iByron

Today's diversion: two papers, two articles, one subject. Both the WSJ and the NY Times published a piece about Teach For America recently. The WSJ piece is (IMHO) a superior piece, but I think it's interesting how both articles play up the number of Ivy League candidates in the program, but WSJ takes a much more positive view of the TFA results than does the NY Times.

• Wall Street Journal: What they're doing after Harvard
• New York Times: A chosen few are teaching for America

In other news, some friends of mine are leaving to be missionaries in Uganda today. That makes headlines like this all the more alarming: 80 people were killed in Kampala by Somalian terrorists intent on breaking up the World Cup watch party with bombings. Please pray for peace and safety for both the Ugandan people and my friends John & Amanda.

My doggy turned 3 today. Granted, her birthday is approximate, but every dog needs a birthday, so I thought about the dates that would work as a good birthday for her... and then I realized I knew her real birthday. July 7, 2007. 7/7/7... you see, she's a lucky dog, so that had to be it.

To celebrate, we went on our normal afterwork walk. We met up with my mother and walked her to the bus, and then we walked all the way to the Grant Park Dog Bark where we played for a while before walking home. When we got back, both dog and human were thoroughly tired, and just a little wet thanks to a thunderstorm rolling through the city.

For one last something special, Lily is enjoying gravy with her kibble tonight... and she loves gravy!

So - Happy 3rd Birthday Lily!

The last month has been tremendous as World Cup 2010 captured the world's attention in South Africa. The US qualified atop CONCACAF and drew into a group with England, Algeria, and Slovenia. The conventional thought was that the US would lose to England and beat Algeria and Slovenia and advance to the round of 16 as the second team advancing out of group C.

Of course, what happened was a poor 45 minutes against England, followed by a muffed stop by England's keeper Robert Green, and then 45 minutes of the US outplaying England, but unable to come up with a victory. US, 1 point.

The next game, against Slovenia, saw the US down 2 goals before our boys kicked it into high gear and we rallied for 2 of our own. Then, in the last few minutes of the game, we scored again only to have the goal erased by a horrendous offside call. US, 1 point.

Entering the match against Algeria, the US controlled our own destiny, but it took us until added time for Landon Donovan to slot home a goal and deliver the 3 points we needed to advance. For the first time in 80 years, the US won our group, and we advanced to the round of 16.

Unfortunately, the US allowed an early goal to Ghana in the first elimination match and although we outplayed Ghana in the second half, we only managed an equalizer. In the first half of over-time, we allowed another goal and lost to Ghana 2-1.

Although the elimination was gut wrenching, I was proud of the team and am hopeful that we'll do even better four years from now.

Now, for two links: How MLS contributed to the USMNT success. And Why US fans should support the MLS.

So who's up to attending a Fire game with me?

I can feel my blood pressure exploding and my pulse quickening when I see this stuff. It makes me soooooo mad. The legislatures and courts need to do something to protect everyday citizens from these frivolous lawsuits. It's really ridiculous!

Chicagoist: A woman is being sued after criticizing a concrete company on Angie's List. Helen Maslona was surprised to learn a local concrete company refused to do work at her house, five miles from their headquarters, because they claimed to cover her area in their company profile. So Helen posted this criticism on the site (which is allowed on Angie's List) and gave the company an "F." This, apparently, warrants a lawsuit asking for $10,000 in damages. Said Helen: "I'm just floored. I can't believe it. First of all, $10,000 -- for what?" And said Michael Fitzgerald, owner of the company, "I'm not trying to be a jerk. It's just hard to have somebody slander you."

Either the owner is in fact a jerk... or he missed an opportunity to tell the reporter that Ms. Maslona's review was factually wrong. If the facts of the case are as claimed above, the owner of the concrete company should have his feet held to the fire and made to pay not only Ms. Maslona's legal fees, but also some pain and suffering (and slander) damages. PEOPLE, WE HAVE A FIRST AMENDMENT!

It is not just that commercial interests can use their comparative economic power to suppress people's speech... and the courts and legislature should even out the incentives to make businesses think twice about intimidating people through the courts.

From the NYTimes article, discussing another similar suit:

[Legal experts] consider the lawsuit an example of the latest incarnation of a decades-old legal maneuver known as a strategic lawsuit against public participation, or Slapp.

The label has traditionally referred to meritless defamation suits filed by businesses or government officials against citizens who speak out against them. The plaintiffs are not necessarily expecting to succeed -- most do not -- but rather to intimidate critics who are inclined to back down when faced with the prospect of a long, expensive court battle.

Snip

The federal bill, in the House Subcommittee on Courts and Competition Policy, would enable a defendant who believes he is being sued for speaking out or petitioning on a public matter to seek to have the suit dismissed.

"Just as petition and free speech rights are so important that they require specific constitutional protections, they are also important enough to justify uniform national protections against Slapps," said Mark Goldowitz, director of the California Anti-Slapp Project, which helped draft the bill.

Under the proposed federal law, if a case is dismissed for being a Slapp, the plaintiff would have to pay the defendant's legal fees. Mr. Randazza would not disclose specifics on the legal fees he has charged his clients, but he said the cost of defending a single Slapp suit "could easily wipe out the average person's savings before the case is half done."
Emphasis added

And then a gem of a quote from a college student sued for an online comment regarding a towing service:

"There's no reason I should have to shut up because some guy doesn't want his dirty laundry out," Mr. Kurtz said. "It's the power of the Internet, man."

I have a few things to say about yesterday.

1. I hate being lied to, even if it was a lie of ignorance and laziness. (I called the Chicago Park District to see if I could bring Lily with me to a concert. The phone person said, "as long as she's on a leash.")

2. I like my friends. They are nice people. I would have liked to watch the concert with them.

3. Yesterday evening would have been quite pleasant if I hadn't already made plans. Instead, I had a frown that I could not turn upside down.

4. Sometimes when you're very frustrated/angry, you have to bring out the big guns.

I've been critical of the honorable Danny K. Davis in the past... and I still won't vote for him, but: That's my congressman!

Meanwhile, Representative Danny K. Davis, Democrat of Illinois, is pushing for federal legislation that would make police torture a federal crime without a statute of limitations.

From NYTimes - Verdict in Burge Trial will not bring Issue to a Close by Katie Fretland and Don Terry

For some of the best coverage of the Burge trial, please see John Conroy's blog, with a hat-tip to the Beachwood Reporter and Steve Rhodes who keeps linking to it.

Aside: Links to some of the best local Chicago journos/bloggers
• The Reader - if it's written by Ben Joravsky, you should read it.
• Beachwood Reporter - a great daily commentary on the news that's important in Chi-town
• Chicago Current - city and county news - exposing the nitty gritty. I particulary liked Alex Parker's county line blog before they reorganized the site...
• Lee Bey's blog - general awesomeness and architectural commentary
• Chicagoist - Chicago for the masses
• Second City Cop - I hesitate to put this on here. SCC is wrong just as often as he's right, but it's a valuable, if not partisan (party = police = good) perspective.

In Church this morning:

Introductory Pulpit commentary: We find our lives dependent upon the destructive forces that have been made visible in the BP oil spill, but which have been a sinful and deadly presence in creation for many decades now. We acknowledge that our current lifestyle of convenience and hyper-mobility, which is based on oil and oil-based products is at the root of the problem and that the irresponsibility and hubris of companies such as BP are only outgrowths of this deeper reality. As the prophets of old said, we hear the land witnessing and testifying against us.

In Bulletin: (emphasis mine)

A call to Lament and Reconciliation
Report from the Duke Divinity Center for Reconciliation Summer Institute

Unison Confession

Merciful God,

As followers of Jesus Chris, creator and redeemer of all creation, we mourn the Deepwater Horizon catastrophe and the BP oil spill now polluting the Gulf of Mexico.

We mourn the human and animal lives lost, the econimies and ecosystems destroyed, and the gifts of God, created from and for his love, squandered and poisoned.

Most of all we mourn our complicity and active participation in an economy based on toxic energy that has made such death inevitable.

We now make a public confession of the sins against God's creation that we have committed and have been committed on our behalf.

We pray for your grace to change our lives.

And we invite all of our Christian sisters and brothers to join us in this acknowledgment of our sin and culpability, and in working toward a true repentance.

Amen.

Thoughts?

Questions for discussion:
• Is our economy based on energy?
• Is our energy necessarily toxic?
• Does the use of oil in our economy make death inevitable?
• If the answer to the above questions are affirmative, is there a safe, sinless way of providing energy for our economy?
• If there is not, should the church embrace the Amish mentality and avoid electricity?

I'm curious to hear other people's thoughts. I obviously am not fully comfortable with the confession and decided not to join in the confession until I had some time to process the implications of the statement.

What leads to action? Incentives. The world is full of stories about improperly incentivized folks making otherwise illogical decisions in order to get whatever it is they want.

For several months years now, I've had a new cynical worldview boiling in my head related to the tradeoffs and relationships between economic growth, income disparity, political power, business regulation, education, media, profit, and shifting/rejecting/avoiding societal costs. I've tried writing a half-dozen blog posts, and they're all four or five paragraphs long before I just sort of stop. The idea is too big and complex to communicate simply... and if you can't communicate ideas simply, it's very difficult to actually communicate them (your audience will generally just disengage). Yet, if you choose to communicate simply, your ideas are easily picked apart by those who understand at least some aspect of the complexity of the situation.

But today, spurred on by the first 75 pages of "The Big Short" by Michael Lewis, and an interesting rant that Myles alerted me to, I've got another angle to approach my idea from: Incentives. And the bonus is, I think this angle helps to fill in some gaps that are hard to bridge.

As my thesis, I'll select the following statement:

The mainstream United States power structure is improperly incentivized. Futhermore, as reformers gain the power that would allow them to reform the system of incentives, the allure of those incentives becomes so great, even the most ardent reformer is distracted from their goals, compromised, and eventually puts self interest above societal interest, thus ending the push for reform.

I'm sure I'll refine this statement later on. I already know it's too broad, too ambitious, and too unnuanced, but it's a beginning. It's something I can print, and something I can try and build off.

Major topics:
• There is a trade-off between Economic growth and income disparity/wealth distribution. The less income and less wealth you have, the more economic growth you are prepared to sacrifice. • With few exceptions, the only way to amass large amounts of wealth is through redistributive means, rather than productive capacity. This incentivizes and rewards those who become experts at capital allocation, rather than those who are the most productive. This is ultimately detrimental to society.
• Capital redistribution aids economic growth, but causes income disparity.
• The democracy of the vote is one of the last refuges of the masses and underclasses.
• The masses and underclasses primarily see and use government to impose their will to reverse (or flatten) the distribution of wealth and income.
• Large corporations and wealthy individuals seek to use their resources to influence government in ways that are advantageous to themselves.
• Government officials use their power predominantly for self-interest (power, wealth, fame, influence, etc.) rather than social interest.
• The media dictates much of the national agenda, it is the chief regulator of government officials.
• The media is by-and-large owned by large corporations. These large corporations often use their media holdings to self-interested purposes.

There's some more, but I've got to cut this short. More to follow, hopefully.

I can't sleep. Periodically this happens... and it makes me upset.

While not sleeping, I started to obsess over how difficult it is to keep my condo clean. You try living in 400 square feet of apartment without letting things get cluttered. Every little item needs it's own place, and it's mandatory that you put it there when not in use... otherwise things look like a disaster area.

Well, I spent a fair bit of time cleaning the last few days... and things still look messy because I have too much stuff, so I made a list of things I'm going to do in the next month so I have a less cluttered condo.

• Sort books 6-12-10
• 7 boxes of books into storage! 6-12-10
• Bring CD player to Smiljanichs 6-27-10
• Put waffle maker in storage 6-12-10
• Put wireless router box in storage 6-12-10
• Rip classical CDs
• Donate clasical CDs
• Sell or return old DVR
• Donate unused kitchen utensils 6-12-10
• Clean out closet - take to Goodwill
• Sell Wii Idea rescinded for now
• Finish transferring computer files
• Sell or donate old laptop
• Pack away winter items and old dog stuff 5-19-10
• Throw away broken headphones 5-19-10
• Declutter pantry 6-12-10
• Donate excess tupperware 6-12-10
• Sell or donate old VCR
• Sell or donate old N64
• Donate unused bookbag and computer bags 6-12-10
• Declutter window sills 5-21-10
• Throw out marshmallows 5-19-10
• Clean off bookshelf area 5-21-10
• Declutter junk drawer 6-12-10
• Install hook for Lily's leash (Hook purchased 6-26-10)
• Put Tennis balls away 5-19-10
• Throw out and donate VHS tapes 6-12-10
• Throw out old mirror 6-12-10
• Find permanent home for Lily's crate 6-12-10

As you can see, I've already started. By the time I leave for Boston for Theis' wedding, the Keep will be a clutter free zone!

Update: 6-12-10 - Well, I'm not going to get the whole list done by Wednesday, but I made some tremendous progress today, and the Keep is looking better. My best accomplishment over the last month has been keeping the place cleanish pretty much every day! This is satisfying.

We never learn... beware the high yield debt markets...

From "The Big One: Bankers expect Megabuyout" in the WSJ by Peter Lattman

A private-equity deal Tuesday to acquire financial market data provider Interactive Data Corp. for $3.4 billion is one of the clearest signs yet of private equity's renewed potency.

The buyers, Silver Lake Partners and Warburg Pincus, secured more than $2 billion worth of loans from four large banks, according to people familiar with the deal. The debt financing is being offered at roughly than six times the company's earnings before interest taxes, depreciation and amortization, a leverage level among the highest since 2007.

Silver Lake and Warburg are also paying up for the Bedford, Mass., company, which has a relatively stable subscription-based business that holds great appeal to private-equity firms. The buyers are acquiring the business for 12.1 times its 2009 Ebitda of $281 million. This is the highest acquisition multiple since 2008, wrote S&P in a research note Wednesday, "a clear data point on the road toward expanding multiples."

But another element of the Interactive debt package reflects a more-conservative lending environment. Roughly $1.4 billion, or about 41%, of the purchase price for Interactive Data will come from the buyers' equity. Some large boom-era deals--such as the leveraged buyout of Clear Channel--had as little as 10% to 20% equity contributed to a deal.

For the uninitiated: If a company makes $100 a year from selling for more than it costs to make, that's essentially your EBITDA.

A 12.1x multiple means the company would have cost $1,210.

With a 6x senior leverage ratio, that's $600 borrowed.

If 41% of the purchase price comes from buyers equity, that's $500 of equity.

This implies $110 of additional 'sub debt', putting the actual debt level on the company at 7.1x EBITDA.

Assuming market rates on the senior debt (let's say LIBOR + 5% with a LIBOR floor of 2%, or 7%), the Senior debt interest burden is 7% * 600 = $42/year.

Assuming market rates on the sub debt of LIBOR + 15% (17%), the sub debt interest burden is 17% * 110 = $19/year

Now let's examine our cash flow. The $100 we earned annually was before paying our interest payments, so 100 - 42 - 19 = $39/ year. From the $39, we have to pay approximately 40% taxes, so subtract out another $16 and you're left with $23 a year to reinvest in the company (capital expenditures) and pay down debt. If you assume a 5% CapEx run rate, which is in the neighborhood of appropriate, you're left with $18 a year for debt repayment.

Remember, we have $710 of total debt, so assuming no growth (and no contraction), the debt would be repayed in approximately 40 years. (Not that the debt will ever actually be paid off... it will just be refinanced the next time an I-Banker convinces the CEO it's time to refi.)

Another major risk? Well LIBOR is at historically low rates. As LIBOR moves above 2%, the interest payments would increase $7/year for every percentage point above 2%. LIBOR was at 5.5% as recently as 2007, and interest rates will likely skyrocket as governments across the globe are forced to either increase rates to avoid inflation... or as the markets demand an increased rate as the global currencies begin to inflate. Regardless, the above cash flow scenario is a best-case-scenario when considering interest rates.

Is this deal doomed to fail? Not necessarily. But it's got a ton of debt on it, and there's not all that much room for error from the company. As someone who regularly reviews capital structures of LBOs, I'll say that a 12.1x valuation is high... and when I see a company with a 7.1x debt multiple... well, we're usually rather uneasy about that. Seeing these numbers at the onset of a deal... well... I sure hope the company is as steady as it's been described to be.