and entertainment venue that is more economically feasible but provides the modern amenities our residents and visitors to Brooklyn demand and deserve."

Back from the lavs? Good, I'll continue. So Marty, not normally known for his gum-chewing-and-walking-concurrently skills, has now set up stall as a value engineer. I'm absolutely sure that just as soon as he's put down his copy of the Very Hungry Caterpillar he'll be telling us where we can trim the costs from the project.

Now I've just put down my copy of the Very Hungry Caterpillar, which I was using to induce unconsciousness in Federico N. Corp. And some utterly brutal (in a good way) individual sent me a link to the financing plan for the project that Assemblyman James Brennan pried out of Forest City Ratner in 2007. Since I always complain that the inputs and outputs of the arena financing are rather opaque it behooves me to take a look at these.

So what do we find out?

1) The arena costs were estimated back then at $777 million. So, roughly halfway between the most recent Gehry estimate of $950 million, and $500 million price tag for the value engineered arena that the received wisdom is congealing around. But this "total cost" includes a bunch of things like legal and financing costs that are absolutely not going to be easy to scale back. The hard cost of the arena in the Brennan projections was about $537 million. Was the subsequent increase, which we'll generously assume to be all hard cost increases, just a result of costing in the Gehry Shiny? I doubt it. I'd love to know, thanks to Mr. Goldstein's efforts, whether they've kept within their $3.5 million legal budget, though.

2) Financing costs. Total debt on the project was forecast to be $672 million, and according to the projections the arena would be finding $43 million a year to pay that off. Which gives us 6% debt service. Unless the arena is just meeting interest, and not paying down principal on the loan, that's a ridiculously low figure, even for then. You could throw another 2% and still be hopelessly optimistic, and that takes your debt service to $60 million. That, right there, is your explanation as to why the arena's economics are so sensitive to debt market conditions. $60 million would be almost twice as much as the arena's projected operating costs.

3) What Ratner will use to pay back the arena debt. As far as I can tell, Ratner is not dedicating Nets ticket revenue to arena debt repayment. Can he? I've got no idea. NBA experts do chime in. He's throwing in luxury box revenue, revenue from non-basketball events, a ticket surcharge, and "sponsorship" revenue. Luxury box revenue and sponsorship (I'm guessing naming rights and other advertising) would account for roughly 2/3 of projected revenues. When we say the economic climate is necessitating a smaller arena, we're hearing that $40 million from box sales and $32 million from sponsorship couldn't be increased in the current climate to meet the debt service and operating costs of a $950 million arena. Can he even hold on to those figures, given how brutally the current climate is afflicting market conditions?

4) Fun fact. Do the projections really say that for three years the arena company would make contributions to the Nets to cover team losses? I think they do. That would be your tax subsidies going to help Ratner defray the costs of his ill-advised venture into the business of sports. He's already borrowed $60 million from hedge fund Fortress at above ten percent interest to help meet these losses, and unless Fortress wants to maybe convert that into an ownership stake we can't imagine that servicing the loan would do wonders for the amount of cash Ratner expects to get out of the Nets even if they did start losing less money. I even saw today that Fortress has stopped funding on a loan to the Winter Olympic Village in Whistler, British Columbia. That project has a pretty solid rationale and is coming in alongside direct government funding, so lord knows what they're making of Ratner's flounderings.

I am absolutely no expert in the economics of sports, and probably have no right, as I did the other day, to call sports consultants "sheisty". But going through those figures has been a revelation. Remember, the arena is apparently the bit that's most feasible in the current climate, and it looks well shaky to these eyes.

I dare say you read today about Barclays Capital, the saviour of Atlantic Yards and Lehman Brothers (an attachment to persisting in unforgiving circumstances that rivals St Jude's), is laying off another 2,100 workers. Do you think they'll waive their financing fees on the arena bonds if Bruce asks nicely? Fat lot it will probably do. It's been estimated that Lehman Brothers shelled out much more on luxury boxes on the Jets/Giants stadium than it could have made in underwriting fees on the stadium's debt, though the tax code might have left it out ahead on that one.

Wow. I need a lie-down. Coming up, a look at the queasy presence of children in cock-rock epics, and a salute to the return of Monsieur BonHomme, though not the circumstances of his return.

Bye-Bye Shiny Shiny

2009-01-09T12:37:00.002-05:00

I bumped into Norman Oder quite a while back on the subway, and after he listened to my rantings about the way that financial markets interact with the Atlantic Yards project for a few minutes, he suggested that I write these down. I didn't, partly because travel, work, and family commitments intervened, and partly because most of what I'd have to say about market conditions would be very speculative.

But the news that Forest City Ratner is looking to scale back the size of the new Nets arena and possibly ditch a Frank Gehry design gives me a news hook you could hang a slab of beef on.

Norman wants to know who's responsible for the rather coordinated leaking of news about the scaling-back to three major news outlets. Robert Guskind of the Gowanus Lounge notes that he'd posited just such a future for the project, although he didn't lay down the mechanism by which it would happen.

Allow me to elaborate. What we are seeing here is the debt markets, usually viewed as a somewhat inert mass, biting back. My utterly frivolous guess is that someone involved in the financing process wants to prime city and state officials, as well as that buffoon Marty Markowitz, to realise that the only way for the arena to happen is for them to acquiesce in a big dump of ugliness. That's going to make concrete Bruce Ratner's dream of the Atlantic Terminal Mall looking more attractive than something.

The crowd of financial types surrounding the project - ratings agencies, potential bond investors, the underwriter Goldman Sachs, and whatever sheisty "sports consultant" they're using to produce revenue predictions - have produced a number for the cash they think the stadium will throw off, and it isn't the number FCR wants. Because this number is not anywhere close to the required debt service and return on equity for a $1 billion stadium.

Never mind that the Jets and Giants managed to borrow much more for their Jersey stadium (and their bondholders paid taxes on the interest) for a stadium that will see less use for sporting events. That was then. Required debt service was lower (maybe 1-2%), fans were richer and more devoted, and seat licenses were more lucrative, even if they did enrage the fans.

Maybe, as I've written about in the past but don't have the time to google, Ratner threw every single revenue stream he could think of into the mix, right down to the Jones Soda and Brooklyn Brewery concession takes. And it still didn't make it. Maybe the debt guys went back to Ratner and said "put in more equity" and Brucie's boys said "what f***in' equity? Our properties are mortgaged to the eyeballs and our stock's in the toilet. Where's more equity going to come from?"

At which point, the bankers and analysts and "sports consultants" come back to Brucie and say "weeeeeeell, if we don't think you're going to generate that much buzz, then why don't you slap down something cheap and ugly? There may be some squealing from the local pols but they have proved to be cheaper to pay off in the past than Mr. Gehry,"

Now, I'm not convinced that there is some cheap-ass off the peg stadium that can be slapped down in the middle of Prospect Heights at half the price, even in an economic downturn. I'd venture that NY's construction market is a tad more constrained than, say, Newark's, and there are quite a few condo projects that need to get to completion (and then go rental. Heh) before we see some downward pressure on labour costs. Without knowing anything about relative levels of unionisation, I'd also note that unions have proved a bit of a brake on cost decreases elsewhere.

Can they save some money by ditching Frank Gehry's Shiny Materials? Maybe, but I'd like you to recall that the Yankees and even the Mets stadiums went over budget, and they were basically pastiches of every single other ballpark that's gone up in the past few years. Not that much Shiny there.

So here we are now, observing a rather complex game of three-dimensional chess with ugly buildings as pieces. Aesthetic considerations never really loomed large in the politicians' considerations, certainly nowhere near as much as money and jobs. It probably helped sell the project to the public, at least initially, but Ratner's always been comfortable in foisting ugly and unpopular buildings on Brooklyn when the money's right.

So let's assume that the final tab on the new uglier stadium hits $800 million. Is that what the bond market wants, is it what the politicians can support with a straight face, and will it change the dynamics of the project's legal challenges? Mr. Oder's reporting, and my hunches don't give me any grounds for optimism.

Doom On Wheels

2009-01-07T16:33:00.002-05:00

I have a very quick question about the loans that the US Treasury has provided to GM and Chrysler. I was a little bored this afternoon, and mosied over to The Big Money, where the loan agreement, or at least the draft that was released to the public was described as:

"written in a strange dialect that combines corporate-speak with legalese. Like Latin, it is only written, never spoken, and people go to school to study how best to write it"

Well I like a challenge as much as the next man, although I should note that I spend certain amounts of time on EDGAR poring over such agreements, and am married to someone who has a fair bit of experience assembling such agreements. So the next man is probably GOING DOWN.

Still, the text is reasonably lucid by comparison with other term sheets I've read, possibly because it was designed for public consumption. It's only 14 pages long for each term sheet, which is fairly svelte for a document that purports to bring about the rescue and transformation of American heavy industry. There are also really prominent references to aircraft disposals and executive compensation, which most bankers really don't care that much about.

There's a fair amount of stuff about notifying the President's representatives about any major disposals, and reporting requirements, and providing a restructuring plan, and making sure that auto workers never again aspire to being anything more than lower middle-class. And then there's this line in Appendix A, where all the juicy stuff about the interest rate on the debt and the collateral for the loan is:

Financial covenants: TBD

Now to be fair to the Treasury, there's also a fat "TBD" next to the "Due Diligence Items and Closing Checklist" line. But financial covenants are important. The loans do have regular covenants that the term sheets describe as standard, to make sure that the borrower does not come up with inventive ways to channel cash (in an auto company? Preposterous!) out of the company.

Financial covenants are undertakings that the borrower will be producing enough cash to meet its obligations under a loan agreement. They're usually expressed as a figure for Earnings Before Interest Taxation Depreciation and Amortization (Ebitda), sometimes as a ratio of Ebitda or some other measure of earnings to debt or enterprise value (I dare say Mrs. Cutesome might pop up in the comments and correct me).

Still, it's a little worrying that the Treasury did not venture any kind of number, even a negative one, in putting together the term sheet. It's as near to saying there's a blank checkbook as Paulson and Co were prepared to go. But what sort of number can ever be determined that isn't hopelessly speculative and politically freighted?

A New Year Nugget

2009-01-03T18:03:00.002-05:00

Well hello hello. Been a while, I know. Should be back to speed shortly. I'll note, however, that November 2008 was the first month I ever went without posting. You even got a tiny post in December, you lucky half a person that wandered over because you were looking for Fresh slash fiction involving Gumby.

I visited Sarasota for Christmas. Surreal would be much too strong a word, although the lack of coldness and dampness made it hard for me to think festively. I liked the 80-degree weather, as well as the local rock station, which is known, charmingly, as The Bone. I liked the reassuring presence of AC~DC's Brian Johnson, who lives a mere mile from the rental where we were staying.

But what I found particularly entertaining was this nugget I picked up while watching a couple of Tampa sportscasters discuss the acquisition of baseball player Mark Teixeira by the New York Yankees. It went like this:

Sportsdude 1: "Can you believe that the Yankees paid that much [$180 million over eight years] for him]?"
Sportsdude 2: "Well you can afford it if the taxpayers pay for your new stadium."

Now let's leave aside for a moment the fact that the taxpayers subsidised the new Yankee stadium lavishly rather than actually paid for it, and the same rich fans that allow the Yankees to wallow in high merchandise and TV revenues will pay off the stadium debt. Let's also note that New York is not alone in subsidising its sports facilities, that at some point in the last 15 years government internalised the idea that new sports facilities was its problem, and its to take credit for.

Most New Yorkers assume deep down that the rest of the country hates them for their wealth, and maybe their lax social mores. None of this is sufficient to prevent us from indulging in Big Sports Market Smugness. What we don't always get is how there's also a suspicion that New Yorkers get ahead, and sometimes come a cropper, through old-style socialism. Now most of the time this can be safely ignored, and this doesn't get in the way of occasional sympathy, as 9-11 evidenced.

But in sports, the level playing field is very important to fans. The NFL reigns supreme because it spends a lot of time and energy trying to keep Buffalo and Green Bay and so on competitive. To mixed results. In the long run, the ability of the city's local government to fling money at its clubs on a scale that others cannot match will come back to bite local franchises in the arse. Hard.

The World's Most Rubbish Tocqueville Makes a Tentative Return

2008-12-07T21:15:00.002-05:00

Soooo, the wife of a former president resigned her senate seat to become Secretary of State. The Governor of New York, who also happens to be the son of the former Secreaty of State of New York, has the power to replace him. Number one on the list of candidates to replace him is the daughter of a former president, who while described as "shy and self-deprecating", decided she quite liked the idea of being a senator after issuing an endorsement earlier this year.

What was it that Tom Paine had to say about the evils of hereditary succession?

I'll bow to no-one in my lack of respect for the non-entities that ooze their way upwards through the ranks of New York's Democrats, but maybe a little experieince counts for something?

Bruceski's Netskis

2008-10-29T17:58:00.002-04:00

Dearie me, is there anything Russian money can't buy? New York has so far been less than welcoming to the richer and brasher type of new Russian. For sure, the southern reaches of Brooklyn have long been a home to working class Russian immigrants, many of them Jewish immigrants from the early nineties. Quick tip: if you ever have a yearning to head to the Russian baths in Midwood, do so on the Sabbath when they're less crowded, although regulars swear blind that the owners turn the heat waaaay down.

But New York, maybe because it has always preferred to nurture its own breed of unbelievably crass new rich, has lost out to London in attracting Russians. You can read more about London's, um, superior attractions in this column by Nick Cohen. And you can get a hint of how Uncle Sam reacts to Russians with wealth of clouded provenance here.

The US sports market has so far evidenced little desire to attract overseas cash, in stark contrast to the inexplicably popular brothel that is English football. Indeed, more than one US team owner has looked on enviously as football does what no US sport outside basketball has managed to do - expand into the growing parts of Asia. A few have even bought up English clubs.

US team owners are a strange bunch, cosseted by a wealth of legal exemptions, given to opaque finances, lovers of the taxpayer's largesse, and frequently at odds with their fans sentiment. But they're fairly keenly aware, normally, of the importance of good PR. It's one of the big reasons I'm a fan of the Mets - that management plainly cares what I think of them.

It's what makes Bruce Ratner's ill-starred ownership of the New Jersey Nets so fascinating. He's got no interest in basketball, has very little grounding in New Jersey politics, and has made no attempt, on a personal level, to connect with the fans. Sure, there's this Brett Yormark character, who seems to get sports marketing on a technical level, in much the same way as many baseball front offices have a stats wiz on staff these days.

But Bruce, if he had the faintest sense, would not have allowed the faintest hint of a rumour, true or not, that he planned to seek foreign capital to see the light of day. It's not so much that the sports fans of the Greater New York are not a xenophobic bunch (I'm thinking of you, drunken fans on the Mets' Loge level). But they're comforted by the idea that the extortionate seat and concession prices they bear are essentially being recycled within their community by local ownership.

There's appropriate symmetry to the move. Barclays Capital, which, at least for the next month or so, owns the naming rights to the arena, is also looking for Russian cash, and displaying a similar lack of tact when doing so. Barclays, see, wants to keep paying humungous bonuses to senior management, and cannot do so if it is forced to go to the UK taxpayer for more equity. But it needs to raise more equity so as to benefit from UK guarantees of its debt and deposits.

It's called having your cake and eating it, and while the man on the Clapham omnibus is less angry about this than Lloyds, which has taken government cash, paying such bonuses, such a posture does somewhat undermine the "we're all in this together narrative" that the financial services sector would like to prevail.

We probably don't need to worry too much about the prospect of either coming through. The commodities bust, and the spread of the credit crunch to Russian financial institutions, has severely hurt the wealth of many of the newly-rich Russians. Russia was much more frugal with its oil earnings than other countries, but will strain to keep its economic growth going using government cash. This linkage between commodity prices and interest in sports teams was pointed out, strangely enough, by NBA Commissioner Stern, who we wish displayed as much awareness of the linkage between the location of an All-Star Game and its traffic problems.

Still, I don't think that this was what the Gowanus Lounge's Mr Guskind had in mind when he compared Brooklyn pols' performance over term limits to the post-Putin political scene in Russia. You never know, though, handing over control of the Atlantic Yards project to strange oligarchs might even rouse that lot from their torpor. A blog that knows multiples more about sports than I seems to be thinking along similar lines.

But do teams need Russian cash to compete at the top level? Ladies and gentleman, I give you the mighty Hull City

I can't help but think that the end-game for Atlantic Yards is looming.

My Arena Bonds $1 billion's-Worth

2008-10-22T15:13:00.002-04:00

Rikey. Time to post.

So, the US Treasury Department just handed down a ruling on the eligibility of PILOT facilities for tax-exempt treatment. I'm going to avoid going into how tax-exempt treatment is applied to such facilities' bonds, the inner workings of PILOT (or payments in lieu of taxes) and assume that this blog's remaining frivolous readers will move on and wait patiently for the next Brooklyn boutique discussion.

As has been noted elsewhere, the new regulations from the IRS contain a little bit of wiggle. The new regulations say that the old regulations, which have a rather generous view of how PILOT payments can be applied to servicing bonds used to financing projects, apply to projects "substantially in progress at the time of the promulgation of the Proposed Regulations." Which was October 19 2006.

As far as the developers of the Nets arena are concerned, this includes the Atlantic Yards project, since its preliminary approval came in July of that year. Norman Oder, as ever, has the best chronology. His reading of the rules is that even a rubber-stamping of the project's ~~environmental impact statement~~general project plan would probably count as "substantial progress".

But let's briefly cycle back to the Yankees and Mets stadiums, since the Yankees, in particular, want to issue some more bonds because their shipping-magnate owner has no idea how things get built in New York city. These stadiums are definitely grandfathered, and it's worth noting that they both closed their original financings in July 2006.

Now since the cut-off date was simply chosen because that was when the original rules came out, we can't try, as supporters of gun control try with the second amendment, to look at the intent of the writers. It looks as if a say-so from the right Pataki stooge is the important step, and not, you know, convincing an investor of the project's viability. In fact, as the Times notes it was the outcry over these deals that forced the Treasury to look at the rules again.

Still, I'm on shaky ground discussing tax law. Let's look at the appetite for the arena's debt, an area where the Gray Lady is forced to speculate. Here the omens are still fairly horrible. Broadly speaking, Ratner and his dudes at Goldman Sachs have four financing options:

1) Borrow the money directly from a bank. Tricky. We're mostly talking about foreign banks that would be lending him money, the same ones that are still on their knees and trying not to keel over, and such an option would not involve the use of a tax exemption, which Ratner's pretty much got in the bag now. I don't know enough about tax law to say whether the banks could lend the developer the money short-term, and he then be allowed to refinance this debt with tax-exempt bonds. Either way, he has till the end of 2009, and in any case, the banks would need a guarantee that FCR would make them good. I have to assume that FCR's shareholders would view assuming a $1 billion liability like this very dimly.

2) Go to a bond insurer to insure a tax-exempt bond issue. Things have been a wee bit quieter here. The good news includes Macquarie and Citadel getting a bond insurance licence, the bond insurers' scheming to get a piece of the federal bail-out and the lack of horrible earnings releases. The bad news includes a slew of looming corporate debt securitization downgrades that will hit the remaining standing ones hard.

3) Get a bank to insure the bonds. The Beekman Tower option. See above. You would get the tax exemption in this instance, but the capacity of the banks to support such a foolhardy venture as moving a second-tier franchise to a horrendously expensive arena in a crowded market in the middle of a downturn would be limited.

4) Issue the bonds without any kind of enhancement. Or, could Goldman Sachs threaten enough of their municipal bond salesmen with firing to get the bonds to clear? Again, tricky. The universe of buyers for highly illiquid, low-investment grade infrastructure bonds is small and incestuous. Like North Lincolnshire. If they tried this right now, it'd probably lend them the money at 10% or so, or roughly what a utility would borrow at. I'm assuming a very dirty calculation that the tax-exemption is worth about the same as the premium that the Nets would have paid over the guys that keep the lights on. I used to be much more confident that this was an option, but too many people are sitting on their hands right now.

The exception, of course, are those crazy guys at Barclays. Fresh from buying Lehman Brothers for a song, they're now set to issue about $1.2 billion in bonds with a UK government guarantee. Bet Ratner would like to get a similar deal. This is the same bank that refused to take any UK government equity as part of the bail-out in part so its executives could keep paying themselves fat bonuses without worrying about government regulation.

Public finance, private pain

2008-09-30T13:33:00.000-04:00

Rather a frightening trend emerging here. Which are the three European banks most under strain the last few days (Fortis and Glitnir aside)? Dexia, Natixis and Hypo Real Estate. What do they have in common? Parents or subsidiaries with a big line in public finance.

Dexia combines a retail operation with a big franchise lending to public sector clients, and a monoline insurer. Natixis used to own a struggling monoline, and public finance is a business line of one of its parents, Banques Populaires, which, together with Caisse d'Epargne, had to bail out the monoline and now bail out Natixis. Finally, HRE owns Depfa, a Dublin-based bank, which until very recently had a big public sector franchise.

So we had a bunch of banks essentially financing a franchise lending to the public sector, either directly, or through private infrastructure borrowers, using wholesale funding. It should have been a very profitable enterprise, since governments, particularly European ones, are rather wary of defaulting. It's the wholesale funding bit that hasn't been working well the last few days. Banks don't like lending to banks.

I'm not sure we can call this a shoe that's waiting to drop to any great degree. Some of these institutions have co-operative members, retail deposits and deep-pocketed government shareholders. More importantly, government has powers of taxation, which will put a floor on how many loans to government go bad.

But I am going to go slightly further and observe some small similarities with what happened to the monolines, which also used to make most of their money from taking on public sector credit risk. Staid institutions yearning to boost their return on equity strayed out of their franchise but did not subject their funding model properly to the stresses of a different business model.

For the monolines it was the use of ratings agencies to determine their cost of capital rather than the capital markets. For the public finance lenders it has been not communicating their business properly to the capital markets, though I'll accept that telling funding partners any kind of story right now would be rather difficult. Still, let's see how the public sector fares with the loss of this funding source.

Connecti-What?

2008-09-29T14:03:00.001-04:00

Couple of items inspired by Gawker, which is strange, because I don't read it any more. I feel bad to do this because, according to Gawker, the New York Sun's demise is imminent, but it ran a right loan of old nonsense this morning about hedge funds.

[Digression: I can't say I'll miss the Sun at all, and not only because its several thousand degrees of magnitude less amusing than its boisterous British namesake. If you ever wonder how it's possible to be a part of the media conversation while operating a shoestring reporting operation, here's your answer: you can't. Also useful confirmation: there aren't enough right-wingers in New York to buy a paper that takes its policy cues from Richard Perle.]

Anyhow, the Sun's business reporter, Jule Satow, produces a very peculiar article right now about how New York is going to lose top financial talent to hedge funds based outside the city. I picked up on it by watching In The Papers, and knew before reading it that it was going to start from a disastrous premise.

In fact, even Mrs. Cutesome, who doesn't spent her time bitterly throwing rocks at prominent financial journalists like I do, felt moved to chime in. "Doesn't she know that all of the big hedge funds are based in Greenwich anyway?" Mrs Cutesome knows this only too well from a fruitless phase of interviewing at one or two of these funds.

So what's going on here? The city's investment banking titans are indeed shrinking, and are indeed losing people. So far so depressing. So, the conclusion is that hedge funds, despite producing some horrible returns, and what the normally staid Pensions & Investments is calling a Bloodbath ahead, are going to start sprouting like plants after a desert rainfall.

This is presumably based upon two, largely unspoken, assumptions. That hedge funds will emerge stronger because they're not publicly-traded, and their managers are more humble than investment bankers (they're not), a trope of which Tom Wolfe, writer of one of the most epically bad discoveries of the hedge fund industry I've ever read, is very fond.

The second is that New York City, with its punitive tax rate, is somehow not doing enough to make them happy. Because extremely tasty tapwater, decent public transportation, over-the-top shopping options, and a vast pool of inexpensive labour is the least that they can expect. I suspect that the industry analysts that pepper Satow's piece are going very soon to start angling for subsidies to keep them in the city.

And I pray that the normally very lucid Barry Ritholz was given a question along the lines of "how easy is it to run a hedge fund outside Manhattan" rather than asked to opine on the likelihood of the rest of the world stealing our investment funds. He certainly included enough caveats to suggest he doesn't agree wholeheartedly with the article's thrust.

Actually, to be fair, most of the last two third of the article doesn't agree with the thrust, so I'm going to be generous and suggest that the Sun's precariously perched subs massacred the piece. The Sun always worked from this subtext that New York suffered as a solidly Democratic liberal playground that wasn't grateful enough to its capitalist overlords. Strangely enough, this didn't help it build a mass readership here.

Sleep-Deprived CDS Rant

2008-09-22T15:57:00.001-04:00

Catching up from a couple of days spent at a conference last week, which might as well have been a cave, so divorced from connectivity the venue was and so divorced from the crisis the discussion was.

I had one interesting discussion, though, regarding, as it turned out, credit default swaps. There's a fair amount of discussions of these today, since what happens to such swaps in the light of the market's gyrations, will pretty much determine which and how many institutions live or die in the coming weeks.

You can get a reasonably simple look at them here, though it concentrates on laying the blame for the recent mess on elements within John McCain's coterie. [Actually, scratch that. I've just read this sentence: "Um, sirs? Is it altogether a good idea to run up debts {The writer is referring to the outstanding notional CDS} exceeding all the assets it's even possible to hold" Which is like saying that New York Life has $280 billion in debt]

I've written about them. And here's a fairly innocuous idiot's guide from the uniquely suited Julie Satow in the NY Sun.

Credit default swaps allow people who've bought debt to offset the risks of such debt defaulting, or people who don't own the debt to speculate on it defaulting. The first would be a fairly useful way for people to manage their exposures to potential credit events if they had a fairly large relative or total exposure, while the second would allow investors to profit from credit events on fairly widely-known names.

My discussion centred on a pretty bespoke type of high-yield bond, whose particulars I'll have to leave out because I've written about it during my dayjob. But such bonds don't trade much, have a small number of interested specialist investors and do have a public rating, though it is below investment grade.

I spent hours asking who was buying these bonds before a kindly banker took pity on me and explained that these bonds weren't being sold to anyone. They were kept by the underwriter and then "hedged out". I tried to get a handle on it - was it through shorting, or through the purchase of call options or what? The first didn't make much sense, since there wasn't really a close enough type of security for the holder to short, although there were a few types that might work. Call options would have been too expensive.

It was only in this discussion last week that I finally heard someone tell me that the holder was hedging them through the use of credit default swaps. Now, I'm not a huge believer in perfect markets, hell I even thought that monolines had a viable business model (Ahem). But I'm still trying to get it into my head why on earth this CDS slapped on a rather bespoke bond that was retained by the underwriter was the best way for the borrower to get his hands on the cash rather than just trying to sell the bond to someone that would love it properly.

Left behind in all the discussion about financial market interconnectedness and financial weapons of mass destruction ((c) Warren Buffet, the only man in America who is ever allowed to buy a utility) is just why CDS was always such a cheap way to hedge out these risks, so much so that an entire financial product was structured on the back of this comparative cheapness.

There are, I guess, several reasons why CDS might be cheaper than just owning the bond, including interest rate risk, liquidity risk, and other non-default risks that investors get compensated for. And I recall very vividly that some institutions (**cough**monolines**cough**) might be pricing cheaply protection either to build market share or because ratings agencies or regulators are giving them generous capital treatment, which usually involves some kind of unstable arbitrage opportunity. It certainly would explain why all those banks decided to hold on to the super-senior, or, ahem, least risky, bits of securitization deals and just hedge the exposure out through CDS.

But there's a looming sense that this crisis comes down to the financial services industry's need to eat its own young in more elaborate ways rather than performing the more prosaic task of directing capital to its users. There's a theory, which I think Felix Salmon has been a big proponent of, that demand for only the tastiest AAA paper gave us the securitization mess.

Well, that's as maybe, but a fairly large amount of the garbage swilling around in banks portfolios is more either fee-driven garbage (whether stupidly bespoke CDS deals, or LBO loans that were created to drive advisory fees), or regulatory arbitrage opportunities masquerading as hedging strategies, and it's garbage that can't really be laid at the door of the ratings agencies. There were rooms full of people at AIG Financial products whose job was to write such CDS contracts, and I cant tell you why they didn't just go ahead and buy some of those bonds, either.

Think of this as the contribution of the greasy sly kid at the back of the pitchfork-bearing crowd.

Pink Face Does Not Equal Sweeny

2008-09-17T22:45:00.001-04:00

So I went over to the court today to hear oral arguments in Develop Don't Destroy Brooklyn's the appeal of its state lawsuit against the Atlantic Yards Environmental Impact Statement (EIS) and approval.

I don't usually follow the legal machinations of the AY project, since I tend to find it easier, given my background, to mock Forest City's dreams of raising competitive financing for such a greedy and speculative project. But the first department of the appellate division hears cases about seven blocks north of my office, I'd never been in a court before (I once pled a speeding ticket by mail), and I managed to shred a couple of witless renewable energy producers before lunch. So up I trundled.

And my is it a handsome building, both from the inside and on the outside. When shuttling between a condo building from this century and a row of cubicles in an an admittedly pleasant early 20th century Gramercy building it's easy to forget how much rich old stuff is scattered around New York. I think Spike Lee was trying to get the point across in the fine-looking and quite marvelous Inside Man.

So, after getting my stuff x-rayed and managing to put all the wrong stresses on the word "appellate" I was directed in to the room, which was about a third full. For some reason we were all confined to the right hand third of the room, which made things a lot cozier, but the spot made it rather difficult to hear the speakers properly. I think I was second-worst dressed person in there.

Also in attendance was Norman Oder, who pretty much has the damn transcript, so do go there to get the details. Since most my notes say things like "PINK-FACE SHORT HAIR JUDGE: Did AKRF ever produce a study that didn't find blight", I'll concentrate on giving you the gist.

I can't even compare proceedings to past hearings, but based on this hearing there was a fair amount of scepticism from at least two, maybe three judges about the way that the Empire State Development Corporation declared a perfectly vibrant part of Prospect Heights blighted. There was also this simple misunderstanding about the use of Atlantic Avenue and Pacific Street as boundaries that the ESDC's attorney tried to turn into a huge brouhaha, like it was junior debate camp or something. But then I'm biased.

The argument did not hinge so much on what constitutes blight, the reason by which the ESDC is going to steal homes and my favourite boozer, but how the ESCD measures blight. Since I have very little conception of what discretion the ESDC has to do this has I can't really judge the efficacy of either side's argument.

There seemed to be a general agreement that parts of the footprint of the Atlantic Yards project are not blighted, less on how much it had to be blighted for condemnation to happen, and even less on what measures the ESDC might use to assess that. As far as I can tell, and despite the generally incredulous way that the judges questioned the ESDC lawyer, the argument will come down to whether the ESDC has to justify its decisions.

I can imagine the political appointees on the appellate court deciding that there's not really much that can stop the ESDC, since it was born in the late sixties when were all terrified that New York was going to hell in a hand cart, and all the good jazz musicians would move to LA. Let them get on with the sordid business of stopping the city turning into Detroit. That land was then tuppence ha'penny an acre has not stopped our real-estate-olitical complex from using the law to get very, very rich off the back of grassroots gentrification.

Still, the fact that the ESDC is still defending the study that was used to determine blight, and still insisting that the area is not gentrifying, gives me a little hope. It may not be enough to get the decision overturned, but there might be enough doubt about whether the ESDC has the power to make up blight definitions to get the decision kicked upstairs again.

But hey, I should probably stick to making awesomely bad financial prognostications rather than expanding into the awesomely bad legal prognostications business.

Events, Dear Boy

2008-09-17T13:51:00.000-04:00

It's interesting that no matter how infrequently I post, it's still possible for me to drop a decent-sized clanger with pretty decent regularity. I refer, of course, to the post below, where I confidently predicted that Barclays had lost interest in the idea of building up a US brokerage business, and that financing conditions for the Atlantic Yards arena were still benign.

So, that was about 1.5 clangers. Barclays, of course, has decided to double down its bet on a presence in the US capital markets by tearing a few strips off the Lehman Brothers corpse, although how the Lehman* purchase helps it build up a retail business in the US escapes me. It's clear that John Varley and Bob Diamond have decided to fling the money of the good depositors in the banks' UK operations at empire-building in New York.

The Financial News calls it "league table glory", which is a nice way of saying that the credit crunch sure as hell hasn't extinguished vanity and hubris in investment banking. But when you've just spent $1.75 billion on bits of a bank they couldn't give away last week, $20 million a year is a manageable burden, and I don't see why Barclays wouldn't be inclined to extend the naming rights deal if financing conditions stay nasty.

The .5 clanger is that financing conditions have headed south again. Now right now, investors love them bonds, and the "Barclays Center" (that dare not speak its name) would probably be financed using bonds. But the bonds that they love are mostly low-risk stuff, and highly-leveraged construction financings for speculative team moves don't count.

Developing. Right, I'm to check out the appeal. Seems a shame to miss it when I'm only seven blocks away.

* Note the singular. Only particularly dim UK journalists would ever be tacky enough to append an 's' to a firm when giving it a shorthand.

Karma Burns

2008-09-10T21:53:00.001-04:00

Well, I probably need to say something about it, don't I? Even with a head full of gin and the knuckle on my left index finger missing rather a lot of skin (and a little flesh, too).

So. That New York Times article about how the Atlantic Yards arena is starting to look a bit ropey. It certainly explains why FCR and its underwriter are insisting the deal goes down in November. Because, according to the Times' Mr. Bagli, the arena's sponsor, Barclays, can walk if the arena doesn't reach financial close in November.

Barclays must be thinking they dodged a bullet on this one. Let's assume they really thought a speculative move by a basketball team was a good way to market exchange-traded funds. The advantages right now of trying to build a retail brokerage presence in the US are pretty limited.

And while Barclays hasn't had the poor run of form of its peers, but its balance sheet is still in need of a little TLC. $20 million is the amount that Barclays could earn from a single rights issue that isn't a massive cock-up, but it's still probably mutliples of the amount that it squanders on the entire New York financial publishing industry in a year.

And so, DDDB says that the litigation can't be cleared by November, and unless the residual risk from litigation is small enough for the ratings agencies to sign off on the financing package regardless (which can happen, though the residual litigation risk must be pretty trivial) the financing can't get doone then.

Now I'd be chuffed to the nuts (that's happy, if your vocabulary is feeling dreary right now) if the deal didn't go down, but none of these blows are fatal. Naming rights sponsors can be replaced, and in these recessionary times I'm betting it would be fairly easy to find a utility (hello, fellow Limeys National Grid) or junk food provider willing to go after Brooklyn eyeballs. Hell some of them might not even have links to racist regimes.

And then there's the financing. I reckon, leaving the litigation to one side, that FCR could get the financing done right now. Goldman Sachs closed a pretty solid, if somewhat subsidy-larded financing for the Louisville Arena the other day. The bond insurers seem to have stablised, and right now its easier to persuade bondholders of the utility of a new basketball arena in Kentucky than of the US housing system.

No, the Atlantic Yards project won't ever get the decisive stake to the heart. There will be a dozen cuts instead, not least among them higher financing costs, discounted naming rights, restrictions on tax-exemption, Brooklyn pols refusing to chuck any more subsidies at it, and mounting losses at the Nets. At some point, FCR's stock analysts are going to start suggesting that it goes back to nickel-and-diming government agencies on a smaller scale than through gargantuan sports-related boondoggles.

So let's recap. As soon as the financing picture looks better, the naming rights deal looks ropey, and the subsidy picture gets cloudy. I've never been totally convinced that the eminent domain case was going to drive the stake in the project's heart either, but dammit if it hasn't dragged things out long enough for the developer to start needing to fight fires in all sorts of places. To drag another helpless metaphor into the melee, looks like Forest City''s game of whack-a-mole is starting to turn bad.

Suck My ROC

2008-09-05T23:01:00.001-04:00

Oh dear. The Guardian just discovered feed-in tariffs. And it thinks that their success, for that it what it is, is proof that the system of encouraging renewable generation development is broken.

The Guardian has "revealed" that "a little-known scheme designed to promote the development of renewable energy" will net it the UK millions of pounds because it's worked. To your capitalist power trader big, that's known as a lucrative below-market power contract; to your renewable energy policy expert, that's proof that the government can step in and encourage new ventures if the market does not initially recognise their value.

The Non-Fossil Fuel Obligation was set up in the late 90s to provide renewable electricity producers with a guaranteed price for what they made. It was much more than electricity producers in general used to get when they used coal or gas or nuclear to make electricity, and it was enough for them to raise financing. But it wasn't enought to spark a massive rush towards wind power, as happened in Germany and Spain.

The government, rather sensibly, made sure that if prices went above the rather generous levels that it set then it would capture the excess. Which may, though I do not know enough about the specifics and am thus speculating wildly, be one reason why people preferred building wind farms in Germany. The UK has since replaced it with a ludicrously complicated regime called renewable obligation certificates, which sulks in second place in the stupid-ways-to-encourage-new-renewable-power-development Olympics behind the US production tax credit.

To Charles Hendry, the Conservative shadow energy minister, it's a "stealth tax", and his response is the best reason this expatriate has yet found for keeping faith with the Labour party. Hendry, at the urging of the indubitably wily, yet I fear equally dim reporter Juliette Jowit, suggested that the revenue "seems to be going into a general pot," rather than going towards more renewable subsidies.

This argument leaves to one side the awkward fact that Hendry evidently has no idea what is happening to the money that's been made from the scheme. Which makes the whole story one of those glorious UK political journalism stories that are fishing for something bad to be said the following week. Though it's unlikely that the umbrage level will rise to any appreciably intolerable level.

More worrying is that the article seems to pass off the horrible move upwards of commodity prices upwards as some kind of nefarious energy trading scheme on the part of the government rather than a largely unexpected, and basically unimportant, consequence of a worthy, if flawed, incentive regime.

We haven't yet had a decent picture anywhere of how government will reconcile making consumers absorb the higher external costs of fossil-fuelled generation (and the NFFO was a rather inelegant move towards this) and high energy prices. I doubt we'll get an indication from this tawdry little story of what way the UK government will jump. But we have discovered that the UK political class is probably ill-equipped to have a sensible conversation about it.

[UPDATE: Ah, the coherent explanation is in Oliver Tickell's piece, which explains where the NFFO revenue goes, laments the fact it hasn't been directed towards transmission projects, but does seem to indicate that it's a much better system than the ROC. But I'm still struggling to understand why it's a terrible thing that the UK government that captures the NFFO surplus when it's government that, by and large, that has to cope with the external costs of fossil fuel generation.]

Aging hipster datapoint of the day

2008-08-23T06:14:00.001-04:00

Hey, I'm busy playing at mini-squires this week, so here are two numbers to entertain you.

Asking price for the largest record collection in the world (and that's at a bargain basement price): $3 million.

Asking price for a 3-bedroom condo in Williamsburg: $2.375 million.

Right, off to London for the Notting Hill Carnival. Carnival! Dancing policemen! Muggings! Knife crime!

Blockbuster Directors Decorate The Funniest Things

2008-08-07T15:00:00.003-04:00

You know what? You're not going to get a half-baked excuse for my paucity of posts the last few weeks. The strains of raising a child-baby, while a common excuse, would be a lie, although his knack for disrupting the hours of 7-9pm is uncanny, and my absorption in Mr. Fisk's opus would be partly true. But mostly I just haven't had the urge.

But I really did have to advert your attention to the monumentally childish themes at work in Roland Emmerich's Knightsbridge interior decoration job. "Knightsbridge interior decoration job" is one of those cast-iron guarantees of bad taste, kind of like "Chuck Norris cake".

But consider the competition. It's like Emmerich took the bar set by Mohammed Al Fayed's Dodi N' Di memorial, and then beat a reeling sense of good taste to death with it. Lots of whimsical, one-note riffs on world affairs. Presumably if some of the details get circulated to in the right (wing) circles it might lead to another fatuous boycott. This time of some really bad films.

The best bit, though, is that one of the bedrooms includes, by the bedside a picture of what appears to be a shirtless Mahmoud Ahmadinejad (I'm linking to his blog, though it hasn't been updated in eight months and he is even less sorry for the lack of updates than I could ever be). I tried to blow the picture up, but it got helplessly pixelated. Now, since the image is not definitive this might make me guilty of the same cross-eyed Arab-baiting as the thoughtlessly umbrage-spouting Ms. Malkin, but I like to think it's a hastily-overlooked example of Emmerich's decorator's quest for the needlessly provocative.

Off on vacation soon, but first, weighty tax planning, and a meeting with (other) bloggers, something I promised myself I would never do. Old, you see.

Oh, crap, nearly forgot. Go and read Will Self's account of a trip along the East Riding's coast. It's really good. Sounds like Yorkshire people really are a little more charming than Lincolnshire people, though I've always denied it.

Not Very Ernest At All

2008-07-24T11:51:00.001-04:00

Busy, uninspired, it's pretty much the same to me.

Courtesy of my new favourite blog, Mr. Nice Guy, which I stumbled on while looking for information on the Douglass-Degraw pool. There really should be some forum for sarcastic people working in journalism with Child-Babies. Don't ask me who the hell the rapper is, it's just good.

If you're looking for a little more on the FSA imbroglio, by the way, try Accrued Interest. He's giving wrapped bonds a "sell", and is a little more, um, ernest than me. Heh.

Brooklyn Chain Map: We're All Capitalist Playthings Now

2008-07-23T13:24:00.002-04:00

I've been meaning to get going on this project for quite a while. I recently read an article in the New York Times on the growth, and occasional retrenchment, of the restaurant and bar empire of Jim Mamary and Alan Harding, with a spread of restaurants in South Brooklyn and parts south, if that makes any sense.

A stroll through Carroll Gardens the other day reminded me of how many businesses open multiple locations in Brooklyn. And after seeing this map at Gowanus Lounge, I decided to plot them all. Google Maps gives me a way to do so, though I have not spent the necessary amount of time to make the relationships between establishments readily apparent. That will wait for another day.

The rules are somewhat arbitrary. I'll tolerate a couple of Staten Island or Queens offshoots, but anything else is bang out of order. Bars, restaurants and the odd boutique predominate. I'm fairly certain I'm missing a few obviously-paired bodegas, and I get much weaker in the more northern parts of Brooklyn such as Prospect Heights, Fort Greene and Williamsburg . Suggestions welcome in the comments, if you can be arsed to go past the spambot protection.

To stress, this is not an exercise designed to hate on gentrifiers, chains, or anything else that flows from capitalism. A second branch is a fairly good indication you're doing something right for your local customers, though whether catering to the whims of the Brooklyn gentrifying set is the foundation for a wildly successful national career I'll leave to your imagination. Still it's a good sign that there are plenty of people in the Borough that do have the smarts to build up a franchise and still keep it local.

Anyhow, here's the Brooklyn chain and stealth-chain map.

View Larger Map

Good Money After Bad Datapoint of the Day

2008-07-22T17:43:00.000-04:00

Since Felix Salmon is on holiday:

Cost of a FreddieMac/Fannie Mae bailout, according to the congressional budget office: $25 billion

Cost of just one of Aramco's proposed chemical plants in Saudi Arabia: $26 billion.

A Recovering Monoholic Writes

2008-07-22T15:42:00.002-04:00

At this rate they're going to be written on my headstone. The words of that banker from years back. "The monolines are basically the creatures of the ratings agencies."

Bill Ackman was right, you see, though for the wrong reasons, and is going to get what he wanted not through his adoring phalanx of reporters but through the efforts of the ratings agencies. You can get a reasonable summary of Ackman's case from the post I linked to above, and some of the links there, but Ackman said that Financial Security Assurance, which did not make anywhere near as many bad calls as its rivals when insuring business, was still going to be in trouble because of the crap it bought for investment purposes.

At the end of the summary, or rant, if you prefer, I then included this awesomely prescient line:

There's always the possibility that Moody's lead monoline analyst, Jack Dorer, or his counterpart at S&P will wake up one morning and decide to unleash financial meltdown before breakfast.

Because Moody's just decided to put FSA on review for downgrade, together with Assured Guaranty, which doesn't have an investment portfolio full of crap. Bet Ackman's wishing he bought credit default swaps on Assured, too, eh, Bill? Bloomberg's Christine Richard, who leans heavily on Ackman as a source, and of whom I've been unfairly critical in the past, focuses on just the right bits here. I'll use her excerpts:

The rating company also cited "a reduction in overall market demand'' for bond insurance in separate reports today..."Today's rating action reflects elevated risks with the financial guaranty insurance market,'' Moody's said in both statements.

The ratings agencies are cutting the monolines loose, make no mistake. They have decided that the current rate at which the monolines produce business will not provide them with large enough claims-paying resources. Because of how crappy Ambac's and MBIA's books were they were able to tell their shareholders to cough up additional equity or else. Here, they're being a little more subtle, though no less lethal.

This is a classic ratings agency death spiral. Agencies raise questions about rated entity's business, which leads to a collapse in confidence, which stops off the flow of cash, which leads to another downgrade. And this one isn't really their fault. The monolines, and the wider market, trusted the agencies to price the risk of their insurance commitments more cheaply than potential uninsured investors in the bonds would.

The agencies, channeling Keynes have now decided to take a different tack. They'll never admit to having so much power over the process, but the whole situation has been a bit of an embarrassment to them. Basing a business on this difference in opinion (or arbitrage, if you must) will always be reliant on a ratings agency methodology much more stable than the ones on offer right now

Looks like they're could make it so expensive to capitalise a monoline that Wilbur Ross (Assured) and Dexia (FSA) will abandon the mess for good. The only one left standing, as Bloomberg's Richard hints, will be the monoline subsidiary of noted Moody's shareholder, and all-round capitalist icon, Berkshire Hathaway.

Actually, it's probably wrong of me to try and imply that the saintly Warren Buffett would be involved in SKULLDUGGERY, since deep down I know that he would avoid a downgrade even if he were not a shareholder. If there's one thing that would seal the tattered fate of the ratings agencies it would be downgrading the Sage of Omaha. There would be mobs running up Church and Water Streets baying for the (pointy) heads.

I'm going to end this stretch of wild-eyed prognostication with a caveat. Fixing FSA and Assured is possible, given enough love, money, and agencies that don't indulge in Cranky Time as much as my young boy (yay child reference!). But I'm well into the acceptance phase now, and ready to contemplate a world without bond insurance. Smells good out there.

The Snake Bit

2008-07-20T10:10:00.000-04:00

I hope that in the last four years or so I've become a marginally better blogger, by which I mean having less of a propensity to shout off without knowing all the facts and generally making an asshat of myself. Now, I'm not free of the trait, as you can read here (I've left it uncorrected, like the spire of that church in Berlin, only without the taste-, gravitas, and purpose of the latter. In fact, the comparison can't help but be invidious, so forget I ever wrote it). In place of ill-informed certainty I occasionally err on the side of mean-spirited, inconclusive pedantry, but by and large I've got better at thinking before writing.

I was reminded about this when I read in the Times about Steve Hindy's difficulties in finding a decent space for his (excellent) brewery. In blog years, it was during the Babylonian Captivity when I urged my reader (sic) to avoid drinking Brooklyn Lager because of owner Steve Hindy's support for the Atlantic Yards project. others chimed in, and soon enough, Freddie's, the local bar after which I named my first-born, was no longer selling it.

I still don't drink the stuff, though I've learned to cope with its absence (skyrocketing hops prices aside, now's not a bad time at all to be a beer drinker). I backed off fairly quickly from my more heated references, mostly because Hindy seemed open-minded and sincere, even if I didn't agree with him, and because of his distinguished service as a reporter at the Associated Press, including, on one occasion, trying to bust into a Bilderberg conference and annoying Henry Kissinger, which is, needless to say, a Very Good Thing. Hindy must have emerged from those heady days of March 2006 with the impression that blog-writers were intemperate, drooling mouth-breathers.

The boycotters struggled, at times, to work out why Hindy had done this, as if we assumed he'd be on the side of small business, the little guy, all that stuff. I thought it might be a simple quid pro quo, for all the free advertising he got from Marty Markowitz (described, by Christpher Ketcham, during an article on the AY EIS as "the inane yet somehow insidious Marty Markowitz, porcine borough president of Brooklyn"). Scott Turner guessed that he'd been offered a beer concession at the arena.

Now, via the Times article I referenced up there, it becomes clear that Hindy's just been trying to find somewhere that he can make something in Brooklyn. Brooklyn, home of more abandoned warehouses than you can shake a fist at, has been unable to provide him with a competitively-priced bit of manufacturing space to make his wonderful (yet to me, forbidden) lager. So, Hindy's tried desperately to hitch is brewery expansion to all sorts of development projects, including Brooklyn Bridge Park by the East River and the Public Place proposal in Gowanus.

Buried in the statistics about Brooklyn's, and the city's, declining manufacturing base, we note that Hindy hooked up with the Economic Development Corporation, one of the authorities expediting the AY project, for the Brooklyn Bridge project. We also note that:

He [Hindy] was a champion of the rezoning of Williamsburg and Greenpoint that Mayor Michael R. Bloomberg pushed through in 2005. But now he contends that the changes went too far by allowing a variety of nonindustrial uses of land in areas that are labeled industrial business zones.

There's not smoking gun here, no proof of anyone saying "gee up the beer drinkers and give us a patina of gentrifier cred and you'll get your expansion." I don't think there needed to be. I think that at that moment in time Hindy needed to be as enmeshed in the city's real estate (de)industrial complex as possible. I don't blame him, it's not like popular beers get developed by sunday-school teachers.

But here's the killer line. "Some landlords are holding onto industrial property with the hope that it will be rezoned for residential buildings." So all Hindy's support has done is dump a windfall in the hands of condo developers with no interest in helping Hindy get what he wants. There's an easy moral to this story. The old lady and the snake.

Wurst Case Scenario

2008-07-18T18:01:00.001-04:00

Killmeyer's, Staten Island
Originally uploaded by Gringcorp.

The mad props from Sewell Chan's magisterial City Room (I'm the HATING link, obviously) reminded me that it was time to give you a little report on my recent activities.

I''ve said it before, and I'll say it again, Tottenville Beach is lies, but that's not to say that the lower reaches of Richmond County are utterly without charm. A few months back, Mrs. Cutesome and I, on the way back from the Elizabeth branch of Ikea, stopped at the Nurnberger Bierhaus in West Brighton. That beer hall comes highly recommended, particularly for the food, though I did not have a chance to sample the garden.

Mrs Cutesome has spent the last week in Detroit with the spawn, leaving me to indulge my yen for convoluted exploration and heavy metal. I got a quick fix yesterday, traipsing around Williamsburg with the intention of the checking out the Deathgasm Records showcase at Europa. Unfortunately, I stopped by Dumont beforehand, and a lethal combination of mac n' cheese and muscadet left me unable to face the rigours of a dark and evil hole. Heh.

For what it's worth, I appear to have also missed quite a few Siren Festival warm-up shows, but since the festival line-up was the first in a few years that looked a bit bobbins I'm not that bothered.

But I did make it to Killmeyers. If you like beer then you need to go here soon. It's as simple as that. I don't care if (like me), you needed to get on the Aitrain from dropping off Mrs. Cutesome at the airport, connect to the Long Island Railroad to Penn Station, take the 4, which was running down the 1,2,3 to Bowling Green for some reason, then the Staten Island Ferry to St George, and then the S74 to the intersection of Sharrots and Arthur Kill in the Charleston section of the Borough, or that it took the S74 to the S45 to the R train to get back. You need to go. The beer is top notch, the bartender Rob is a keeper, and the garden is tolerable.

The food may be better at Loreley, another German beer place that, by a strange coincidence, I visited this week. But Killmeyer's manages to simultaneously not care about who shows up and also put on quite an entertaining show. However, in keeping with the tradition that most of what is written about Staten Island is nonsense, I have to point out at the lady in NY Mag claiming that the S74 takes half an hour to get there is off by at least 100%. There was no traffic that afternoon and the ride was well over an hour. Bring a book. Or a car.

Have a nice weekend. Familial responsibilities beckon.

Movie News

2008-07-15T12:21:00.001-04:00

So, I'm leafing through the office copy of the FT, and chance upon their article about Paramount's inability to close a $450 million film financing with Deutsche Bank. Deutsche, see, has closed its film financing unit in the face of terrible market conditions, and this leaves a slate of Paramount films in trouble. Here's the reporter, Matthew Garrahan:

Under the Deutsche deal, which would have also covered Tropic Thunder, the new Ben Stiller comedy, and The Curious Case of Benjamin Button, which stars Brad Pitt, the syndicate assembled by the bank would have taken a 25 per cent stake in each of the 30 films.

I share the news with some colleagues, partly because Transformers 2 might be in trouble, but also because one fewer Ben Stiller movie making eyeballs bleed would be quite the silver lining. Turns out that not only is the movie already made, it's scheduled for release on August 13. It also looks rather entertaining, from what I can tell of the trailers.

So, obviously, here's by question. Are we just talking about Paramount's ability to sell the movie or part of this to the defunct financing vehicle, in which case I'm guessing $450 million would cover maybe three of them, or is the vehicle taking a minority stake? If a minority stake, then how much can this do to reduce the studio's exposure to a film's performance?

Now Hollywood's finances are opaque as all hell, one of the multitude of barriers to entry to this crazy, crazy town. All I have to go on is TT's website, which lists Dreamworks Pictures as the owner of the film's copyright. Dreamworks is a subsidiary of Viacom, like Paramount, and Paramount distributes its films. So what does the collapse do to the fortunes of a film 29 days away from its release? Leave it on Paramount's balance sheet? Confusingly enough, Dreamworks is apparently looking to raise financing to go independent. It's possible, though not likely, that the Deutsche money would be used to buy the films from Dreamworks.

My guess is the reporter isn't too clear on the arrangement either:

But if the studio fails to revive the deal with another bank it could force Paramount to seek funds from Viacom, the media conglomerate that owns the studio, to produce the titles. This would expose the company to greater financial risk if the films fail to perform as expected.

Could be that "produce" has a slightly more expansive meaning than that normally ascribed to these things. And this looks more like some kind of risk-sharing arrangement with rather vague terms. But I'm inches away from declaring that the FT's man pulled the list of forthcoming films from his derriere.

[UPDATE: Lord bless Journal, which omits both Transformers 2 and Tropic Thunder from its list of affected films, and notes that two other movies that the FT cites, the latest Star Trek and The Curious Case of Benjamin Button, are co-financed with other studios.]

I went to see Hellboy II last night, the first film I've seen in several months (baby, see), and probably the last for several years. And my was it rubbish. A plot lifted from the last Transformers film (old-looking metally object has the power to destroy the world!), dialogue that was merely serviceable (Jeffrey Tambor's lines could have been so much better), and an aesthetic that's essentially an amalgam of Guillermo del Toro's steampunk 'n clockwork ticks.

In these circumstances, it's traditional to note that, well, this is an comic book adaptation for an action movie, and well, what do you expect? The answer, to be honest, is Iron Man. Now that was a well-written, fun action movie. Cronos IX is a little more creaky, though undeniably fine-looking.

Time To Retire The Cutsie Diminutives

2008-07-10T14:19:00.004-04:00

By which I don't mean "put all the dwarves in homes." Well, I do happen to believe that, it's just not the point of this post. Ba-dum-chah.

Carnage reigns on Wall Street. The trading equivalent of a pack of rabid mastodons hit the shares of Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and Lehman Brothers.

The New York Times can write something alarming and nonsensical like "Lehman Brothers, one of the biggest guarantors of Fannie and Freddie, fell 11 percent in early trading, to $17.46" and no-one cares, because they're already too frightened. That was drive-by snark on the Times' business reporting, by the way, because I've got bigger fish to fry: the entire edifice of naming conventions of government-sponsored enterprises.

Two of the institutions with faltering share prices are GSEs, and are better known as Fannie Mae and Freddie Mac. Wikipedia refers to the shorthands as "creative acronymns", though I think its better to refer to them as diminutives, much as my wife refers to my son Frederick as Fritz. And it gave me a chance to vent my prejudices against short people.

There's no doubt that saying the names of the GSEs in full would be a right pain in the ass, and its pretty difficult to spell out the initials, too. What with the fact that the two made up most of the mortgage bond market until fairly recently, it was quite understandable that some kind of diminutive would emerge.

What's more interesting is that the two GSEs eagerly embraced the diminutives, and therefore licensed any other two-bit financial services company to come up with a nauseating diminutive as a way of aping the (until very recently) reputation of the big GSEs (I should mention the Government National Mortgage Association, or Ginnie Mae, as well here) for stability and security.

Thus, we have to endure the likes of:

The College Construction Loan Insurance Corporation, or Connie Lee, a guarantor absorbed in 1997 by Ambac, and Ambac's proposed name for a new, clean, unsullied, less stupid, monoline spin-off (you knew I'd get onto monolines before now).
We have IndyMac, founded as a real estate investment trust in 1985 by the luxuriantly orange Angelo Mozilo, before he moved on to, um, greatness with Countrywide Financial, with the origins of its name unclear. What we do know is that after a slightly rash rock-slinging from Chuck Schumer is that its financial health is far from super.
Student Loan Marketing Association, or Sallie Mae, focus of a botched leveraged buyout from last year.
There's Ellie Mae, a software provider for mortgage servicers, the sole purpose of whose name is to suggest a closeness to Fannie Mae, as far as I can tell.
I've had dealings with Municipal Mortgage & Equity, or Muni Mae, a Pink Sheets-traded real estate and energy developer.
And bringing us to our proud conclusion is Private National Mortgage Acceptance Company, or Penny Mac, which was founded to buy distressed mortgage securities from desperate banks, and has heavy hedge fund backing.

Let's leave aside the delicious irony of a bottom-feeder taking on such a cutesy name, salute briefly the consultant who came up with it so quickly, and ask ourselves why infantilizing large and precarious financial institutions is such a good idea. With the two big GSEs teetering, now would be as good a time as any to abandon this foolish affectation.

Let's confine the GSEs to large, unwieldy and ominous initials. Whatever body the Feds cook up to fix the mortgage mess should be called the Bureau of Oversight over the Origination of Mortgages, or BOOM. The state level offices could be called the District Offices for the Oversight of Mortgages, or DOOMs. The problem is, if anyone's got a yen for stupid-sounding acronyms, it would be our dear leaders in congress. SAFETEA-LU, anyone?

Templeton of the Dog

2008-07-08T12:05:00.000-04:00

Sir John Templeton is no more. I never made the connection between the Templeton mutual funds and Oxford's Templeton College while I was there, though my lack of interest in mutual funds, and my consummate interest in strong liquor, explain the oversight amply. Well, that and the fact that Templeton is a small-ish college devoted entirely to graduates. I now feel a little ashamed for screaming "Who the f*** is Templeton", as its boat rushed past that of my own college at some speed, rowed by several large American management students. Note also that Templeton is now merging with the infinitely more attractive, though also founded by an American benefactor, Green College.

(The headline is a reference to a legendary grunge tribute album, if anyone's confused. Or interested)

Hating On Successful Journalists, And Being Confused About Accounting, Gretchen Morgenson Edition

2008-07-06T22:17:00.002-04:00

This Sunday, Gretchen's still getting her head around credit default swaps. In this instance I'm torn between suspecting she's phoning this one in and wondering whether she needs to keep reading up on the subject. Certainly, starting a column with "Everyone knows..." is a frightening omen, not quite up there with inserting "obviously" into a horribly convoluted explanation, but certainly one of those crimes against journalism that even its lowlier denizens learn to avoid early on.

I'm acutely aware of the fact that some of my recent comments might be interpreted as hating on the powerful for hating's sake. For instance, I was all ready to go after this week's column for a few references to credit default swaps as "investments", followed by her description of CDS as a way to "bet" on a company defaulting. Thinking that since their origin lies in their use as a hedge against long positions in a company's debt, I thought this description, while accurate, was a little misleading. And then I thought about how Bill Ackman uses them, and realised that the description was entirely fair.

So, I finish off the article, but my god-Gari-you-have-to-stop-being-such-a-jealous-jackass sentiment entirely dissipates. Gretchen goes through two (internet pages) saying:

1) There's a lot of CDS out there
2) It's not well understood
3) There's a new accounting rule coming
4) This means more disclosure. This is good.

Gretchen's optimism comes from the fact that sellers of credit default swaps will have to account for these as if they were guarantees, rather than as financial instruments, and they'll then have to provide more information on size, counterparties, terms, and so on. Here's the summation:

For now, though, any increase in transparency where C.D.S.’s are concerned is a good thing. Of course, you can count on the usual caterwauling from executives and investors who like to blame accounting rules when the value of the assets they hold doesn’t go their way.

But for anyone interested in reality in financial statements, the new disclosure is a welcome step in the right direction. Let there be light.

Right, here's the standard preface: I'm. Not. An. Accountant.

But I can't work out whether the article's saying that the rule involves sellers of CDS changing from one interpretation to another (or from Statement 133 to Interpretation 45, to be exact, the reason for the rules having different classifications being unclear), or whether Interpretation 45 has also been tweaked as well. Since Morgenson calls it "unextraordinary" I'm tempted to assume it's the former.

Now, while I'm not an accountant, I've spent an unhealthy amount of time reading monoline samizdat, and I've noted how much they hate having to account for their credit default swap exposure as derivatives, because they say that these should be accounted for as guarantees. Why? Because they have to mark the value of the CDS exposures to market, which I'm guessing is the FASB 133 version, and the observable values of these contracts, which they have no desire to sell, are sitting in the toilet.

The monolines have a slightly good excuse for such complaints, since they're not likely to sell their contracts, and the holders of this protection can't accelerate them under ordinary circumstances (see earlier, ad nauseam for details of when they can. Gretchen's involved here too). They can say, with a certain amount of justification "this is what this contract is going to cost us to term; we're an insurance company, see, only not a massively well-run one, I'll grant you".

Is it fair to allow some writers of CDS to use this treatment? I can see the monolines that make it through the summer alive being fairly grateful for this. I'm sure a lot of banks are buyers rather than sellers of credit default protection, though if anyone has some proper figures for the relative volumes I'd love to know what they are.

But what it's likely to do is allow the writers to make predictions of how the instruments will perform to term, with the hope that the details of these exposures will provide enough detail to allow analysts to keep them honest. And for some writers of this protection (*cough* investment banks*cough*), market values may still be the best way to assess these exposures.

So the previous is my massively uneducated take on the subject. What's interesting here is that Morgenson's assumption is that the captains of finance won't like it. She even seems to reference young Andrew Ross Sorkin's pal diminutive library-namer Stephen Schwarzman, whose complaints have already been grist to my mill of envy. Could it be that what we're seeing instead is an end run?

I'm sure Jack Ciesielski, who's quoted by Morgenson and weighed in on Schwarzman, would be able to clear it up. But I'm too poor and shallow to pay for his insight.

Jeez, Gari, Some More Underinformed Financial Analysis? Why Thank You!

2008-07-03T15:17:00.001-04:00

Thanks, Felix, though it turns out I'm not done yet. I finished last night's far-from-polished rant, headed home to the bosom of my family, and was suddenly afflicted with a bout of insomnia that only a ninth-inning Mets choke would allay.

While watching Pedro Martinez morph into 2008's Mo Vaughn, I came across this post at Calculated Risk that suggested I take a look at this story at Fortune.

The article isn't in very good shape, riven with jargon, repeated phrases and hackneyed expressions ("That bummed out investors who bought the common..."). Since the article now indicates it has been updated, it's possible it's been looked at by a grown-up since last night (Update: No it hasn't). I think the attraction of the article to the CR clientele is its rather ghoulish focus on the post-apocalyptic debris from a Lehman Brothers real estate deal gone bad. (CR's commenters are not quite James Howard Kunstler, about whom more hopefully in a later post, but they get close.)

But I'm really not going to spend another couple of hundred words hating on more famous journalists. Instead, the article's authors give me a chance to explore one of the memes that's going to get more airing as we all digest the credit crunch and its implications. I'll call it the Noble Trader Myth. Fortune's Boyd is a former bond-slinger, and so he's likely to be close to these kinds of sources.

Traders are enormous amounts of fun, combining rapid wit, frequently enormous appetites for food and drink, and often an endearing lack of discretion. They're also incredibly adept at manipulating a narrative. What we'll see in the coming months is a concerted attempt, aided by some of financial journalism's finest, to hail the traders for their foresight during the parade of foolishness leading up to the crisis.

We're going to hear them described as canaries in the coal mine, flinty-eyed realists at odds with the make-believe coming from management. They'll dominate the accounts, much as the mortgage traders (warts and all, I'll grant you) dominated the wonderful Liar's Poker. I recall how often Vince Kaminski cropped up in the Enron post mortems, explaining how his team of analysts (formed, you should remember, to support Enron's trading book) tried to flag up problems at Enron.

Whenever you read these paeans to the cold-eyed realists, remember this one thing: the trading floor is the beast that must be fed. Assets, capital, doesn't matter. The firm's money, other people's money, doesn't matter. Remember FIASCO, still Frank Partnoy's only compelling writing on finance, where the Morgan Stanley trading desk sucked in ever more ludicrous products. Remember Lehman Brothers and Merrill Lynch buying mortgage originators, desperate to find some mortgages to stuff into the maw of the trading floors.

A lot of financial products that could have found a home in the accounts of pension funds, life companies and other private investors were often spun a few times through the various interest rate, credit default, maybe even foreign exchange swap desks even while sitting on the books of the banks that originated them, supposedly hedged out so many myriad times that what was left was essentially inert, risk-free, maybe even cash-like.

Traders are not your friend. Traders are sometimes not even their own friends. Traders are ineradicable. Traders can sometimes be tamed, their energies diverted through cross-subsidies without them getting up and leaving en masse. Goldman Sachs' magic has not been its willingness to countenance trading, but its willingness to muzzle its traders at the slightest sign of trouble.

The above might strike you as a tad melodramatic. If so, I'll gladly blame the pulled pork and summer ale-fest I just departed. But if the financial services end up carrying the can for this mess, we'll have learned nothing from this sorry period. Have a lovely Fourth.

The Polemic Fashioned From Purest Envy

2008-07-02T18:56:00.001-04:00

It's always a good idea not to start a post with "I'm not an accounting expert but...", especially since my digressions into the world of high finance are meant to bolster my skillz as a financial commentator rather than diminish them. Still, after my mixed record on monolines, once more into the breach... and all that. And you know how I do love taking a pop at financial journalists with better gigs than I (90% of them).

It's usually pretty easy to take a more critical look at what Andrew Ross Sorkin's sources are telling him. His fault, and compared to what he's managed to do for the Times' business coverage, it's reasonably minor, is his closeness to his sources on Wall Street.

So, when top wealthy and tiny egomaniac Stephen Schwarzman wants to agitate for some way of making his financial results look better, Sorkin can be relied upon at least to give his point of view an airing. So we get a thousand-odd words on whether banks are being harmed by having their holdings of crappy debt securities marked to market when reporting their financial results, by valuing them according to what these assets would fetch were they to be sold.

We get some of the arguments as to why FAS 157, an accounting rule I'm sure you can google rather than trusting me not to mangle it, was introduced at the wrong time. He brings up somme guy at Citigroup saying that "securities with little or no credit deterioration" are being marked down unfairly during a period of crisis.

Which brings me to the whole "I'm not an accountant" bit. And I'm really not an accountant. Instead I'm going to look back at what happened during my formative financial crisis, the post-Enron collapse. Lots of banks were left holding loans to power companies that started to go horribly wrong in the months following Enron's bankruptcy. Some borrowers defaulted for structural reasons (ratings triggers, problems with their covenants), but others just stopped repaying their debt on time.

In those circumstances, banks took a long look at these deals, saw if there was something they could do to rectify the situation, and if there was likely to be an impairment, took a provision or, alternatively, just sell the damn things. But they were, by-and-large, in the lending business, and sold thee loan because they could, rather than because they should. The ones that didn't sell, as it happen, came out of the period rather well, because the market picked up in about four years.

But its bankers, who are expected to hold on to their terrible loans come what may, who are allowed to talk about credit deterioration, and about how they are expected to get paid back eventually, once everyone's forgotten what the fuss is about. To be honest, monolines are allowed to do this as well, except where derivatives are concerned.

The guys who absolutely not allowed to do this are investment bankers, that troupe of shiny-haired boffins whose main skill is connecting buyers of financial assets to sellers. The gents are absolutely not meant to care about whether they get paid back one day, because by then they'll have landed a sweet gig at a hedge fund, or some charity gig. Maybe get eulogized by Andrew Ross Sorkin.

They mark this crap to market because the entire point of their existence is to sell them to someone else. If they want to talk about credit impairment, and bitch that one day they're going to get paid why are they getting crucified right now, there's a really simple solution. Go and become portfolio at some podunk commercial bank owned by some silvery-haired pair of community pillars (who, ahem, got heavily into condo lending. But that's a stereotype that can get fleshed out another day).

Now, you will point out that several of the banks that are taking hideous write-downs might properly be called mega-banks, strange and loathesome combinations of investment banks and commercial banks, which in the current market are looking a bit like that dog that got caught in the Fly's matter transporter. Some are more convincingly commercial banks than others, and I've got a tad more sympathy for Citigroup, which is taking deposits from fools like myself, than Lehman Brothers or morgan Stanley, which were furiously buying up mortgage originators or sending up token banking operations in lightly-regulated states liken Utah.

If this post is morphing into a paean to the venerable, and now inoperative, Glass-Steagall Act, which separated commercial and investment banking, then so be it. If you want to be in the business of cooking up debt obligations, and you either wish to be bailed out if the process goes wrong, or financial stability demands that you be bailed out if the process goes wrong, then absolutely a horde of regulators should be crawling over your books at all hours. Absolutely some incredibly conservative leverage levels should be applied to your business. Absolutely your masters of the universe should be incredibly boring people in bad ties and spiritual affinities with Germans.

But hey, I'm not accountant.

Slings And Arrows...

2008-06-26T16:27:00.001-04:00

The picture above is a detail from a picture I took last night from my terrace. It depicts Lincolnshire's own Red Arrows flying over New York Harbor. I got a much less detailed view than I'd have liked, meaning that what you see looks somewhat like a prop from Blow Up.

I probably should have made more of an effort to get down to South Beach, Staten Island, which was apparently the best place to watch it, though my opinions of that Borough's beaches are well known.

I could even, at least, have tried to watch it from the promenade in Brooklyn Heights, which probably offered a pretty spiffy view. But alas I was on the phone to my mother in Lincolnshire, the homeland of the Red Arrows, and did not get home until five minutes after their 6.28pm start. My grandparents lived in the next-door village to the on-off headquarters of the Red Arrows, and I used to be a huge plane geek, though never quite a fully-fledged plane spotter.

There's something gloriously old-school about aerial acrobatics, especially in the 19-year-old Hawks flown by the Arrows. In an age when death is meant to arrive silently from the air, and most planes are painted black, there's this air of levity about the Arrows' ostentatious calisthetics that's somewhat jarring.

Shorter Fitch: Looks like MBIA and Ambac are now so screwed that there's little we can achieve by way of revenge. Oh, and heh.

Good Lord More Bad Craziness From The Monolines

2008-06-23T11:35:00.000-04:00

There's a tricky balance going on right now in the monoline bond insurance business. How do you stay in front of the short sellers (or credit default swap buyers, whose opinion of your business prospects is the same as the shorts) without taking moves that will spook the markets? And if you decide to throw money at your reputation, not unlike some opaquely-run state oil company taking space in a "sponsored supplement", only with 50,000 times more money and no advertising commission for 23-year-old graduate trainees, how much is enough?

We had a couple of capital raisings from the big two, MBIA and Ambac, earlier this year. These stock sales, which brought in slightly less than the two hoped, ultimately weren't enough to save their triple-A ratings. FGIC and XL didn't bother, and both are now deeply downgraded. CIFG announced, with great fanfare, an impressively large infusion from its French parents. Wasn't enough.

The two monolines in the best health, Assured Guaranty and FSA, also announced capital raisings, but stressed that this was to pursue business opportunities created by the implosion of the other four. And that worked rather well. Most new municipal and infrastructure finance business has been written by FSA and Assured, with Berkshire Hathaway snapping up a little bit of new business, too.

[Slight digression here. It's weird to observe the talismanic power of Warren Buffett at work in the bond insurance sphere. Without any evidence in support, one comment I read recently announced that with a $400 million raft of business, Buffett had "taken over the industry" (I can't find it, unfortunately). That picture is, um, some way from reality, the hopes of state treasurers notwithstanding]

So, for a while now we had this neat little ordering, with FSA and Assured on top, Berkshire Hathaway as the sprightly new entrant, and MBIA and Ambac sick and old. And then Bill Ackman, scourge of the big two, started buying credit default protection on FSA. Accrued Interest, the blog to which I've linked, wondered what bit of FSA's business he was worried about. We certainly don't get any enlightenment from the Deal Journal piece, a not massively curious greatest hits space-filler.

The post's writer, Heidi Moore, even offers up this little gem, a masterpiece of empty prognostication:

Although Buffett and Ackman haven’t spoken–or so we hear–the comment affirms their mutual economic self-interest in the death of the bond-insurance industry as we know it now.

No Heidi, Buffett and Ackman share the goal of seeing all non-Berkshire Hathaway bond insurers go bankrupt. Moore doesn't bother to say which bits of "as we know it now" will live and die. Maybe she refers to the structured finance bits of their business, or the CDS bit, or the collateralised loan obligations bit, or the bits of the business that might die because of the agencies' mapping municipal ratings to the global scale. I've no idea, and suspect that she doesn't either. Let's just say that Ackman's tongue baths from reporters are getting very Buffett-esque these days.

Still, even a stopped clock, and all that, because something in Ackman's presentation certainly rattled FSA and its owner, Franco-Belgian public finance bank Dexia. From an awesomely tedious and gratuitously colorless press release that FSA put out this morning:

Financial Security Assurance Inc. (FSA), announced today that Dexia will provide a $5 billion committed, unsecured standby line of credit to the Company’s Financial Products (FP) segment, which issues guaranteed investment contracts to municipal issuers and others requiring Triple-A rated deposits. The line will have an initial term of five years and will be renewed as needed thereafter.

To give you an idea of the scale of this backstop, MBIA says it has $16 billion in claims-paying resources, and FSA has just tapped its Franco-Belgian parent for almost a third of this total to prop up its guaranteed investment contract [a way of parking cash, often the proceeds of bond sales, somewhere it will earn a tasty yield but suffer to likelihood of loss of interest or principal] franchise. What's curious about this move, is that its addressing a worry that people had about MBIA's portfolio.

Standard bond insurance caveats: No sign that the insurers can't meet their obligations. There's always the possibility that Moody's lead monoline analyst, Jack Dorer, or his counterpart at S&P will wake up one morning and decide to unleash financial meltdown before breakfast. No idea what the terms of this line of credit are, and under what conditions it might be withdrawn.

But again, $5 billion. For what was until recently an also-ran bond insurer. That had been really conservative, and certainly not encountered the slightest whiff of a downgrade. That, according to this presentation, had GIC commitments to structured finance deals that exceeded its commitments to muni deals. That, of its roughly $19 billion investment portfolio, $13.5 billion is parked in residential mortgage-backed securities, and of those RMBS holdings, almost $8 billion is first lien subprime. Ah. Maybe this was what Ackman was referring to.

Further caveats. I'm sure that the RMBS that FSA has bought is the really fragrant type in the three US markets where the real estate isn't tanking, and on which the structural protections afforded to the insurer are really tough. And the investment portfolio will not be called on all at once.

But I give in. Maybe the monolines' eternal quest for yield will send us to our doom. Maybe it will emerge that Assured has been spending Wilbur Ross' money on MC Hammer-esque fripperies. Maybe the new shape of the monoline business is capturing spread on a small number of muni deals and spending the rest of the day playing golf with the ratings agencies.

But the capacity of the balance sheets of a group of insurers, which I've always maintained are in an easy-to-understand business, to surprise me is truly frightening.

Where's The Fatima Mansions' Cut?

2008-06-20T11:29:00.001-04:00

Why on earth do we always assume that hedge fund managers are the smartest and most devious dudes on the face of the earth? Now, admittedly, the one I'm about to laugh at did lose a bunch of money, and seems to have been so bad as a hedge fund manager that he had to turn his fund into a ponzi scheme. But does the executor of this Reggie Perrin-esque death-faking caper look like the sort of person to which one should be handing over flipping great wodges of cash?

Disgraced fund manager Samuel Israel is assumed to be on the run after failing to turn up to prison as promised and leaving a really unconvincing suicide scene behind. Let's go to the Times for the understated sarcasm, shall we?

Shortly after noon on June 9, Mr. Israel’s abandoned GMC Envoy was found along a shoulder of the Bear Mountain Bridge near the Hudson River with the message “suicide is painless” written in dust on the hood. The keys and a bottle of pills were still in the car.

When Mr. Israel’s body failed to turn up and the message turned out to be the theme song of “M*A*S*H,” authorities began to suspect he was on the run.

What's double super extra ironic about the situation is that the means of Mr. Israel's supposed disappearance mirrors the disappearance of former Manic Street Preachers rhythm guitarist Richie Edwards. The Manics' first top ten hit? A cover of Suicide Is Painless.

Monoline micturations

2008-06-17T23:26:00.004-04:00

OK, so I've been reading what may well be an interesting scoop from the New York Times on the future of the bond insurers. It turns out that they have a huge amount of leverage over insurance regulators because if they become insolvent or are taken over, counterparties on their portfolio of credit default swaps could ask that these be repaid immediately. Or:

MBIA has written $137 billion in swaps, which are privately traded insurance contracts that let people bet on companies’ financial health. Most of these contracts stipulate that if MBIA’s bond insurance unit becomes insolvent or is taken over by state regulators, buyers can demand payment immediately.

This sounds pretty horrible, and I must confess I had always assumed that there were no circumstances under which a counterparty could accelerate on a credit default contract. But what's weird is that the Times could not persuade either the regulator or the monolines to acknowledge that this might be the case. Here's New York's regulator, Eric Dinallo, on the subject:

“It is a concern that possibly if one of the companies filed for rehabilitation or if we move to rehabilitate, the holders of the credit default swaps could move to get preferential treatment,” he said.

"Preferential treatment" is a long way from "all of their CDS comes due right away". Then we get closer to an acknowledgment from MBIA, although it's difficult to say whether they're being evasive and unwilling to discuss insolvency or suggesting that there's a very severe set of circumstances under which the CDS would come due.

The swaps’ acceleration clauses appear to be a factor in this bit of brinksmanship, although MBIA does not advertise their existence. In a presentation about its first-quarter results, for example, MBIA said its “insurance contracts are not subject to acceleration.”

Asked about this discrepancy, MBIA said the presentation language meant that holders of its swaps have no acceleration rights “as long as the company continues to operate in its current manner,” which it believes it will do.

“Fortunately, for us it’s not something that we have to be concerned about,” said Greg Diamond, director of investor relations for the company.

I'm a huge water-carrier for the monolines, and might be making too much of a slight gap in the Times' ability to get the terms of the CDS contracts on record. Or I might be getting to excited over a situation that is, for now, hypothetical. It's interesting, too, to see an article on the monolines that doesn't just approach it from the point of view of their ratings. But the article has a slightly peculiar aftertaste.

[UPDATE: It occurred to me as I was going to sleep - what if the Times had confused credit default swaps written against MBIA, all of which would definitely be accelerated in the event of an insolvency, and CDS written by MBIA, not all of which is distressed, and would only be called if the underlying credit defaulted?]

Moderately Epic Return To The Arena-Blogging Fray

2008-06-16T15:50:00.002-04:00

Yes, there's a whole host of ructions surrounding the financing of stadium projects, and I haven't been around to pontificate. Well I've been busy growing a child-baby, so sue me.

I'll recap the news, very briefly, for you. Stadium projects, as supposed spurs to economic growth, and as occasionally useful bits of civic infrastructure (somewhere between subway stations and libraries, at least in terms of popularity), have often been able to get interest payments on their debt exempt from taxes, through mechanisms too complicated to explain in detail (it's called PILOT, and after hearing some responses to my last few posts on the subject of stadium finance, I've opted against doing so. Someone who can write about it, without making any eyes bleed, is Neil deMause. Go.)

But because they are some distance from being essential bits of civic infrastructure, it's been common for the Internal Revenue Service to keep an eye on how sports teams go about getting tax exemption. What's roiled the hapless Yankee Stadium project, the victim of the fact that Steinbrenner does not know one end of a cinder block from the other, is it bumping into one of the several restrictions that the IRS imposes on such for-profit borrower.

The Yankees want more money to complete their farcical orange-hued disneyland of a ballpark because their Nixon-funding, ship-building, somewhat detached owner doesn't know how to manage a construction project.

[Can I digress for a moment? I watched the entirety of the Mets double-header, listened to an awful amount of speculation about their manager Willie Randolph's job, and wanted to remark again on just how canny the Met's owners, the Wilpons, are. Randolph has been forced to do as well as he can with the old busted line-up inflicted on him by general manager Omar Minaya. Minaya has been awfully good at extending the Mets' appeal, making money from their very own cable channel, SNY and rebranding them as a more dynamic force in the city's baseball (they get a much better shake from the NY Times' sport section these days, for instance). Picking line-ups? Not so much. Randolph is a very unsuitable fall-guy, but then so is Minaya, so the Wilpons keep reminding Minaya that he's welcome to deal with Randolph as he sees fit, and are happy for the fans to think that the Wilpons have their interests at heart. But I'm not convinced they want anything to change, because that would involve flinging money at their farm system, among other financially unpalatable moves[UPDATE: God you're a jackass, Gringcorp. Wilie just got axed. He shouldn't have been]]

The Yankees' woes are important, because among the rules that were adopted since their financing closed are restrictions on total debt size and the relationship between debt service and the nominal tax payments on which (under the current rules) the debt service is said to be predicated. None of them would prevent Bruce Ratner's Nets arena financing happening, and none of them would prevent some kind of tax-exempt financing happening. What might prevent a tax-exempt deal from happening would be some drastic move from the IRS and its congressional overlords to end the practice altogether. Rep Kucinich's growling to the contrary, this looks unlikely.

I am a little disappointed, though, in the way nolandgrab's Lumi spun one of FCR's statements on the project. I think that it is theoretically possible to do a financing for the Nets arena without exempting its bonds from tax on their interest. My main justification for saying this is that the Jets/Giants managed to do it, though I'll grant you their franchises are much stronger than a relocated Nets. If though, I have missed a place where FCR has said that the project cannot go ahead without a tax exemption, I apologise copiously, Lumi.

In any case, if I have any overriding quibble, it's that we're still seeing the financing as this kind of binary, on/off-type creature. FCR is probably intermingling its returns from the various projects at the Vanderbilt Rail Yards site and its surroundings as much as it intermingles the PR. The opportunities for bits of the AY project to cross-subsidise each other, much as bits of a sports teams operations cross-subsidise each other, and bits of wealthy sports teams owners holdings subsidise each other, are legion. Changes to the ways that one component raises financing have subtle knock-on effects on FCR's profits rather than one catastrophic result.

Given that Oder's numbers show the arena project throwing off decent amounts of cash, even under some fairly conservative assumptions, these hikes in debt service costs mostly eat into FCR's returns on the project, or at least the returns of the Nets owners and the stadium's economic owners. With the AY office tower projects, if you don't get anchor tenants, you don;t go ahead. But with the arena, the fact there will be at least some people willing to go to a basketball game, and at least some corporations with a debased enough brand image to want to be associated with such a pastime (you can tell I'm a huuuuge basketball fan) provides you with that kind of cushion.

FCR and its investors have some kind of pain-point, a little like that global nuclear annihilation game in Never Say Never Again. We don't know what it is, and they will try not to give us any idea of where it is. The carrying costs of this portfolio of properties in a gentrifying part of Brooklyn is one factor, chipping away at their debt services subsidies is another. But their willingness to throw up their hands and saunter off in the direction of the real estate industry's equivalent of the blackjack table.

But let me repeat: the financing of Atlantic Yards does not have an on-off switch. Atlantic Yards does. And Ratner's hand is on it. He'll take it off as a result of a multitude of cuts, not just one.

Best. Excuse. For. Not. Posting. Ever

2008-06-04T20:47:00.002-04:00

Apologies for the gap between posts. I was going to come back all insouciantly and post something deep about penitentiaries. But after a conversation with a wise semi-retired mp3 blogger I decided against it. I became a Dad some ten days ago, and the little chap is doing well, though he is rather time-consuming.

His name, should you care, and translated into fake blog style, is Federico Johan N. Corp. He was born in, er, Manhattan. For, er, medical reasons. The first name was indeed enough to get me a free PBR from Matt at Freddy's.

I plan on maintaining a posting volume somewhere between Dope On The Slope and Dooce, and to maintain a quality somewhere far below them. With better tunes.

The Make Up - "We're Having A Baby"
Buy "I Want Some" direct from the label. Spend what you save on A&D lotion

(Pic courtesy of Metal Babies. No, really)

Slick Is Saved

2008-05-23T16:43:00.002-04:00

So, hip-hop pioneer Slick Rick has received a pardon from New York's legally blind playboy governor David Paterson. Coming on the heels of his "I love you Hilary, but you're looking rather ridiculous please please drop out of the race already" pronouncement, it's making me very fond of him.

Why did Paterson decide that it was necessary to overturn Ricky Walters' 1991 attempted murder conviction? Because Rick was in danger of being deported to Great Britain, where he had lived until the age of 11. Now I shouldn't make light of the dislocation that comes from immigration troubles. I've had 'em meself.

But still, one can imagine the petitions that went forth about the perils of a hip-hop legend getting by in England.

Pluses:

Knives, not guns

Music press more easily gulled

Less competition

Minuses:

Credit to the Nation

Grime

Food, culture, climate, dentistry, etc ad nauseam.

With the tie-breaker, being Burial's Untrue. Threat or competition? Either way, will it give him crabs?

Have a good weekend, especially if you are laying down on the banks of the Gowanus, where there will be party music. Oh yes.

Here's A Drunk Non-Haiku For You Halloo

2008-05-18T01:19:00.003-04:00

I've been out drinking tonight, and I have but one question/non-haiku for you all.

What is The Gate doing right that the Union Hall has been doing wrong? Apart from not having anything to do with Gothamist, obviously.

Speaking of reasons for pushing your own truck over, here's the Times on Park Slope. Happy Sunday.

Reconnecting With An Inner Child

2008-05-11T22:57:00.003-04:00

It's been the best part of three weeks. There are reasons for that, some of them satisfactory. Ya know, primaries, job interviews, work, new employees, the Gin Blossoms, severe anger at more successful contemporaries, gestational periods. That sort of thing.

Here's what I noticed this week. Bill Clinton and Father Jack Hackett are converging

Why Louisville Is Not (Quite) Brooklyn

2008-04-22T12:00:00.003-04:00

It's been a while since there has been any arena finance blogging from me, because things have been fairly quiet while the market recovers. Now, up comes a little article from the Business First of Louisville about a forthcoming financing for the Louisville Arena Authority.

It's worth looking at if only because the lead banker on the Louisville Arena, Goldman Sachs' Greg Carey, has also been attached to the Atlantic Yards financing. Here's Mr. Carey, engaging in what is known on Wall Street as "talking your book":

In the past few weeks, conditions have improved dramatically, according to Carey. "The municipal (bond) market has come back with a vengeance," he said.

For those of us that wish the Prospect Heights monstrosity would skulk off and die in the corner, these remarks are true, and a little disquieting, though wishing financial armageddon on anyone is a mean-spirited as wishing ecological armageddon on everyone.

Louisville has effectively taken the old busted bond insurer, Ambac, and replaced it with the new hotness, Assured Guaranty. Assured, a relative newcomer, has an ever-so-slightly better financial strength rating than Ambac, and didn't get involved with all this nasty subprime business. We also learn from an earlier article from elsewhere that the Authority didn't take up a proposal from banks to guarantee the bonds, as happened, for instance, on Ratner's Beekman Tower.

We can't quite make a direct comparison between Louisville and Brooklyn. For one, the age of financial engineering excess is very much in the rear view mirror. The bond insurers, as I think I've mentioned before, want to insure not very risky deals, instead of slightly risky ones, since this is more profitable for them. The details are kind of boring, unless you REALLY FLIPPING LOVE INSURANCE, but the bond insurers have to be much more careful with their guarantees than they have been, since riskier deals require them to set aside more money to meet potential claims than less risky deals.

I don't have any idea what the Louisville Arena Authority is offering up to get its financing sorted. The FAQs are not enormously helpful on this point. According to a 2006 study, the arena is projected to generate $1.1 billion in revenue, and according to the BFL article total cost of meeting the arena's $360 million financing is $600 million. This would apparently largely be met through revenues from college ports games.

We know that the state of Kentucky is kicking in $75 million in cash towards the project, thought it expects to be repaid with interest, and has probably offered the arena both a tax-exempt bond allocation and possible tax breaks, though it's possible that as a university arena it might be exempt anyway (I know much too little about the taxation of non-profits).

But as far as I can tell from this Word document (sorry mac users), the state is going to support the bonds by dedicating tax revenues to the arena's repayment, a pretty high quality revenue stream. So, because Kentucky's debt rating is much higher than a standalone Nets stadium is going to be, the stadium will be much more attractive to the remaining bond insurers than the Nets.

But, doodz, there's still everything to play for, as they used to say during the rugby on a Saturday afternoon. And I think you'll agree, after seeing the picture above, that it's comforting that another new arena development has come forward with a design that is uglier than Gehry's vision for Brooklyn.

Papal Suspension of Disbelief

2008-04-16T12:53:00.000-04:00

I was loitering around on the subway platform at Dekalb Avenue after seeing Mrs. Cutesome onto a D train. Out of the D game a young Orthodox Jewish gentleman who sneezed. I said "bless you", and then I wondered whether I should have done so. He didn't seem to mind, but one legacy of living in in a country with historically very few non-Christians is to not think too much about it.

I mention this only because NY1 has gone completely Pope-crazy. I guess that since its three main anchors are called Kiernan, Shaughnessy and Torre this might not strike you as too surprising. Well it won't if you're as prejudiced as I am.

Anyway, any clueless goyim that claim the Jews control the media should ask whether the arrival of the Chief Rabbi of Jerusalem (Ashkenazi or Sephardic, take your pick) would cause any New York news networks to redecorate their sets and dispatch their transit reporters to Washington DC for rather nebulous reasons.

There is something exotic about seeing the world's second-biggest theocrat appear on your soil, and since the biggest, the Ayatollah Ali Khamenei has little pressing business on the steps of St Pats, we're unlikely to see bigger. But do we really need to hold everything to cover the man's perambulations, given that more than a few of us have a religious background that has been at odds with Papalism (not that there's anything right with that)?

Sheldon Silver would have been wise to have decided to use this week to kill congestion pricing in New york, given that NY1's ace transit reporter, Bobby Cuza, is presently in DC pondering the mysteries of the Pope bobblehead doll.

Here's Jon Stewart being sane about it:

Gallagher's Glories

2008-04-15T21:04:00.002-04:00

It's one of my favourite phrases: "like a cage match between Pol Pot and General Pinochet", the idea being that at least one villain is going to get their just deserts after a little entertainment. So what do we make of the latest outburst from tired and irrelevant Dadrock icon Noel Gallagher about the poor ticket sales at this year's Glastonbury Festival? He blames none other than the choice of Jay Z, hip-hop impresario, boycotter of fine champagne, and part owner of the "Brooklyn" Nets, the team that would very much like to despoil his old 'hood with the aid of gallons of subsidies.

"Sorry, but Jay-Z? F***ing no chance. Glastonbury has a tradition of guitar music, do you know what I mean? Even when they throw the odd curveball in on a Sunday night and you go, Kylie Minogue? Don't know about that."

I will avoid the suggestion that the curse of Bruce Ratner travels as far as lovely Somerset, and say only that the collision of two pop icons, each so malign in his own way, is a rather gratifying spectacle.

Thing is, indie music fans really are quite racist. The New Musical Express has figures for the newsstand sales of all of their covers featuring recording artists of colour, and they're not pretty. The most charitable explanation I have is that they don't think that "American Gangster" has erased the memory of that terrible deployment of the Public Enemy horn sample

Built Tough

2008-04-15T15:19:00.000-04:00

It's fairly common in New York to feel that the city's other baseball team, the Mets, don't get enough respect. There's the trashy Long Island fan base, the relative lack of visibility in Manhattan, the pitiful number of pennants.

But I'd just like to have on record how much better they've handled the whole new stadium thing than the Yankees.

Firstly, they persuaded Citibank to help underwrite the cost of the new stadium. It might be mean, it might be corporate, and it might get rid of the name forever associated with getting the Beatles out of the live music game. But it brought in money, and the owners of the Mets, the Wilpons might even spend some of that on player salaries.

Secondly, they built the new stadium in their own parking lot. Don't get me wrong, there were plenty of freebie infrastructure improvements and tax subsidies thrown in. But the Mets didn't pave over anyone's park, or knock down anyone's bar, like that meanie Ratner wants to do. I will note, though, that the new stadium seems to be the spur for a rash of rather dubious eminent domain action.

Thirdly, they financed the stadium with plain vanilla fixed-rate bonds. Given the crazy things that have happened to the financial products the other stadium builders have used (the Giants, the Yankees), the Mets financing stood up pretty well.

Fourthly, they've managed the construction of the stadium much better. Probably because the Wilpons are real estate developers by trade.

And I can't help but suspect that were they to have encountered the same preposterous buried shirt palaver that the Yankees just dealt with they wouldn't have spent $30,000 digging it up and admitting how scared they were of a construction worker's prank. These are people who traded a perfectly serviceable pitcher because they thought his wife was crazy. They're not scared of arsey bricklayers.

Anyhoo, the Yankees suck, and not just because they're owned by a decrepit shipbuilding magnate.

Horses During Courses

2008-04-13T23:06:00.003-04:00

Limey readers need not linger on this post too long, but if you've ever been curious about why I flipping love drinking so much, and have so little patience for wanky bars, then the Times provides the reason: The mighty pubs of Oxford. The author wisely skips some of the high street hell-holes (except for the ho-hum Wheatsheaf), but is much too charitable towards the Kings Arms (bait for some rather unpleasant individuals), and unforgivably omits the White Horse. Still, it provided five minutes of welcome nostalgia. Take a look

Too Big To Fail

2008-04-13T23:05:00.000-04:00

On Thursday I was scanning the second part of the interview with the anonymous hedge fund manager in n+1 (It's a very fun read, if you have the time). An exchnage between the despondent manager and the interviewer about the collapse of Bear Stearns really caught my eye:

n+1: Wouldn’t it have been better to let them go bankrupt?

HFM: And let their counterparties face the music? Maybe, but the parlous condition of the financial system as a whole I think persuaded the Fed that this is not the time to experiment and see how interconnected the system has become.

With this passage I finally realised what has been bugging me about this financial rescue effort. Why didn't this happen to Enron?

Now I'm going to go through a few differences and similarities, and before I do that I'm going to make myself very clear: there has been no evidence of any criminal wrongdoing at Bear Stearns, and I believe that there was plenty at Enron.

I'm more curious about how much the two meant to their respective industries, and I want to make a stab at what the likely effects of Enron's collapse were on the wider economy.

You will recall that when Enron was going bust, caught in a vicious cycle of pulled liquidity lines, ratings downgrades, and yes, financial results that finally reflected reality, there was no talk whatsoever of bailing them out. Not from friend of management George W. Bush, not from energy regulators, not from futures regulators. It's always been a difficult detail to square with the caricature of an administration in thrall to the energy industry.

But Enron was pretty essential to the then-nascent businesses of gas and electricity trading, It was pretty-much single-handedly making markets in electricity trading, for good or for bad, as the poor residents of California discovered, when their electricity bills were at the mercy of Enron's Houston-based power traders.

The sums of money involved in electricity trading were pretty inconsequential, but Enron's bankruptcy, combined with the reckless over-building of power plants, ratings agency clampdown on industry participants, and pushback from local utilities, set back the deregulation of the power industry in the US permanently. It also led to billions in losses at banks that were involved in the sector, and at shareholders in Enron and its clones.

With Bear Stearns, certainly, the sums involved were much larger. But Bear was not the only actor in the markets in which it operated, and its misfortunes seem to echo those of Enron, in that its inability to access liquidity was a big factor in its collapse.

The cynic in me says that one big difference between Bear and Enron was the presence of Hank Paulson in the cabinet, a former investment banker with an outsized faith in the importance of the financial services industry. Moreover, when even the New York Times has an in-house investment banking apologist, public opinion can be swung behind a rescue quickly. Enron's followers included such mainstream publications as Platt's Global Power Report and Argus.

I guess deep down I know that the criminality and the California power crisis probably doomed Enron. Bear Stearns was a group of good old Wall Street boys playing crazy leverage games with other people's money. But if we want to look at the intersection of public policy and business failures, Enron's collapse, while more the case of the dog that didn't bark, was probably more interesting.

Manhattan In Still Centre of the Universe Shocker

2008-04-07T15:43:00.001-04:00

More frivolity of a busy Monday morning. It's been commonplace the last few years to decry London's gaining on New York in terms of cultural clout and opportunities for conspicuous consumption. And that is without even taking account of how little Brits care for such baubles.

But if there's one measurement of a city's wealth that can't be gamed, its the prices charged by its ladies of the night. Today brings us a datapoint that illustrates the difference nicely.

On 13 February, Eliot Spitzer arranged for a Manhattan-based call-girl to schlep down for an assignation in Washington DC, no doubt because the nation's capital did not measure up in the eyes of such a seasoned whoremonger. He paid around $4,300 for the privilege, a sum Wonkette decries as a little extravagant.

On 30 March, the News of the World reported that Max Mosley, a fascist scion who really should have known better, engaged in a Nazi-tinged orgy with five prostitutes in a Chelsea dungeon. The price? $5000.

So for the price of one fragrant New Jersey-bred high-end prostitute on the New York market, one can afford FIVE whip-wielding minxes in London. I'm sure that there are a number of reasons for this disparity, not the least of which is the difference between the, um, services rendered. My preferred explanation is that the Russians are not working the same wonders on the whore market that they achieved on the property market.

So put that in your AIM and smoke it. Looks like Sebastian Horsley, producer of the quite literally seminal "Sebastian Horsley's Guide To Whoring" missed out on reaching the pinnacle of his profession when he was denied a visa at Newark Airport.

If the NYC prostitution market is the equivalent of cooking in the 3-Michelin star restaurants of Paris, then poor Sebastian is still toiling away in the back of the Barnetby Top Little Chef

The 'Mats. Slang For the Replacements. Swag For Marty's Wife

2008-04-04T15:58:00.002-04:00

Sorry, work bad = blogging bad. May I just take a moment to tell you how classy Marty Markowitz' wife is?

Marty Markowitz. Making Michael Bloomberg look like George Washington since 2001.

Well, We Have The Other Bloomberg's Attention

2008-04-01T14:24:00.000-04:00

This is a little frustrating, because I'm in the middle of examining some of these issues for the day job. But if you want to get an idea of what stadium borrowers confront, you can do a lot worse than take a look at this article from Bloomberg.

In it, we discover that several stadiums with auction rate debt service liabilities are facing quite disgusting hikes in their debt service costs. This is because auction rate bonds rely on investors bidding at set intervals, through a dutch auction, how much interest they would like to receive and how many bonds they would like to buy. When no-one bids enough to cover the amount of debt outstanding, the auction fails, and the interest rate on the bonds jacks up to some ludicrous number like 20%, which encourages the borrower to refinance the debt pretty damn quickly, and compensates the buyer for the fact that they can't sell out of the bonds whenever they like. A longer, and pretty reliable, description, at wikipedia.

Auction rate bonds have been used on quite a few stadium deals, as the article illuminates. The Jets/Giants bonds, for instance, are hurting right now, since some of them are now carrying interest rates, says Bloomberg, of 11-20% (at issue, these are usually carrying rates of just under 5%). There are a mixture of reasons for auctions failing, including general risk aversion, the refusal of brokers and investment banks to support the auctions by buying excess bonds, and the difficulties of the bond insurers, which guarantee a fair proportion of these bonds. Some of these insurers are now very low-rated, so low-rated that 11% is almost a fair interest rate to ask for in on their bonds.

The Bloomberg article tends to concentrate on stadiums in smaller sports markets, those where TV rights and luxury boxes are not going to meet debt service, and states and their sports authorities will have to provide some kind of support for the debt. In these markets, team owners are able to strike a very good bargain when getting financing for their stadiums, because the projects often represent the only chance at large-scale development that the city will attract. Now, when auction rates reset to punitive levels, states have to carry the can.

Atlantic Yards is a little different. Government support is, to the best of our knowledge, confined to comparatively small cash contributions, eminent domain, sweetheart deals and so forth. There's no question of government providing credit support for private projects, though there's no reason why it couldn't. The Bloomberg article is a tad confusing, since it does not distinguish between stadiums where a state-owned entity is the nominal borrower (as it will be for the Nets Arena, and as one has to be for the borrower's interest payments to be exempt from tax) but the state does not provide credit support for the bonds, and stadiums where the state is the nominal and economic owner, and shares the risks of ownership.

If the luxury seat sales looked very disappointing or Barclays reneged then Ratner might try to cobble together some state support, though I do not think he will get very far. The eminent domain, cash and free infrastructure improvements are the price that some of Ratner's political supporters think are necessary to get the jobs and affordable housing. Adding $1 billion in debt to government balance sheet(s), even if it doesn't come in the form of hinky bonds that reset to usurious interest rates, makes them nervous.

But it's part of the background noise, no doubt. If investors are nursing wounds because of other stadium bond investments, then this is going to push up the premium they expect to charge for the Atlantic Yards debt, and no amount of gussying it up with monoline insurance and other bits of financial engineering is going to change that.

I'd be fascinated to know which "sports consultant" has been lined up to provide the underwriters, banks, and ratings agencies with the requisite study that shows that of course moving a basketball team from New Jersey to Brooklyn will be hassle-free. If Ratner can't find corporate buyers for his luxury boxes, and his lack of success with finding anchor tenants for Miss Brooklyn is hardly reassuring, expect everything to change.

Classy

2008-03-24T22:33:00.001-04:00

I spent today going through the business plans of bond insurers - for profit (well, a paycheck) rather than fun. So I didn't have time to go through the State funding agreement for the Atlantic Yards project. Well, early bird, and all that, because Norman Oder got the most interesting news out of the agreement, which was that there is a deadline for the developer to get his buildings up, but it's pretty lenient, and the clock doesn't appear to start ticking till the project reaches financial close.

The remaining details, of what exactly the state and developer are on the hook for, are pretty well-known to the Atlantic Yarderati. This agreement did not cover the overall financing of the project, and the spaces where the project costs would go have been left blank, probably because they haven't been settled yet. My interest was briefly roused by the guarantee agreement from Forest City Ratner's corporate parent, Forest City Enterprises, to the state, but this seems to just cover the phase one infrastructure, rather than the stadium or anything else at the site.

Quick note from Mrs. Cutesome, who has a lovely eye for matters legal (well, a lovely everything), but less interest than I in spending a Sunday going through funding agreements. Quite a few of the subclauses in the agreement have been struck out, with only [intentionally deleted] remaining to let us know they were ever there. According to her, any decent law firm would have moved the clauses up to replace the deleted ones, and gone through the rest of the document making damn sure the loose ends were tied up. And who were the city and state using for the work? Only top Wall Street law firms Skadden Arps and Fried Frank. Poor show, chaps. Still, if you can't trust Wachtell Lipton not to bodge the bank rescue of the decade who can you trust?

Still, I didn't mean to obsess about the arena today. I was much more perturbed by the sight of our useless gutless ward-heeler of a Borough President Marty Markowitz on the TV this morning. And he wasn't propping up a spurious news item, either. No, he was in a commercial.

The commercial was for the Dine In Brooklyn festival, which starts this week. It's actually one of the few initiatives of his for which I hope he does not endure time in purgatory, even if it is stolen from a more comprehensive, and better-supported Manhattan version. Neighborhood standards are more evident than the newer restaurants, but it's still a good way to sample some new places. It's on this week.

But why, in the name of crap did Markowitz decide to spend someone's money on low-budget and unappealing commercials featuring his leaden delivery and sh1t-eating grin? Oh, wait, I know why, it's because it's a little over a year before the democrats decide which eminently forgettable functionary they put up against the republicans. Markowitz figures a few cut-priced slots might put him over the top.

Where have we seen this before? Oh that's right, those NY tourism adverts that ex-governor Pataki made but which seemed to enjoy suspiciously heavy play within the state. California, at least, has a celebrity for a governor, and seems to be prepared to spend money where the tourists might be.

Markowitz already has form in less-than-clean fundraising practices. Good to see he's also working on the dubious campaign expenditures angle too.

On Gesture Politics

2008-03-23T12:21:00.002-04:00

As promised, a quick look at Ed Koch and his new book, The Koch Papers: My Fight Against Anti-Semitism. I can't recommend this book as highly, because I haven't read it, though I think it would give you a couple of interesting insights into US policy towards Israel in the 1970s and 1980s.

The book's most interesting tidbit, at least according to the talk between Koch and his editor, Rafael Medoff, at the Princeton Club on Wednesday, is that his source for the news that James Baker had uttered the phrase "F*** the Jews. They didn't vote for us anyway" was Jack Kemp, say the authors. And Koch is plenty exercised that neither Baker, nor his boss, George Bush the First, were not more upfront about what happened.*

Koch was in a mood to settle scores. He was graceful about Bush Senior, who allowed Koch to reprint a letter about the affair that does not reflect completely well on him. He described Woody Allen's refusal to let him reprint a letter, where Allen acknowledges that anti-Semitism might have a following in France, as "despicable" (you can read an exchange between the two here). Not the sleeping with the step daughter bit, which took place a year or two after Koch appeared in one of his films. Just so it's clear.

We also got Koch's thoughts on the Jeremiah Wright flap. You've probably read all about the thoughtful and well-reasoned speech from Obama on his relationship with Wright, and the how relations between African-Americans and Whites have to be viewed through decades of history. As part of it, Obama compared, and didn't quite make equivalent, the thoughts of Wright on America (short version: given America's lousy foreign policy and race record I say God Damn America) and his white grandmother's fear of black teenagers on the street.

As far as Koch is concerned, the more important equivalency is between Obama's grandmother and Jesse Jackson, who voiced similar sentiments in the 1980s, and thus blessed fear of young black males during the 80s. Which gives you an idea of Koch's worldview - public consciousness as shaped by a few well-placed leaders.

As far as Koch was concerned, Obama's point, that both Wright's and his grandmother's views (and Jackson's, for that matter) are the product of the difficult co-existence to which America's races have settled down in the years since civil rights, are irrelevant. This is gesture politics as the means and the end. Koch, for instance, talks of his work in allowing men convicted of possession felonies under the Rockefeller drugs laws to overlook them in job applications, and of the damage that the laws have wreaked on families and communities affected by drugs. But he's only really interested in explaining how him and Al Sharpton bonded over the process.

Koch is not just the product of New York City politics, since as his book recounts, he spent a fair amount of time strutting his stuff on the national stage. But the quotable, affable, less-than-managerial Koch was ideally suited to staying on top in City politics. Bloomberg, of course, is pretty much the opposite, while Giuliani, who had an almost pathological addiction to public gestures, no matter how destructive, nonetheless decided to highlight his managerial competence in his mayoral, and later a national, campaigns.

Is Koch history, or a decent guide to what the city's democrats might throw up if left unmolested? I don''t know. But can't you see something of the Koch playbook, minus the sharp one-liners, in Marty Markowitz' inelegant mugging? I'm just sayin'.

*This sentence originally erroneously ascribed the remark to Kemp, rather than named Kemp as Koch's source. Apologies to Kemp, and the authors.

And Then There Was One

2008-03-21T11:42:00.001-04:00

Well, it was printed in the Times so it must be true. Bruce Ratner has indicated to that the Atlantic Yards project just consists of a basketball arena, for the time-being. This is stunning. Ratner's expertise lies in building commercial space and then filling it with tenants he recruits through government and society connections. Got that? Ugly offices with public tenants. Not hoops.

What's irritating about the development is that there are very few people that object to some kind of housing being built in that spot. Not Develop Don't Destroy, not ACORE. A lot of us had assumed that the arena was an excuse for Broooooce to build some more of his signature ugly skyscrapers, but the man seems set on going ahead with the arena, with construction set to start by the end of the year.

The reason for the delay is pretty straightforward. The CMBS market has seized up, and construction lenders are reassessing their commitment to speculative office buildings in untried locations (Prospect Heights not being a white-collar hub right now). Actually, the CMBS issue is probably not a factor, since the debt would not be refinanced in that market for a good few years, I'm guessing.

Once we factor in the rumoured difficulties in finding enough tax-exempt capacity for the affordable housing element, and the looming condo glut on Fourth Avenue (I'm not saying it's going to pressure prices, just that there are a hell of a lot of units down here), it's evident that Ratner's crunch-related slowdown is not a head-fake. I guess one way to test this thesis would be to see if Extell's bid is still on the table.

So, where does this leave the arena? I'm glad to be proved right in my (definitely private, possibly public) predictions that the cost of the arena was going to get very close to $1 billion. I'm less happy to learn that Ratner still thinks he can make a go of moving a basketball team to Brooklyn.

The financing picture is beginning to look trickier. First bit of good news for the developer - the bond insurers are still open. The bad news is that they're not that interested right now in the more speculative end of the market (that just above what the agencies describe as speculative grade, and what the rest of us call junk). The ones that are still standing are raking in high premiums for turning silver bonds into gold, rather than bronze into gold, which is a business that is a little more capital intensive.

The alternative would be to turn to the banks to finance the arena, rather than the bond market. They've done this before, but interest on bank loans would not, as far as I know, be exempt from tax. The Times article suggests that if the arena loses its allocation of tax exempt bonds this might push up the "cost" of the arena. This is a little misleading. It won't push up the construction cost of the arena (in fact, banks might demand a less expensive set of insurance contracts for the contractors on the arena), and the upfront fees from banks and Goldman Sachs, as bond underwriter, would not be appreciably different.

But it would increase the debt burden on the project hugely, so much that Ratner, as team owner, would see even less of a return on his investment in the team because he's having to devote a higher proportion of team revenues to servicing the arena debt. I'm doubtful that the arena could go ahead with a bond financing without the bond insurers, unless Goldman can scare up a very highly-rated alternative insurer (Buffett?).

Right now Ratner's sitting on some sites with some serious potential in a gentrifying neighbourhood. Assuming that the area's demographics keep moving in the same direction despite a recession (a big if), he'll eventually see a return, though I can't help but think a Boymelgreen/Newswalk-type job on Ward's Bakery would have made him more money. The arena though is looking edgy. I'm sure he's too discreet to be shopping the team that publicly, but he'd be crazy not to look into it.

Biscuits For Smut

2008-03-21T10:52:00.003-04:00

In response to the commenter on the post below who suspected that Horsely could somehow have engineered his own deportation, I bring you this: A NYT story on immigration officials demanding sex for green cards. Like I said, the good news is that immigration officials are very difficult to manipulate, but the bad news is, they are very difficult to manipulate.

“I’ve got good news and bad news. The good news is, they all know about the book. The bad news is, they all know about the book.”

2008-03-20T16:29:00.004-04:00

So, I managed to go from a complete book-launch virgin to a seasoned old hand, and all it took was an evening out in Manhattan. The second launch was at the urging of a friend that handles the author's publicity in the UK, while the first was an initiative of Mrs. Cutesome. I'm going to handle the second one first because the first, a signing event for The Ed Koch Papers sparked a more complicated set of observations.

The second was mostly a chance to drink some alcohol, the more so when it became apparent that the author himself would not be able to make it. This was the US launch of Dandy in The Underworld, the memoir of Sebastian Horsley, reformed addict, unrepentant whoremonger, and possessor of a quite gigantic top hat. As you can read here, here and here, he didn't make it to the party.

Mr. Horsley was apparently traipsing through US immigration with the aforesaid gigantic hat and a needlessly shiny suit when an intrepid member of the US Bureau of Citizenship and Immigration Services asked him what his business in the US would be. They may even have tried to elicit some biographical details from him. The Feds then proceeded to google the fellow.

My first assumption upon hearing that he had been deported from Newark International for "moral turpitude" was that this was a quite awesome hoax, which says something about my respect for the deviousness of his publicity people. My second was that he chose to embellish a more mundane immigration snafu, one that has entrapped even drones such as myself several times before now.

But no. The BCIS decided that confessing to criminal behaviour and whoring, even while not having a criminal record for same, was enough to pitch him back into the welcoming arms of British Airways. I'm still scratching my head as to why the publishers had him fly into Newark. I can't help but think that the boys at JFK would have waved him through, with all the freaky boys from Latin America, in a second. In Jersey, I'm afraid, they find all of this flamboyancy a little distressing.

I have, unfortunately, missed most of the obvious takeaways. Gawker noted that this was a very strange time to be barring a whoring expert from New York, while the New York Times went off on a rather long-winded exploration of how frequently these memoirs tend to be made up (quite a lot as it happens). The Guardian leads with the deportation being a sign of increasing intolerance on the part of the US authorities.

It wasn't. It was a bored and cranky immigration agent. One of the little-understood elements of the US immigration service is how much latitude their agents have in dealing with cases that are presented to them at the window. There is a rulebook for agents to follow, and some days they're into it more hardcore than others. That's about it.

So not that I have an enormous number of parties to compare this one to, except Ed Koch's rantings at the Princeton Club, but this one was OK. I didn't know anyone there, and only talked to the bar staff, a couple of polite but reserved people in the absinthe queue and, very briefly, Horsley's publisher Carrie Kania.

At the party we got a statement from Kania (who is not named, you will not be surprised to learn, after the planetary system from Escape Velocity), which eerily echoed a statement from his UK publishers, and a statement from Horsley, read out by a gentleman called ~~John~~Robert Pereno [thanks, Observer], whose full name I did not catch~~, and whose identity blogging permits me not to ascertain~~.

He was backed by a guy who looked a little like a thinner and more grizzled version of Warlock from the Young Ones, who was playing a guitar fashioned from a Castrol GTX tin. The reason for this musical angle is that Horsley named his memoir after T-Rex' last album, a well-regarded 1977 return to form, released a mere six months before singer Marc Bolan's death. The songs were much less immediate than T-Rex early stuff, but the sleeve cover alone makes it clear why Horsley loves the album so much. You can see echoes of it on the cover of the book.

Which doesn't quite explain why Horsley's high representative decided to sing the title over and over in the style of David Bowie. But then I'm just an unpaid, and very bad, fanzine music writer, rather than a publishing type.

Still, I got a free book, and for that alone, and in an attempt to buoy the fortunes of both his publishers, I urge you to buy it. I had a start at reading the book on the subway back, head swimming in cheap pinot (score one, by the way, for Mayor Koch. His booze was fine), and the first forty pages reminded me of nothing so much as a slightly more lurid and histrionic version of Clive James' Unreliable Memoirs.

The style narrowly skirts being epigrammmatic, while Horsley skirts being self-pitying. So far the author's almost self-deprecating, or at least not afraid to highlight his faults, which is not the same thing at all, I suppose. I'm curious enough after the taster to see how the whoring and drugs turns out, although the childhood section sets up the later debasement with an inevitability that Karl Marx, or Edward Gibbon for that matter, would appreciate.

I don't think I'm really that interested in whether Horsley is, in the words of the Telegraph reviewer, a "tosser" or not. I'm not sure Horsely would see it as his life mission to get everyone to like him. I certainly struggle to see what evidence the Telgraph's Roger Lewis has for Horsley being deeply square deep down, apart from wishful thinking. Still, since poor Mr. Lewis manages to muff a biographical detail that appears on page 3, I''m not sure what Horsley's critical reception in the UK has to say to us at all.

Still, Horsley does fascinate us (everyone, apparently, apart from a features editor of my acquaintance, who said "he just sounds British"), and while we may be upset that such a slim resume as Horsley's can account for such attention, there's no doubt that New york would have been a more colourful place with him around.

RIPs In the Fabric Of Space Time

2008-03-18T19:13:00.002-04:00

Arthur C. Clarke, Anthony Minghella, and Captain Birds Eye. I suspect that dinner at Jesus' gaff will be fun tonight. Except for Clarke denying the proceedings are happening, obviously.

I Might Be Wrong. What Of It?

2008-03-14T14:55:00.000-04:00

OK, well maybe Paterson is less inclined to support scammy mega-developments than I'd previously assumed. It looks like we have a genuine foe of eminent domain in the Governor's mansion, just as Spitzer was probably less friendly to the monolines than I'd earlier asserted. But I'll double down my bet here: I still think Atlantic Yards' Brooklyn Democrat/ACORN/dubious grassroots groups/Bloomberg/real estate interests coalition is durable. And I think Paterson, even after passing the budget will have bigger things to take down than Ratner's folly, awful value-for-money though it is.

On another note, did anyone else watch watch top Spitzer-enemy Joe Bruno's solemn "my thoughts are with the family" TV appearance this morning? You know how sometimes people are described as smiling using only their eyes? Yeah, he was doing that.

Bear Depressingly

2008-03-14T12:58:00.001-04:00

I'm starting to get really conflicted about this credit meltdown business. On the one hand, boom times for financial services providers essentially underpin my income. On the other hand, I've had such awesomely bad experiences talking to investment bankers, as compared to their clients, that I'm slightly cheered every time one of them inches closer to the abyss. The exception is probably the financial services megastore that holds my money (hint, not the conservative European ones).

Take this morning's developments. Bear Stearns is having appalling problems accessing ready cash, and has just become the recipient of its very own bailout. Am I wondering about the future of intermediaries in credit markets, the similarities to Northern Rock, what this says about the bottom of the market, and the future of the US consumer lifestyle?

No, I'm wandering back to the rudeness of a guy in fixed income in London a year or so back and smiling. God I'm a nasty person. Is there a name for this syndrome? It's fair to say I'm not alone. To take the opposite example, Jim Cramer should, by all accounts, be cheering at the downfall of Wall Street's nemesis, Eliot Spitzer, but he's a friend of the family, and sincerely upset and bewildered by what happened to his buddy.

Who says markets don't run on emotion?

Interesting, amid all the speculation about what will happen to Bear, that there has not been any fresh speculation about who might take it over. Deal Journal had a gander at the question last November, positing that fast-growing hedge funds wanting to expand their infrastructure might take a bite.

Of course, there's always a European or even Gulf bank wanting to make another disastrous US foray. But things are looking so hairy, and so many fingers have been burnt by this mess, it's hard to work out if anyone would be able to close this deal.

Follow The Money

2008-03-13T17:31:00.002-04:00

Hey, my evening just opened up, because the Canadian buggers and their New York-based henchmen have been unable to fix my baby. Unfortunately it will probably be spent buying paint and calling Hong Kong-based CFOs.

Still, I do pause briefly to advert your attention to this from Slate. I always find the recklessly provocative Slate to be a good way of easing myself back into the blogging lark, sort of like digital Radox.

The headline screams "Did Eliot Spitzer get caught because he didn't spend enough on prostitutes?" It's a chance for the writer, sociaologist Sudhir Venkatesh, to revisit his research into the city's sex workers. It's an interesting read, highlighting one of the many weird and wonderful aspects of the Great New York City Clean-Up.

The author looks at the three tiers of home-based high-end sex workers, with the top tier serving essentially as polyamorous mistresses to millionaires. Spitzer, the apparent cheapskate, was stuck in the bottom tier, presumably my virtue of his unwillingness to contribute directly to Ms. Dupre's housing costs.

But it seems to me that the author is buying in to some of the mystique of the high-end prostitution industry, that discretion on the part of the service provider is the key to staying out of trouble:

They're also less likely to be targeted by cops, social workers, or clergy, all of whom work to get street-based prostitutes out of the profession.

Here's the thing. It wasn't the Emperor's Club that got Spitzer into trouble. It was Spitzer's sloshing around vast sums of money to pay for his ho habit. You can check out the timeline at Talking Points Memo.

Now was it the fact that Spitzer was paying so much money to a business rather than an individual that triggered the investigation, or was it the way he tried to stagger the payments? Either way, it seems that the risk was all to Emperor's Club for having such a high-profile client, rather than the other way round. In that respect, having an associate pick up whoever was still hanging around the Holland Tunnel may have been a better strategy.

Fish in a barrel...

In unrelated news, a twisted, rather incoherent, and premature eulogy to Magnetic Field is up at Sugarzine. Written on the plane at the same time as the much-linked earlier Spitzer post.

TTFN Eliot

2008-03-12T00:11:00.000-04:00

Greetings from Miami, where it's warm, and orange figures in blue blazers stalk the night spots of South Beach. And two beers and a scotch will set you back $38. Ouch.

I've been slipping in and out of a conference yesterday and today, so it was only through the ministrations of the Times-reloading Mrs Cutesome, that I learned of the admission of New York's governor, Eliot Spitzer, that he'd done something, on the same day as prosecutors were letting us know they had the dirt on Spitzer's visit to Ladies of the Night.

I ain't gonna say I'm not disappointed. More than a few people have noted that Spitzer was one of that small number of people (as opposed to events) that frightened Wall Street people, and anyone who's experienced the sharp end of financial types' hubris couldn't help but cheer him on.

Then there is my nagging sense that he was the last great hope of reformers to Albany, New York's funny-looking and disfunctional state capital. If you were perplexed at the iron grip that Shelly Silver (D-Downtown pork) and Joe Bruno (R-Upstate Pork) held on state government, the prospect of Spitzer, in his arrogant and inelegant way, threatening to upset their cozy existence was very exciting.

But New York's pool of dynamic political talent is shallow, as evidenced by Marty Markowitz leading the pack of Democratic mayoral contenders. It's with not a little sadness that I suspect that we won't see the like of the chinny little whore-hopper again.

So what happens to two of my obsessions: bond insurers and the Atlantic Yards project? Well, Mr Norman Oder has done the most dignified attempt to discuss what happens to the Ratner boondoggle. Short answer is: no idea.

Ratner's development plan was a text-book example of how to exploit political inertia, with a secretive approvals process, targeted panders and fake grassroots support. Spitzer, in theory, could have upset that, though the evidence is that AY was not a huge concern of his. It was, after all, real estate money that gave Spitzer his taste for the high life.

Unless Spitzer's replacement turns out to have the animus and personality to take down the cozy consensus around the project, or Letitia James gets appointed Tyrant of Brooklyn (Tish the Tyrant! Give Me Liberty or Give Me Tish!), I can't see how much a political solution can accomplish right now. It's easy to criticize the AY opponents for taking a judicial approach to challenging the project, rather than becoming more active politically. But the lack of attention to the project following the ascent of self-styled reformer Spitzer to the governorship shows how unlikely a politically-driven shift is.

The bond insurers is another issue. It's interesting to note that when Spitzer was dallying with courtesans at the Mayflower hotel in DC, he was in town to testify about bond insurance. Spitzer's attempt to refloat the bond insurers can be viewed as one of several attempts to make nice with the financial services industry. A couple of short-sellers aside, most of Wall Street has an interest in keeping the monolines, a reliable conduit to the pockets of retail investors, open for business,

It's not as if Spitzer's departure is likely to end efforts to rescue the bond insurers, and it could be that the role of New York state's government in the effort has already been superceded. But while the Spitzer/Dinallo wrangling was designed to deal with continuing issuer access to market rather than protect investors, stabilising the market is an area where the interests of the two coincide.

Leadership of the effort is already shifting, in particular to California. But California has an almost innate distrust of the financial services industry. Any investment banks that are currently cheering the downfall of their nemesis should remember that moment when Bill Lockyer manages to get their monolines dismembered.

I have, it must be said, a truly appalling track record in growing fond of mouthy, hyperkinetic pols that flame out of office in lurid scandals (see also one McGreevey, James). Spitzer's sex-downfall I will recover from. I can't help but think, though, that the city's moneyed interests will miss having a real estate scion in charge. Anyone with an interest in stopping moneyed vandals from hollowing out neighbourhoods? Not so much.

The Hidden Depths of the Vader Clan

2008-03-03T21:17:00.002-05:00

Sorry to come back to the land of the living with such a short and whimsical post, but I hope that a shift to a slightly less punishing schedule will allow me to be a little more consistent in the future. If it's any consolation I haven't done much commenting anywhere, except a few at Market Movers, where I was mostly getting exercised about bond insurers.

Still, one delightful detail jumped out from an article that Mr. Salmon linked to in the Wall Street Journal on sawdust shortages.

"Robert Vader of Fair Grove, Mo., buys scores of bags of fluffy pine shavings a month for his business, called Vader's Bunnies and Pets"

Would you buy a bunny from a man called Vader? I couldn't help but worrying that my bunny would be encouraging me to give into my anger the whole time, and destroying Alderaan (yes, I know, it was Grand Moff Tarkin, but, well, you know). So here's a run down of the Vader clan:

Darth: Sith lord. Dark side practitioner. Destroyer of worlds
Robert: Sells bunnies
Jeff: Well.....

At Least It's Not A Ginger

2008-02-17T17:40:00.002-05:00

Garfield's On Fourth
Originally uploaded by Gringcorp.

The last few weekends I've been taunted by a phantasm as I gaze out of my apartment's window. Down on Fourth Avenue a brightly-lit sign appears sporting the moniker "Garfield's".

It was first pointed out to me two weeks back by guests at our Superbowl party. I saw it, but by the next morning when it was time to trudge down to the Union Street R train station it was gone, locked up behind heavy metal shutters. I wondered for a while whether it was one of the sleepy social clubs of Gowanus, opening up at erratic hours for a dwindling clientèle, though the bright lights seemed to dispel that notion.

Waddling back from Cocotte [UPDATE: We should now be calling it the erstwhile Cocotte] on Friday, I saw it again, and this time I was at street level. It would be mine. Moreover, there was a gaggle of people outside, and loud music coming from within. Abandoning Mrs Cutesome to the vicissitudes of my building's lobby I strode over to report.

I encountered there a man and a woman smoking cigarettes, who stared at me with an air of amusement, and informed me that the restaurant would be open in a month's time. They did not venture any more information about cuisine, the owner, and whether it would cater much to cab drivers.

From a peek inside I saw a lot of bare wood, moderately dim lighting and a lot of space. It reminded me of nothing so much as La Villa, so I'm expecting an unpretentious family joint to sprout up in the space forthwith.

It is, I guess, a pleasant sign that people are still trying to bring businesses to the stretch, although Fourth Avenue, like Vanderbilt Avenue in Prospect Heights, has a little too much car traffic and a little too little foot traffic to turn into a bustling restaurant row. I guess the guys moving into all those condos right on Fourth will be happy to see it happen, though I think the owner will need lot of patience while the new buildings fill up.

I'm doubting, though, it's going to appeal to the Sheep Station/Pacific Standard crowd.

The Not So Secret Real Estate Conspiracy

2008-02-10T09:37:00.001-05:00

He's right, of course, though the value of the statement, coming from a billionaire, is not that high. And would Mr. Bloomberg really like immensely rich people to stop meddling in the city's affairs? No, he just wants them to stop doing it through the city's Democratic hacks. Again, I don't disagree with the premise that the Democrats are a uniquely useless, let alone uniquely useless instruments of rich men's wills.

It's the crunch, stupid

2008-01-29T19:13:00.001-05:00

Well, if there's one way to drag me back to blogging it's a welter of news stories that show precious little understanding of the nature of stadium or municipal finance. Oh, did I mention that these relate to the Atlantic Yards that project, which has been smashing through, though not obliterating, legal challenges like some ugly subsidy-drunk godzilla? Well, that would be bait for good old Gari's muse.

There's been a lot of ink spilt in the last 24 hours in response to an assertion, in a Forest City Ratner legal affidavit, that a drawn-out legal challenge may expose the project to ever-worsening debt market conditions, and jeopardise its future. You may read a reasonable summary of the news at the New York Times.

The most interesting line of the affidavit is item 8, where FCR's V-P finance notes the problems that lenders and monoline insurers are facing in the current credit environment. It's an admission that most of the advances in stadium financing techniques have been directed towards the public bond markets.

The reason I say this is that many years ago, a sports team typically went to a large-ish bank with experience financing large and complex infrastructure projects to finance its stadium. It would be an essentially private affair, with the bank working out whether the ticket, TV, or even parking revenues were enough to justify the market, and taxable interest rates it could charge to the borrower. It wasn't what you'd call a liquid market, but it tended to function, and most of the teams seemed to be able to get a bigger stadium out of the process should they desire.

What happened when these stadiums became treated as bits of essential public infrastructure (with all the debatable claptrap about them being engines of economic development) was that they began to be eligible for tax-exempt treatment. Holders of bonds financing sports arenas stopped having to pay tax on the interest income, and the opportunities for financial engineering became much more interesting.

I don't necessarily mean "financial engineering" as some strange and scary repackaging of payment obligations, a la subprime mortgage origination. I mean a variety of little twists and tricks designed to allow team owners to shave bits and pieces from their repayment obligations.

the most obvious of these is the use of monoline bond insurance. I don't have the time or the inclination to explain bond insurance in detail, but its premise is that bond markets do not necessary charge a reasonable rate of interest, and that for a fee that is less than the excess rate that that the bond markets charge they will guarantee your bonds. The holders of these bonds are now basically relying on the bond insurer for payment if something happens to the stadium, and get a pretty low rate of interest based on what the presumed risk of the bond insurer is.

Why don't the bond markets get the interest rate right on stadium projects? Well, there aren't that many of them, they all have different qualities, and anyway, maybe the bond markets got it right, the monolines got it wrong, and you're just getting a lower interest rate because of their mistake. There's a pretty small number of investment bankers, ratings agencies, and bond insurers who know how these deals works, and they all get great seats at sporting events. All of the recent NY area stadium deals - Yankees, Mets and Jets/Giants - used bond insurance.

Problem is, this system got all f***ed up. In another part of the market, for the insurance of bonds backed by subprime mortgages, the bond insurers priced risk pretty bloody badly, so monolines are now teetering on the verge of bankruptcy. Not only are bonds with a monoline guarantee now viewed as much more risky, and thus have a higher interest rate, but any financing might have to go ahead without any insurance at all, at which point lord knows what interest rate you'll get.

These projects are already pretty highly leveraged - the Jets and Giants ownership put in precisely zero in equity capital towards their stadium, though they did sign over a decent chunk of their gate revenue in return for a loan from the NFL. FCR will probably be able to count the money and time it's spent on the project to date in lieu as part of its equity contribution. The Nets may even need to sign over a lot more of the team revenues towards the repayment of the bonds.

Now Ratner has, it pains me to say, in Goldman Sachs one of the best practitioners of the new style of stadium financing around. Read what they did with the Yankees financing and try not to get cross-eyed.

But for all the preceding we have no idea what Goldman has up its sleeves for the detail, and what revenue streams Ratner has given them to play with. Let's assume that all the kinky swaps and insurance policies are to be found at a decent price.

Ratner's still got a fair amount of headroom, because he's not really in the sports ownership game. He's in the real estate game, where your cost of capital is, once you've got the politicians onside, the name of the game. Fling every single source of revenue, right down to the Barclays naming cash and the beer concession fees from the Brooklyn Brewery (you want to help out, right Hindy?) at repaying the bonds and you might get a fairly reasonable rate on your debt.

Be interesting to see whether he could ditch Goldman go back to a regular old bank, in the circumstances, though I suspect the legal challenges would need to be settled before they moved too. But it would get done, on substantially worse terms and at greater cost to FCR's balance sheet.

So I'm not entirely calling bullsh1t on the affidavit, though I think that a stadium deal this size might have already lost its chance to repeat the terms that the other NY teams got. Ratner must have been working on the alternatives ever since the real estate market turned south and his office-condo mix looked shaky. I'm not sure there's anything about the "now' that would justify the affidavit.

But then I'm biased.

First Horseman of the Apocalypse

2008-01-11T12:55:00.000-05:00

So, children, not only is Brooklyn Borough President Marty Markowitz very close to announcing a run for mayor, but the poor twerps at Gothamist are proclaiming that "Mayor Marty Markowitz Does Have a Nice Ring to It". I'm sorry, I shouldn't call the Gothamist people twerps. They're good people, they just have no idea how awful Markowitz is.

See he's not just playing a bluff, crass, shallow media personality, to compensate for the fact that the Brooklyn Borough President has no power, he actually is a shallow media hound. He's one of the most intellectually lightweight pols that the New York Democratic party has ever vomited forth. According to, um, wikipedia, he "spent over two decades as a New York State Senator for Brooklyn. During his time as a state senator, he was known for creating a series of oceanfront concerts and other festivals rather than drafting legislation."

I've spoken to more than one person familiar with the Borough's politics, and their verdict is that the man has very limited gifts, and little head for the economic and social issues that are going to roil the Borough in the coming years. To be honest, I don't think the man shouldn't be mayor because he's been a proponent of the Atlantic Yards. I don't think he should be mayor because his support for the project shows how he's able to ignore the social, environmental, economic and cultural effects of the project because of some weird fixation on a 1950s egg-cream vision of what Brooklyn could be.

Markowitz has demonstrated a flair for edgy fundraising practices, getting his picture taken, and cuddling up to real estate developers. That's it. He hasn't been slumming as Borough President, he's been forced to raise his game, and at the first sign of trouble he's been exposed as vindictive, inarticulate and petty.

But I want to be constructive, and so may i suggest that the man may have a use back in the state senate. The state senate has been in Republican hands for years, and is thus in a good position to block any useful legislation that percolates through the cesspit that is Albany. But it could tip towards the Democrats in the next few years.

Particularly vulnerable is Bay Ridge senator Marty Golden, who took his seat from a Democrat in 2002. Marty's schtick is well-suited to the electorate of Bay Ridge, and I say that not out of a lack of respect for their mental faculties but because present-day Bay Ridge is probably the only part of Brooklyn that slightly resembles the 50s Brooklyn playing in Marty's head.

There's a pleasing symmetry to the idea of Marty taking the guy down, since he came into his job as Borough President after one Howard Golden (no relation, far as I can tell) retired. After returning to the senate, he can do as he's f***ing told by Spitzer, and never come back down from Albany again.

I'm not really too worried about the man becoming mayor, since he'd lose to pretty much any Republican that can string a sentence together. He would be further proof that the city's Democrats are incapable of presenting a candidate for mayor we could vote for without wincing. If I had the vote I'd pull the lever for Roger Stone before him.

Which brings me to a more general point about these New York mayor shenanigans. It's an important job, don't get me wrong, but the selection process is all f***ed up. First you've got the democratic primary, which is a little pitched battle between various venal mini-machines, and then you have the general election, where the Republican candidate, who has spent the time working out how to be appealing to electors rather than working out which democratic club can cough up the most fundraising dollars, stomps the Dem.

It's sort of a mystery to me how Mike Bloomberg and Rudy Guiliani, the two most recent Republican mayors, have convinced themselves that the natural additional media attention they get for being mayor of New York somehow equates to electoral catnip. Both won pretty handsome re-elections, and both assembled a pretty good record in the city (I'll leave the debate over whether the economy achieved the same effect to one side).

But both of them have only won election campaigns against the New York City Democratic party. I can't stress enough how important this is. The city's Democrats long since gave up on concentrating on electability, deciding instead to devote their energies to dividing the spoils that an overwhelmingly left-leaning electorate dumps in its lap every single election time. Beating the Democrats isn't so much a proof of electability as proof that you can at least comb your hair in the morning and talk like you managed to finish high school.

Give Markowitz anything more taxing to do than attend a high school graduation and you'll be quite aware of this too. Apologies for the rant, but if he gets nominated I'll start scouring the New Jersey real estate listings, and if he's elected I'm outta here.

[UPDATE: Since buying a place to live I'd largely stopped visiting Brownstoner, and had been given to think the quality of its commenting had declined rapidly. Not so. Some good stuff on Marty's record in the Borough here]

Young Gods, Old Country

2008-01-09T18:56:00.000-05:00

Waiting for some day job news articles to post (our publishing software is amusingly bad), before scooting off to fetch Mrs. Cutesome some scallops. I will, as I am known to do, post a link to my most recent Sugarzine column.

I really wasn't intending to do it, what with Sugarzine turning into a Queens fanzine and all that. But then I recalled, very dimly, that I'd been to a gig when I was in London. Very wasted, but yes, I thought that would do. It's not as if being too drunk to remember the song titles has ever been a bar to serious music criticism. And the editor asked very nicely.

So there you have it. Swiss industrial metal. From a drunk man. Nice.

Arc Of The Somnambulant

2008-01-02T18:32:00.000-05:00

So, I'd ended 2008 with a promise to post more frequently, and succeeded only in trolling for comments from My Hot Wife.

I've been lucky today, since along comes an interesting little article from that old dependable, Slate. In it, Mr. Brendan Koerner takes a look at plasma arc gasification (PAG).

So what is PAG? Well, the pat answer is that it's a cool-sounding big-ticket piece of kit designed to part a fast-growing county's tax-payers from their dollars. I am, though, being a mite unfair, since not a huge amount is known about the technology's limits. It could be the future, or it could be a less sensible use of precious tax-exempt bond capacity than just building a new prison.

The technology involves using electricity to heat up garbage to an enormously high temperature, creating synthetic gas, mostly inert slag, and a couple of nasty by-products, including heavy metals (no not the cool kind) and some other gases, of which probably the least malign is carbon monoxide.

It's fairly easy to filter out the nasty metals, and some of the gases, or at least it's possible. But the long-term performance of PAG equipments, given the temperatures at which they operate, is difficult to predict.

You also might have noticed I mentioned something called synthetic gas in the second to last paragraph. This is the key. The idea behind the PAG technology is that you burn this gas to generate the electricity used to heat the garbage, and so forth, in a virtuous circle.

But we have absolutely no idea how efficient this process is meant to be. This is a shame, because this is the only way we can judge what the total environmental benefits could be. If the technology is self-sustaining, there's no definitive statement I can find to this effect.

The Slate article gives us to understand that the biggest obstacles to the technology's adoption are the problems of disposing with the other byproducts of the process. I'm not convinced. It's telling that PAG has been extensively marketed to communities that for one reason or another are done with trying to plonk their garbage in landfills.

The environmental benefits may be there, although there's going to be some carbon emissions from PAG. But it's better - at least in environmental terms - than just burning trash, and is a quicker solution than trapping methane from landfills, which can take years.

It's sort of a mirror image to coal-to-liquids projects, which have gained some acceptance in the US as oil prices stayed high, and the US wakes up to the fact that it has much more coal than oil. The problem, though, is that the process, which takes coal, and turns it into something that can run in diesel petrol engines, emits hideous amounts of carbon, maybe 1.8x as much as ordinary petrol.

But in both cases the cost-benefit analysis is nowhere near advanced enough to justify a raid on the municipal kitty, no matter how connected the developers can be.

Janus: Sucky Funds, Sucky Symbolism

2007-12-31T20:30:00.000-05:00

I always hated those Janus ads. Here was this huge, if slightly over-exposed to tech, mutual fund manager warbling about how it went behind the back of the companies it invested in, rather than, you know, telling them where to get off, like any decent major shareholder should. The whole thing reeked of material non-public information wheedling, and that sort of thing is now very forbidden.

Plus, I hated their logo. I know the idea was that as investment managers they should be both forward and backward-looking. I just remember thinking that it was a quite brazen way of saying how two-faced they were. Still, I also hate the concept when applied to calendar years, if only because there's often so little to be gained from dwelling on my recent experieince.

2007 was a slightly disappointing year, if only because I let posting volumes slip quite dramatically, and failed in my long-held goal of finding a new job. Next year, I think, will be better. On to some predictions and resolutions.

First, the resolutions, in no particular order:

1) Obtain the piece of high-end audio equipment that has been the locus of several obsessions and the cause of at least two questionable freelance engagements.
2) Find more varied and stimulating freelance engagements, especially if I cannot;
3) Get a new job.
4) Get the constitutionals back to thrice weekly
5) cut down on the porklife
6) Be nicer to colleagues.
7) Stop buying records first hand, without resorting to piracy
8) Cure the cat
9) Deal with a life-changing event in an elegant fashion
10) Oh crap, renew the domain name.
11) Call the bluddy plumber already.

Now the predictions

1) Industrial music will make a strong comeback. The last Ministry album was good, Trent Reznor is now sober enough to serve as an elder statesman, and the economy and technology are now in its favour. There are now no bands available, but there will be, possibly repurposed emo crews.
2) US House prices will decline. There is simply too much land, and too little wages.
3) The UK pound will decline, possibly by as much as the dollar. This is a combined prayer and prediction.
4) Sovereign wealth funds will face as much criticism at home as from their investment targets.
5) Obama has it. The VP is Kerry
6) Clive Owen and Damon Albarn will both experience re-backlashes
7) Finch from American Pie will make an indie classic (he's the new Andrew McCarthy, but with a better shot at redemption)
8) I will not move house. But my living space will undergo several radical reconfigurations.
9) Blu-Ray
10) There will be no Brooklyn Whole Foods unless a condo building rescues the concept.
11) Mrs. Cutesome gets prettier.

Seriously, here's a fervent prayer to 2008 not being too sucky.

A Very Aaron Sorkin Christmas

2007-12-27T18:12:00.000-05:00

It wasn't like I decided to hand over my festive season to the writing genius behind A Few Good Men and the West Wing (the second of which I have never seen). It just happened that way. I won't bother to recap Mr. Sorkin's career, since any information I lay out here would be cribbed from the previously-linked wikipedia article.

But it's kinda interesting that the guy's done maybe three big movies, two plays and two television shows and I've nevertheless been immersed in his work for an entire holiday weekend. What you get from the experience is some very zippy dialogue, some rather hamfisted commentary, and a lot of swearing (did I mention I had my mother-in-law in tow? NICE).

The Farnsworth Invention was meant to be a screenplay and it shows. Lots of costume changes and set changes, and an avalanche of facts and anecdotes. Really quite fun, especially if, like me, you're given to confuse great art with the elegant conveyance of vast amounts of information

There's slightly less swearing in this one, and Hank Azaria's Dave Sarnoff is salty enough to give you the impression he's doing it much more. I can't say that the performances were amazingly amazing, though it's only fair to point out just how many characters some of the cast have to take on.

The script takes a few liberties with the storyline (alright, the storyline as presented on wikipedia and here), though there's a knowing exchange halfway through the first act where, in a very similar fashion to 24 Hour Party People, we're asked not to place too much reliance on people's memories.

Young Philo Farnsworth, the inventor protagonist, seems to have come out better from the events than the play might suggest. Sure, he didn't end up owning television, but he did pretty well by it, and aside from a teensy drinking problem, does not seem to have made the missteps that might cast him as a true tragic hero. Still, if you're looking for a rollicking intellectual property yarn on Broadway, the play doesn't do half badly.

Charlie Wilson's War I liked much more, because the story was a little more straightforward, if no doubt simplified, and the swearing and wisecracking became part of the point of the film. Why on earth did we entrust the fate of a small Asian country to a gang of good-time boys, renegade CIA agents and religious fanatics? Why did so few of the protagonists seem disinclined to think of their involvement more clearly?

Well probably because they saw it as a chance to make some zippy points and call in some favours. Sorkin's nicest touch, as he can't help but point out, is to make the bloodthirsty General Zia the most dignified character. It's particularly poignant on the day that Benazir Bhutto, the daughter of his most famous victim, was herself assassinated. There's a lot of condemnation, but, conspicuously, no real plan on how ton confront the craziness coming out of Pakistan.

The dark drama has lent the movie a context that Sorkin left to his viewers' imagination. He's one lucky screenwriter, and it's only fair, since Farnsworth was almost a victim of the stage-hands' strike.

Yeah, A Bit Like Wot Rowan Williams Said

2007-12-25T01:21:00.000-05:00

Good morning and Merry Christmas, to those of you of the Christian persuasion and still inclined to check here daily. There, I just described the world's most pitiful venn diagram.

I am just returned from a intense carol-singing prayer-frenzy at the local Anglican shop, too weary to dwell on the theme of the vicar's sermon ("The peace of god which passes all understanding"), and a little dazed from the copious incense fumes.

So what was I up to? Weeell...there was the phase in England, with two highlights, and one runner-up. Then there was this brief and underpopulated Friday in work.

And next year there will be: starting to think again, maybe.

Stoner Rock and Peacey Hip-Hop

2007-12-06T19:30:00.000-05:00

Still, busy, and unlikely to be able to relax until the end of the month. You see above the view from my hotel in Sao Paulo, which was far from distinguished, though the hotel was pretty good for the price. The city? The eating was good, and it was fun having sushi with the bass-player from Spearhead one night, but I was unable to find much beauty amid the traffic and miasma of meetings. My bad, mostly.

It's been a while since I posted a link to a Sugarzine column, which is a shame, because that's now a huge proportion of my posting volume. The reason for the delay is a rejig of the site to make it more focused on Queens, which I think is a noble and sensible direction, given how much Brooklyn hogs the city's cultural limelight.

It means though, that since I only set foot in Queens about twice a year, and am very bad and meeting the other writers, that my contribution to the site may become more limited. So, here's a horribly dated column on the fine stoner rock band Weedeater, who stood me up the other night in the East Village. It may be my last.

The Number Of The Beast? £4.7 billion.

2007-11-28T16:20:00.000-05:00

I've been busy working on a couple of paid commissions, so you will have to excuse my poor track record of posting recently.

I'm back to you with a small observation about the meltdown in financial markets and the end of private equity's Golden Age.

The thing is, a lot of these deals did get done on emotion rather than cold-eyed business sense. Here's Exhibit A, the purchase of EMI Music by private equity fund manager Guy Hands' Terra Firma.

Hands has always had a following in the press out of proportion to the amount of deals he gets done. It's partly his knack of going after high profile targets (including, for a while, much of the UK's independent public house stock), and partly because he's a friendly, approachable human being.

He used to have a gift for finding sources of revenue, and thus things to raise debt against, that eluded other fund managers, and made him a bunch of money at Nomura, a smallish Japanese bank.

Hands was unusually open about how he did his work, because it frequently involved moving quickly and spotting opportunities rather than the dreary and secretive world of beating better financing terms out of his lenders. He was on pretty good terms with the trade press. I remember a colleague pointing out that Hands was an absolutely huge metal fan, particularly Judas Priest and Iron Maiden.

I don't think my colleague was alone in knowing this information, though I can't find any references from a cursory googling. But it certainly didn't come up when he moved to EMI, and I didn't recall it until I heard how much he was struggling to deal with the purchase (ya know, buying a company whose industry is disintegrating). The deal has apparently consumed his attention and is creating a state of panic at Terra Firma HQ.

So why would Hands embark on such a quixotic project? Answer: EMI has released, since 1980 and 2006, pretty much every single Iron Maiden album ever recorded. The Sex Pistols might have hated EMI, but Eddie liked them just fine. The Priest, mind you, were on CBS.

Fun With Photoshop For Easily Amused But Frazzled Imbeciles

2007-11-12T20:56:00.000-05:00

Posting been rubbish, since I've been entertaining disloyal proposals and trying to moonlight. The following LOLcat, courtesy of the always reliable I Can Has Cheezburger, had me giggling for much of today:

I'd be remiss if I did not draw your attention to the fact that everyone's favourite left-field mp3 blogger, Miguel, will be appearing in person this Wednesday at Heather's on East 13th between Avenue A and Avenue B, in New York's very own East Village (for some very complicated reasons, I think calling it Alphabet City has gone out of fashion). You will get to meet him in person. I might even stop by for a Red Stripe or two as well.

Rare As Tardust?

2007-11-05T21:14:00.000-05:00

So today was the first time I participated in one of these new-fangled digital pricing experiments. Well, beyond signing up to eMusic, which I found to be an intriguing yet frustrating beast.

It's been easy for a few years to pay a set amount of money directly to an artist for the pleasure of listening to his music. You can so so at the merch stand at gigs, or through myspace, or you can pay his scally friends for a rip-off version (the Happy Mondays business model).

What we're seeing now are the firs attempts from artists to ask how much we want them to make a living from recorded music, as opposed to gigs and whatnot. So first we had Radiohead asking fans too pay what they felt like for their new album "In Rainbows" (subject to the credit card minimum). Word is they've done OK, if not spectacularly, from the venture. The band is likely to release the stupid thing as a CD anyway.

Which brings me back to my college days. My little friends waited till midnight outside the HMV in Oxford for the release of Radiohead's "Ok computer," and I joined them because that took care of most of my college's alcoholic contingent. I went in at midnight... and bought Spiritualized's "Ladies And Gentlemen We Are Floating in Space" instead. I don't regret it one bit. That album has made me cry a few times, while hearing Karma Police again tends to make me irritable.

I got to repeat the contrary behaviour this week, when K-Pax actor Saul Williams released his new album "Niggy Tardust" either for free (low-res mp3s) or for $5 for the high-def ones. I paid the $5 cos I'm about to drop $10 for a much more fleeting exposure to Weedeater in an hour. Plus, I like Saul Williams' style.

Williams' experiment probably isn't a good way to measure how honest people are. The album's producer is one Trent Reznor, of Nine Inch Nails fame, and quite a few people have been confused enough to give it a listen on that basis. Plus, Williams is a bit of an acquired taste, if rather good live.

The album's reasonably accessible, even including a cover of U2's Sunday Bloody Sunday, and some snippets of Public Enemy and reggae. It might make people go back and pay up for the higher-quality ones, though I suspect that Williams won't entirely get the listeners he expected. Still, it's a worthy, and interesting, listen. We'll have to see whether they end up shopping it to a label anyway.

Good Morning Brooklijnders, I'm Not That Oiled

2007-11-03T02:26:00.000-04:00

What do investment banking, talk radio and the Mets' bullpen have in common?

VERY SHALLOW POOLS OF TALENT.

Night.