A Linked-In group to which I belong is discussing the not-very-burning question: what are you favorite hedge fund books?
Among those mentioned, in no particular order:
The Gathering Storm, ed.by Lee Robinson & Patrick Young (2010).
More Money than God, by Sebastian Mallaby (2011).
When Genius Failed, by Roger Lowenstein (2001).
Inventing Money, by Nicholas Dunbar (2000).
The Big Short, by Michael Lewis (2011).
Hedge Hunters by Katherine Burton (2007).
Julian Robertson: A Tiger in the land of Bulls and Bears by Daniel A. Strachman (2004).
Showing posts with label Roger Lowenstein. Show all posts
Showing posts with label Roger Lowenstein. Show all posts
13 August 2011
11 September 2008
Delphi liquidation
In early August, General Motors agreed to yet another infusion of capital into bankrupt auto parts manufacturer Delphi. Specifically, it said that it would increase the size of an expected loan from $650 million to the $950 million now seen as the minimum in liquidity for any newly viable Delphi.
The background to all this, aptly described in a recent book on America's pension crises by Roger Lowenstein, takes us at least as far into the hinterlands of memory as 1950.
That was the year of a crucial settlement between GM and the United Auto Workers union under Walter Reuther. GM felt flush at that time. It had earned record profits in 1949 and had just declared a stockholder dividend of $190 million. Only labor unrest could disturb its serenity, and it decided to buy off the union by picking up half of the tab for the members' hospital and medical insurance, and offering a pension of $125 a month—the equivalent of $1,040 a month in 2008 dollars.
Fortune hailed this as "the Treaty of Detroit." In his 1963 memoir, Alfred Sloan, who was GM's chairman at the time of this "treaty," patted himself on the back over introducing "an element of reason, and of predictability" into GM's labor relations.
But it was easy to fudge the issue of adequate funding for those promises. This became easier in subsequent contract talks, when the issue wasn't creating a pension system but embellishing the benefits offered in the existing system.
Forward now quickly to 1999. It was in that year that GM spun Delphi off into (nominal) independence. It was also the year that an analyst at Goldman Sachs analyzed the significance that pension numbers had come to hold for the parent. The analyst, Gary Lapidus, concluded that 90% of GM's value was committed to its retirees.
"For various reasons," Mr. Lowenstein wrote, "Delphi was even less prepared the handle the legacy burden than General Motors. Its pension plan, $1.7 billion in the red at the time of the spin-off, had been falling deeper in the hole ever since. Delphi was a strange creation—a newborn conceived with the hardened arteries of an old man."
The spinoff and the continuing mutual dependence of Delphi and GM meant that the same losses, required by pension and health benefit obligations, that otherwise would have accumulated within a single corporate entity were now split between two. Mr. Lowenstein cited estimates that Delphi has been producing spark plugs for $2.05 each. The same plugs can be purchased in China for $1.05. By contract, GM buys them from Delphi for $1.70. Each party to the supply contract is suffering a loss. GM is paying 65 cents more than it otherwise would, and its supplier is losing 35 for the privilege of making the sale.
GM's management seems increasingly to be coming around to the conclusion that the federal government should take health care costs off its hands through a nationalized insurance system. In a 10Q quarterly report filed with the Securities and Exchange Commission in May 2006, the company said that it "will support public policies at the federal and state level that will enable all Americans to have health insurance."
All this provides background for a story that appeared in the Wall Street Journal on August 29. Despite even the latest agreement by GM to up its ante, there may bot be any feasible re-organization plan for Delphi on the horizon. It might be necessary for the court to liquidate Delphi, and in the process to return its physical assets, the plants, to the parent company.
The pension obligations already vested would presumably go back to GM's balance sheet as well. As Batman said (back when "Batman" was a corny television show, not an increasingly dark movie franchise): "Sometimes you just can't get rid of a bomb."
The background to all this, aptly described in a recent book on America's pension crises by Roger Lowenstein, takes us at least as far into the hinterlands of memory as 1950.
That was the year of a crucial settlement between GM and the United Auto Workers union under Walter Reuther. GM felt flush at that time. It had earned record profits in 1949 and had just declared a stockholder dividend of $190 million. Only labor unrest could disturb its serenity, and it decided to buy off the union by picking up half of the tab for the members' hospital and medical insurance, and offering a pension of $125 a month—the equivalent of $1,040 a month in 2008 dollars.
Fortune hailed this as "the Treaty of Detroit." In his 1963 memoir, Alfred Sloan, who was GM's chairman at the time of this "treaty," patted himself on the back over introducing "an element of reason, and of predictability" into GM's labor relations.
But it was easy to fudge the issue of adequate funding for those promises. This became easier in subsequent contract talks, when the issue wasn't creating a pension system but embellishing the benefits offered in the existing system.
Forward now quickly to 1999. It was in that year that GM spun Delphi off into (nominal) independence. It was also the year that an analyst at Goldman Sachs analyzed the significance that pension numbers had come to hold for the parent. The analyst, Gary Lapidus, concluded that 90% of GM's value was committed to its retirees.
"For various reasons," Mr. Lowenstein wrote, "Delphi was even less prepared the handle the legacy burden than General Motors. Its pension plan, $1.7 billion in the red at the time of the spin-off, had been falling deeper in the hole ever since. Delphi was a strange creation—a newborn conceived with the hardened arteries of an old man."
The spinoff and the continuing mutual dependence of Delphi and GM meant that the same losses, required by pension and health benefit obligations, that otherwise would have accumulated within a single corporate entity were now split between two. Mr. Lowenstein cited estimates that Delphi has been producing spark plugs for $2.05 each. The same plugs can be purchased in China for $1.05. By contract, GM buys them from Delphi for $1.70. Each party to the supply contract is suffering a loss. GM is paying 65 cents more than it otherwise would, and its supplier is losing 35 for the privilege of making the sale.
GM's management seems increasingly to be coming around to the conclusion that the federal government should take health care costs off its hands through a nationalized insurance system. In a 10Q quarterly report filed with the Securities and Exchange Commission in May 2006, the company said that it "will support public policies at the federal and state level that will enable all Americans to have health insurance."
All this provides background for a story that appeared in the Wall Street Journal on August 29. Despite even the latest agreement by GM to up its ante, there may bot be any feasible re-organization plan for Delphi on the horizon. It might be necessary for the court to liquidate Delphi, and in the process to return its physical assets, the plants, to the parent company.
The pension obligations already vested would presumably go back to GM's balance sheet as well. As Batman said (back when "Batman" was a corny television show, not an increasingly dark movie franchise): "Sometimes you just can't get rid of a bomb."
14 August 2008
John Lindsay
Some recent reading of mine on the history of the city of New York gives the impression that man who was its mayor from 1966 to 1973, John Lindsay was -- how shall one put it? -- a clueless twit.
If any of my readers with a long memory or who have done reading that leads to another conclusion wants to make a pro-Lindsay case, please feel free to use the comment option here.
I'll just give two brief quotations supporting the clueless-twit image.
Roger Lowenstein, in his recent book about America's ongoing pension crises, talks of how in the Lindsay period the public-employee unions "leapfrogged" one another with ever higher pension demands, and Lindsay was all too eager to comply, at the expense of the city's future solvency.
"The response of a Lindsay aide to one such pension demand [by parks workers in 1970] was memorable: 'When would we have to start paying for it?' Told that, due to the peculiarities of the pension calender, an increase would not affect the budget until three years later, by which time Lindsay would be serving out his final year, the aide breezily approved it."
Okay, that's the aide's cluelessness, but presumably it was the result of a climate the boss encouraged.
But let's go back a bit. This spring I read for the first time a classic work on New York City, written in the 1970s, Robert Caro's biography of Robert Moses, that "master builder" of highways, bridges, parks, etc. Lindsay came into office aspiring to take Moses down a peg. As it turned out, Lindsay had no idea what that would entail, or how to go about it. Gov. Rockefeller did have some valuable ideas in that area, which in time would yield fruit, but that's another story.
Of Lindsay, Caro writes: "It wasn't polemics that was going to count in any confrontation; it was power. John Lindsay and his glib young aides had the polemics; the grim old ruler of Randall's Island had the power. More, he knew how to use power. There was a phrase he employed in discussing Lindsay's merger proposal that had a certain signifdicance. It was, he said 'ripper legislation.' 'Ripper legislation' -- a phrase denoting legislation passed to remove an official from power indiredctly when it was impossible to do so directly -- was a phrase out of another age; it had not been in general use since the 1920s. The significance lay not in the phrase but in the fact that the man using it was still around....These men with their first taste of power laughed athim; he had not only tasted power but held it longer than many of these men had been alive."
The floor is open.
If any of my readers with a long memory or who have done reading that leads to another conclusion wants to make a pro-Lindsay case, please feel free to use the comment option here.
I'll just give two brief quotations supporting the clueless-twit image.
Roger Lowenstein, in his recent book about America's ongoing pension crises, talks of how in the Lindsay period the public-employee unions "leapfrogged" one another with ever higher pension demands, and Lindsay was all too eager to comply, at the expense of the city's future solvency.
"The response of a Lindsay aide to one such pension demand [by parks workers in 1970] was memorable: 'When would we have to start paying for it?' Told that, due to the peculiarities of the pension calender, an increase would not affect the budget until three years later, by which time Lindsay would be serving out his final year, the aide breezily approved it."
Okay, that's the aide's cluelessness, but presumably it was the result of a climate the boss encouraged.
But let's go back a bit. This spring I read for the first time a classic work on New York City, written in the 1970s, Robert Caro's biography of Robert Moses, that "master builder" of highways, bridges, parks, etc. Lindsay came into office aspiring to take Moses down a peg. As it turned out, Lindsay had no idea what that would entail, or how to go about it. Gov. Rockefeller did have some valuable ideas in that area, which in time would yield fruit, but that's another story.
Of Lindsay, Caro writes: "It wasn't polemics that was going to count in any confrontation; it was power. John Lindsay and his glib young aides had the polemics; the grim old ruler of Randall's Island had the power. More, he knew how to use power. There was a phrase he employed in discussing Lindsay's merger proposal that had a certain signifdicance. It was, he said 'ripper legislation.' 'Ripper legislation' -- a phrase denoting legislation passed to remove an official from power indiredctly when it was impossible to do so directly -- was a phrase out of another age; it had not been in general use since the 1920s. The significance lay not in the phrase but in the fact that the man using it was still around....These men with their first taste of power laughed athim; he had not only tasted power but held it longer than many of these men had been alive."
The floor is open.
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