Archive for December, 2006|Monthly archive page

Rapacious Capital Again

This article suggests how the buyout scam depending on rapid flipping requires ignorant investors to be left holding the bag.

I discussed the flipping in the earlier Rapacious Capital post.

Ng, Serena. 2006. “Buyout Bonanza Compels Firms To Pile On Debt.”

Wall Street Journal (27 December): p. C 1.

“Harrah’s last Tuesday accepted a $17.1 billion buyout offer from Texas Pacific Group and Apollo Management that would involve the casino operator’s taking on around $10 billion in new debt, nearly doubling down on $10.7 billion in existing obligations. Harrah’s, which generates around $2.5 billion in cash flow each year, will end up with total debt that is more than eight times that amount, a ratio “that is high by any standard,” says Adam Cohen, an analyst at debt-research firm CreditSights. Analysts look closely at a company’s ratio of debt to cash flow — as measured by operating earnings before charges like interest, tax, depreciation and amortization — for a sense of whether it is taking on more debt than it can handle.”

“Private-equity investors — which make money by buying control of companies in the hopes of cashing out through a stock offering or outright sale — have been emboldened by low interest rates and generous credit markets. They are pushing companies further out on a limb in the process. In some cases, this gives their newly private companies little breathing room to execute growth plans and stay afloat were economic and market conditions to turn sour. In many cases, companies will need to devote at least half their yearly cash flow to meeting interest payments on their debt.”

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Brookings, Lee Hamilton, and the Obscenity of Respectability

I was just reviewing an article on the British Petroleum refinery that killed 15 people in 2005. A panel reviewed by James Baker III is making a study of the accident.

People like Baker are always on panels certifying respectability where none is merited. I am more appalled by the “liberal” representatives in this world of respectable certification. How many times has Lee Hamilton been there to give cover for evil doers? Recall Iran Contra where he seemed to be in charge of heading off danger for Ronald Reagan? It was just that rogue colonel.

What is the main purpose of the Brookings Institution to give the “liberal” side of controversy. Charles Schultze was the economic version of Lee Hamilton firmly protecting the public against any trespassing into the forbidden regions of economic policy.

Milton Friedman, Ronald Reagan — and Rumsfeld?

391: “I believe that Reagan made a mistake when he chose Bush as his vice-presidential candidate — indeed, I regard it as the worst decision not only of his campaign but of his presidency. My favorite candidate was Donald Rumsfeld. Had he been chosen, I believe he would have succeeded Reagan as president and the sorry Bush-Clinton period would never have occurred.”

Friedman, Milton and Rose Friedman. 1998. Two Lucky People: Memoirs (Chicago: University of Chicago Press): p. 391.

(Private) Big Brother Trolls the Internet

IP Bots roam the Internet searching for malfeasance. Just imagine if such efforts were directed for social goods.

Delaney, Kevin J. 2006. “Copyright Tool Will Scan Web For Violations.” Wall Street Journal (18 December): p. B 1.

“Privately held Attributor Corp. of Redwood City, Calif., has begun testing a system to scan the billions of pages on the Web for clients’ audio, video, images and text — potentially making it easier for owners to request that Web sites take content down or provide payment for its use. The start-up, which was founded last year and has been in “stealth” mode, is emerging into the public eye today, at a time when some media and entertainment companies’ frustration with difficulties identifying infringing uses of their content online is increasing. The problem has intensified with the proliferation and increasing usage of sites such as Google Inc.’s YouTube, which lets consumers post video clips.”

Coercion in the Tire Industry

Maybe it is not a good idea to coerce tire workers. Here is a short section from my new book — The Next Great Depression — the title is still in flux — regarding the work of Krueger and Mas on the bitter Firestone strike:

Krueger and Mas traced the consequences of the Firestone strike, which the company initiated by making harsh demands on its workers:

Bridgestone/Firestone proposed deviating from the industrywide pattern bargain by moving from an eight‑ to a 12‑hour shift that would rotate between days and nights, as well as cutting pay for new hires by 30 percent. Almost immediately after 4,200 workers walked out on strike, the company hired replacement workers. A final contract, which included provisions to recall all strikers, was not settled until December 1996. [Krueger and Mas 2004, p. 254]

Following a rash of highway fatalities, the company recalled 15 million tires. These economists cleverly pieced together the effects of the strike with the subsequent deaths from defective Firestone tires. The economists were able to take advantage of a particular circumstance:

Almost all the P235 tires were produced in three plants: Decatur, Illinois; Joliette, Quebec; and Wilson, North Carolina. For nearly three years‑from April 1994 to December 1996 ‑‑ union workers at the Decatur plant either were on strike or were working without a contract; tires were produced by 1,048 replacement workers, union members who crossed the picket line, management, and recalled strikers in this period. The Wilson plant was nonunion, so it did not experience a strike. A Canadian union represents the Joliette plant, but labor relations there were much less contentious. Joliette had a six‑month strike over fringe benefits at the end of 1995, but the plant did not hire replacement workers (which are illegal in Quebec). [Krueger and Mas 2004, pp. 255‑56]

Based on claims for compensation for property damage or personal injuries due to faulty tires, Krueger and Mas discovered that tires from Decatur produced during the labor strife were 15 times more likely to have a defect than tires from the company’s other plants. This large discrepancy in failure rates does not appear in other years, although the rate for the 1993 was about double that of the other two plants (Krueger and Mas 1994, p. 265). They estimate that 40 people died in crashes as a result of a strike with which they had no direct connection.

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Bringing the War on Terror to the Shop Floor?

Simon, Bernard. 2006. “US Army Might Break Goodyear Strike.” Financial Times (15 December): p. 1.

“The US Army is considering measures to force striking workers back to their jobs at a Goodyear Tire & Rubber plant in Kansas in the face of a looming shortage of tyres for Humvee trucks and other military equipment used in Iraq and Afghanistan.”

“The main issues in dispute are the company’s plans to close a unionised plant in Texas, and a proposal for workers to shoulder future increases in healthcare costs.”

“According to Duncan Hunter, chairman of the House of Representatives armed services committee, the strike has cut output of Humvee tyres by about 35 per cent. Mr Hunter said that the army had stopped supplying tyres to units not related to the Central Command, which is responsible for operations in Iraq and Afghanistan. Tyres were also not being provided to army repair depots. While concern has centred on the Humvees, tyres are also critical to aircraft and other military equipment.”

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How real is this problem?

Bale, Joanna. 2006. “Health Fears Lead Schools to Dismantle Wireless Networks.” London Times (20 November).,,591-2461748,00.html

“Parents and teachers are forcing some schools to dismantle wireless computer networks amid fears that they could damage children’s health.  More schools are putting transmitters in classrooms to give pupils wireless access from laptops to the school computer network and the internet.”

Government for (Artificial) People

Shades of Dick Cheney’s energy committee? Does this sound as outrageous to you as it does to me?

Dunbar, John. 2006. “FCC Briefing for Investors, Not the Public.” Associated Press (30 November).

“With federal regulators deadlocked on what may prove to be the largest telecommunications merger in history, news about progress on the deal has become scarce and highly coveted. So the small group of clients of Banc of America Securities LLC were privileged Wednesday to get an exclusive briefing from top-ranking staff of the Federal Communications Commission at a hotel a block away from agency headquarters. The meeting was described as “timely” in a brief item in Communications Daily, the telecommunications industry newsletter, with “topics including the AT&T/BellSouth merger and net neutrality pending at the Commission”.”

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