For a New Thrift: Confronting the Debt Culture

Op-Ed Columnist - David Brooks - The Great Seduction by Debt - Op-Ed - NYTimes.com -- David Brooks on Ben Franklin, and then the past 30 years--a "must read." Succinct. Concise. Well phrased.

Keywords & keyphrases: Benjamin Franklin, hard work, temperance, frugality, industrious, ambitions, living for the moment, decadent, moral guardians, debt culture, the lottery class, value shift, consequences.

Note the enumeration of the agents of destruction.

Key in distress, and here comes Cleveland to the rescue

For banks, it pays off to reinvest in the city--As you saw a few days ago, Richard Cordray began taking KeyBank to task for putting its interests ahead of those of the rest of us. Well, lo and behold, here comes Key's champion to the rescue, taking money out of the other banks and shifting it over to KeyBank.

Cleveland stripped millions of dollars in deposits from National City and Charter One banks on Tuesday, citing the lenders for not doing enough to help city residents and businesses.

I wonder how those "city-assigned" rankings were determined. From the article, it appears that a few other people are wondering that, too. I wish Sharon Dumas, the finance director for the city, were more forthcoming with details. For instance, I think bank ratings and overall financials would play a huge part in the selection of a place for our community deposits, but I don't see that mentioned anywhere. One of the criteria, having a lot of branches in the city, might be a sign of bad management and too much overhead, for instance, and I haven't noticed the rates at KeyBank on consumer loans being any more competitive than those anywhere else. Did they identify and then count in the check-cashing storefronts with relationships to KeyCorp, and assess a penalty for parasitic activity?

Also, where is the mention of foreclosure rates and amounts here? I know Key has moved aggressively to cover its own assets in our neighborhood. Is there a foreclosure offset or penalty calculated in?

Is there any talk of what interest rate the banks will pay the city? Are our government employees here, Sharon Dumas and Ken Silliman, acting in the best interest of their fellow citizens if they don't try to maximize earnings? I know of common opportunities where plain old deposit money earns between 4.5% and 5%, yet all I see here is the use of some vague "profit" estimate, where each bank makes 3.5 cents profit per hundred dollars of deposits. First of all, what does this mean? Why are we talking about what the bank makes? Shouldn't we be talking about what the city makes? Quickly, $111,000,000 times the average of say, 4.75% is $5,272,500.

The biggest banks, like those who hold Cleveland's money, made about 3.5 cents profit on every $100 of deposits in 2006, according to data from the Federal Deposit Insurance Corp., which regulates them.

Is there talk anywhere else of the deposit insurance, the FDIC coverage, available per account? Again, I know of a common opportunity where the FDIC coverage is $1,200,000 per registration, but has anybody looked into that, in these times when banks earnings are down and they're straining under a heavy load? Is this a time when we should be consolidating our city money in one place, or is it a time when we should be spreading it out more?

Are we doing the right things with our city money, for the right reasons, for the right people?

Oops--almost forgot. Do you think one of the litmus tests could be how many bank executives you find in the city after the sun goes down?

if you get to talk about the money, you get to talk about everything

George has the podcast posted for the Jim Rokakis session last Wednesday, and Gloria, Jeff/Yellow Dog Sammy, and Wendell, and George, too, have already brought forth commentary to bear on the content and spirit of the talk we had. I think it's one of the better ones thus far, over the year and a half that MTB's been in play, but it can be argued that I'm biased, so you be the judge.

One of my favorite parts is where Jim recounts his running for county treasurer and getting comments from other politicians about why he'd ever want to have that job, where you only dealt with money. Jim's take is that, if you get to talk about the money, you get to talk about everything, and he does. Enjoy.

an indentured nation: serfs up?

Banks Gone Wild - New York Times--Years ago, many of our forefathers came to this country as indentured servants, or slaves, or debtors. As you read this recounting of how we live in a nation of "banks gone wild," you wonder whether we're just about back in the same boat as they came over on. I think it's time we took our money, our lives, and our freedom back.

...A boomerang effect has appeared, too. The new law contains a provision forcing many debtors into Chapter 13 compulsory repayment plans. The bill’s backers expected this fresh squeeze on debtors to produce more cash for the banks, but the trend appears to be downward.

In adopting the provision, Congress disregarded the advice of every disinterested group that has looked at the question, including three presidential commissions, the Congressional Budget Office and the Government Accountability Office. It also ignored a past House Judiciary Committee report, which declared that such compulsion might well amount to the imposition of involuntary servitude. [emphasis mine]

So the lending goes on. People classed as the “working poor,” now beginning to be tapped by the credit card vendors, no doubt constitute a rich supply of coveted potential revolvers — fresh customers for the banks to draw into the credit maze, with its minimums and its unending late fees. In signing the 2005 act, President Bush declared that it would make more credit available to poor people. Unquestionably so. And 30 percent interest was just what they needed, wasn’t it?

more on the empire of debt

Cablevision Buyout Bid Is Raised - New York Times--The NYT now gives us a permalink to articles that will not expire when the article goes to the NYT archives. This article is about the Dolan family, which has a local presence. Here are some of the numbers from the article:

The Dolan family, the controlling shareholders of the Cablevision Systems Corporation, yesterday increased their bid for the company by about $1 billion, to $8.9 billion, from their October offer.

James L. Dolan, the chief executive of Cablevision, and his family want to take the company private.
The family, which owns 20 percent of Cablevision equity and controls 70.4 percent of the vote, said in a letter to the special transaction committee of the board, that this was the family’s final offer and it was good until Wednesday.

The company, which owns cable systems as well as several cable programming networks, issued a statement saying it had no comment on the offer.

The family, led by Charles F. Dolan and his son James, also said it would not resell the company if its bid for Cablevision was successful. That effort is a type of insurance that aims to protect shareholders from a buyer flipping the asset at a higher price. The family said it would be willing to discuss a contractual agreement on the issue.

It also said that it would respect the vote on the decision by a majority of the minority shareholders and that it would not sell its control position if the company stayed public...

...As it stands now, the equity portion of the bid has risen 11 percent, to $30 a share.
But at that level, the company may be beginning to bump up against its debt covenants, analysts said yesterday. The company currently has $11.2 billion in debt.

The newest offer would require the Dolans to pay an additional $6.8 billion to buy out the 228 million public shares. That would bring the total debt level to about $18 billion, and the average annualized 2007 cash flow is expected to be about $2 billion. That puts the debt-to-cash-flow ratio at a multiple of nine times, which is the limit on the debt covenants, said Chris Marangi, who follows cable at Gabelli & Company. Gabelli’s parent company, Gamco Investors Inc., owns 20 million shares of Cablevision stock.

Analysts also said that the Dolans told the company that their advisers, Merrill Lynch and Bear Stearns, would provide preferred equity financing for the deal, although the family did not say how much of the financing would be preferred equity.

Although preferred equity, which carries a higher interest rate than debt, does not count in debt-to-cash-flow ratios, the family said only that they did not do this because of debt covenants but because the capital structure made the most sense.

What I can't see--and I'm probably just naive--is how you can pay $8.9 billion to buy out the 80% of the company you don't own and then be $18 billion in debt? (8.9 divided by .80 = 11.125 billion, encumbered with 18 billion of debt?) What am I missing here?