Haunting Images of the BP Oil Spill

These photographs give a hint of the magnitude of this disaster.

So what is the solution?

I value simplicity and minimalism in government, but that is different than being a strict libertarian.

Mainstream democrats and republicans (i.e. today's congress) will hold hearings and purpose new legislation. The problem is it probably won't simplify the existing law by weeding out the ineffective rules.

We already have multiple government agencies involved in offshore drilling (EPA, U.S. Minerals Management Service, and the Department of the Interior) - yet we still had this disaster. They probably have too many laws - most of them covering trivial issues.

If you have complex laws and bureaucracy, it is too easy to "miss the forest from the trees" (enforcing nitpicky stuff but missing bigger issues.) There also might be loopholes inserted by lobbyists.

The libertarian view, of course, would be that BP should never be overseen in the first place. They are taking a publicity hit for this disaster, and it should be left to the markets to punish them.

But there is a third way - the simple, elegant way. We should go for quality over quantity:

1. Eliminate loopholes and trivial rules. Enforce a few, basic practices to prevent a repeat of this disaster.

2. Let oil companies be aware that future incidents will result in massive fines. By "massive", I mean a percentage of quarterly revenue - so if a company the size of BP is found to have cut corners, they will pay billions of dollars.

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John Thain is getting Subpeonaed in NY about the billions in bonuses Merril Lynch paid out before Bank of america got its latest bailout...

http://www.charlotteobserver.com/597/story/499083.html

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Tribune Bankruptcy Restructuring: Company Wants To Stay Together

Last month, I wrote about how the Tribune Company filed for Chapter 11 bankruptcy protection.

Now, as the company starts to plan its reorganization, the complication is that the Tribune wants to retain all its assets, while keeping its unusual corporate structure (S-corp owned by an ESOP).

The Tribune wants to keep its media assets (Chicago Tribune, Los Angeles Times, WGN TV, etc.) because executives feel they are worth more together, than chopped up and sold at distressed prices. The Tribune does, however, still plan to sell the Chicago Cubs and Wrigley Field.

At the same time, the Tribune wants to stay an S-corp owned by its employees (ESOP). Unlike a regular C corporation, an S-corp allows all income to be passed through to the owners. Since the owner (ESOP) is organized as a tax-exempt qualified retirement plan, this allows the Tribune to avoid all taxes.

Retaining the ability to avoid income tax is viewed as an important part of any recovery.

Keeping the S-corp structure complicates restructuring their $13 billion debt load because Tribune creditors such as JPMorgan Chase, Citigroup, and Bank of America can't be given equity in exchange for debt reductions.

An S-corp is limited to 100 owners - who must be individuals, and not other corporations. (The ESOP, representing thousands of employees, counts as one individual owner).

A possible solution is to offer the creditors some type of debt instrument that does not pay interest, but has a value pegged to the stock, so that the creditors would participate in any upside.

At least one bankruptcy expert, however, thinks that the lenders would be too risk averse to accept a security like this because the IRS will probably challenge it.

The one thing in the Tribune's favor is time to work out this situation because the creditors do not have right to demand interest payments (Due to this deal being done during the era of loose lending practices, and banks fighting over it).

All the Tribune needs is enough funds to continue operations. This is covered because their newspapers and TV stations should still generate $500 million dollars. They also got a $50 million letter of credit and a $300 million loan against receivables from Barclays.

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Tribune Files for Chapter 11 Bankruptcy Protection

Yesterday, the Chicago Tribune filed for Chapter 11 bankruptcy protection.

All newspapers are under pressure these days, because of the rise of the internet and the decline of advertising in today's economy. In fact, I think the stock price of the Chicago Sun Times is less than the cost of its daily newspaper.

The Tribune, however, is also burdened by $13 billion in debt - mostly because of its leveraged buyout from last year - which was done by billionaire Sam Zell.

Back in April 2007, I wrote about how Zell won a bidding war for the Tribune and bought it using borrowed money, and using an Employee-owned (ESOP) S-Corp structure to avoid taxes.

In that article, I noted that "...as long as the Tribune's cash flow at least stays flat, they should be able to pay off the debt in 10 years...". As we now know, that did not happen. Newspapers declined faster than expected, and the current "perfect storm" economic crisis made things much worse.

In another post, back in August, I mentioned how Zell was anxious to sell the Chicago Cubs to raise money to pay debts. But, in order to use the ESOP tax advantages to avoid capital gains, Zell was requiring the new owner to finance the purchase with debt, and not repay it for 5 years. There were questions about if Major League baseball would allow this.

As it turns out, the credit crunch made a sale difficult. So, the Tribune still has the Cubs. They still want to sell, but it is doubtful if they will get the $1 billion price they were hoping for.

In the first article, I also mentioned how Zell protected his downside by limiting his personal investment to $300 million, while getting 40% of the multi-billion Tribune. It turns out, he protected himself even better than that.

Zell, as Tribune CEO, was able to convert his investment to a subordinated debt note. Now, in bankruptcy, his claims will be at the head of the unsecured creditors. His "co-owners", the employees, still have their interest in an equity form - in the ESOP - which could get wiped out in the bankruptcy.

So, basically, first dibs will go to the secured creditors (i.e. the banks, such as Bank of America, which leant the money for the leveraged buyout). Second dibs will got to Zell's unsecured debt. Finally, the employees will get anything that is left.

Ex-employees (those who retired or were recently laid off) have it worse. Yesterday, the Tribune stopped paying them their severance payments and told them that, if they want their money, they have to get in back of the line in bankruptcy.

Famous film critic Roger Ebert works for the rival Sun Times, but he stated his opinion in his column today. He blames Zell.

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Pirates of Somalia (as Opposed to the Carribbean)

Besides terrorism, piracy is making a come-back. This time, they went 180 miles offshore and captured a Saudi super oil tanker! Somalia is a failed state and now there are "pirate ports". Like "Ye Pirates of Olde", they use grappling hooks. Otherwise, they use AK-47's and rocket launchers, instead of swords and muskets.

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Woman Arrested For "Virtually killing" Her Online Husband

Science Fiction is Becoming More of A Reality ;-) In Japan, a woman was playing a virtual life game, and her character was "married" to another character.  That character's owner "divorced" her character, making her angry. She logged on to the game using his password (which she somehow got), and she killed off his character. Now, she has been charged with illegally accessing a computer and manipulating electronic data.

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