Victor Davis Hanson is one of the most insightful current commentators on America’s war against Islamic extremists, and his articles are often referred to in this blog. This LA Times piece is about this interesting man. Thanks to Occam’s Toothbrush for the link.
Often at the outset of business reorganization cases, the debtor-in-possession will request as one of its “first day” motions that the Bankruptcy Court allow it to pay “critical vendors.” Although these claims are unsecured claims that normally cannot be paid under bankruptcy law except pursuant to a chapter 11 reorganization plan, the theory behind allowing certain business debtors to pay “critical” vendors pre-petition claims is that the critical vendors would likely not do business with the debtor during the reorganization case unless their pre-petition claims are promptly paid. Stating the debtor’s position simply, unless such payments are made, the risk increases dramatically that the debtor’s reorganization would fail in its early stages.
At the outset of Kmart Corp‘s chapter 11 case, Kmart’s Bankruptcy Court approved an order that authorized Kmart to pay the pre-petition claims of 2,330 “critical” suppliers, which collectively received about $300 million. Another 2,000 or so vendors were not deemed ?critical? and were not paid. They and 43,000 additional unsecured creditors eventually received about 10ยข on the dollar under Kmart’s reorganization plan, mostly in stock of the reorganized Kmart. Fourteen months later, the District Court overruled the Bankruptcy Court’s critical vendor order, and Kmart appealed that decision to the 7th Circuit Court of Appeals.
Today, the 7th Circuit issued this decision that affirms the District Court’s order setting aside the Bankruptcy Court’s approval of Kmart’s payment of its critical vendor’s pre-petition claims. The decision is written a bit untidily — for example, the 7th Circuit describes the critical vendor payments as “preferential” (i.e, paid in preference to those of non-critical creditors). In reality, the critical vendor payments are post-petition payments and, by referring to them as preferential, the 7th Circuit risks confusion of those payments with voidable preferences, which can only be made prior to the commencement of a bankruptcy case. Nevertheless, the decision has a good overview on the law in this key area for business debtors, and is a good one for debtor’s counsel to review before making a record on the necessity for critical payments at the outset of a chapter 11 case.
Thanks to my old friend and former law partner, Joe Epstein of Winstead Sechrest & Minick P.C., for the pointer to this decision.
Thomas Sowell has a good WSJ ($) op-ed today in which, as former House Majority Leader Dick Armey — an economist by trade — put it: “Demagoguery beats data in making public policy.” The entire article is well worth reading, but here is a tidbit:
At the state and local levels, this confusion of tax rates and tax revenues has led some local politicians to see higher tax rates as the answer to budget problems, even though higher tax rates can drive businesses out of the city or state, with adverse effects on the total amount of tax revenues collected.
Price controls are another area where very elementary economics is all that is needed to show what the consequences are: shortages, quality deterioration and black markets. It has happened repeatedly in countries around the world, over a period of centuries. Yet politicians keep selling the idea of price controls and voters keeping buying it.
Many economic issues are complex, but sometimes a single fact will tell you all you need to know. When you know that central planners in the Soviet Union had to set 24 million prices — and keep adjusting them, relative to one another, as conditions changed — you realize that central planning did not just happen to fail. It had no chance of succeeding from the outset. It is a wholly different ball game when hundreds of millions of people individually keep track of the relatively few prices they need to know for their own decision-making in a market economy.
Today is the 40th anniversary of Cassius Clay‘s (subsequently Muhammad Ali) spectacular upset of the notorious Sonny Liston in their 1964 world heavyweight championship fight. Here is a Times Online piece on the historical impact of that memorable fight, and another article on whether that match and the subsequent Clay-Liston rematch were fixed. Very interesting reading.
A recent study shows that United States Senators stock portfolios regularly outperformed the market by an average of 12% a year.
The Fifth Circuit Court of Appeals issued a decision yesterday on the important issue of expert witness testimony on damages. In this trade secrets case, the Fifth Circuit upheld the district court’s decision admitting lost-profits testimony from two of the plaintiff’s experts because the testimony had no impact on the jury verdict. Accordingly, the Fifth Circuit did not reach the issue of the testimony’s reliability. The Court noted that that the relatively small size of the jury’s $2.2 million award, in comparison with the $25 million in lost profits that the plaintiff claimed, indicated that the jury considered and rejected the entire lost-profits analysis of the plaintiff’s experts. See Dresser-Rand Co. v. Virtual Automation, Inc., No. 02-20834 (5th Cir. Feb. 23, 2004) (DeMoss, Dennis, & Prado, JJ.).
College students or those of you with college age children, you will want to read this this piece about a job that will interest more than a few college students.
Harvard University Law Professor Mary Ann Glendon has a Wall Street Journal op-ed ($) today that addresses several important issues that are often overshadowed by the supporters’ casting of the debate as one over civil rights issues:
Those judges are here in Massachusetts, of course, where the state is cutting back on programs to aid the elderly, the disabled, and children in poor families. Yet a four-judge majority has ruled in favor of special benefits for a group of relatively affluent households, most of which have two earners and are not raising children. What same-sex marriage advocates have tried to present as a civil rights issue is really a bid for special preferences of the type our society gives to married couples for the very good reason that most of them are raising or have raised children. Now, in the wake of the Massachusetts case, local officials in other parts of the nation have begun to issue marriage licenses to homosexual couples in defiance of state law.
A common initial reaction to these local measures has been: “Why should I care whether same-sex couples can get married?” “How will that affect me or my family?” “Why not just live and let live?” But as people began to take stock of the implications of granting special treatment to one group of citizens, the need for a federal marriage amendment has become increasingly clear. As President Bush said yesterday, “The voice of the people must be heard.”
Indeed, the American people should have the opportunity to deliberate the economic and social costs of this radical social experiment. Astonishingly, in the media coverage of this issue, next to nothing has been said about what this new special preference would cost the rest of society in terms of taxes and insurance premiums.
The Canadian government, which is considering same-sex marriage legislation, has just realized that retroactive social-security survivor benefits alone would cost its taxpayers hundreds of millions of dollars. There is a real problem of distributive justice here. How can one justify treating same-sex households like married couples when such benefits are denied to all the people in our society who are caring for elderly or disabled relatives whom they cannot claim as family members for tax or insurance purposes? Shouldn’t citizens have a chance to vote on whether they want to give homosexual unions, most of which are childless, the same benefits that society gives to married couples, most of whom have raised or are raising children?
As noted in this earlier post, Big Four accounting firm KPMG is the subject of a Manhattan federal grand jury investigation into the sale of tax shelters to corporations and wealthy individuals who used them to escape at least $1.4 billion in federal taxes. This investigation comes on the heels of an earlier IRS petition to enforce summons against KPMG. Today, the Wall Street Journal ($) has a front page story on KPMG’s management decisions that led the firm into the tax avoidance promotion business. The entire article is well worth reading, and here is an example of the deals that KPMG was promoting:
KPMG marketed a range of shelters known by cryptic acronyms. In 1997, it sold Joseph J. Jacoboni a strategy called FLIP. That year, Mr. Jacoboni faced a capital gain of more than $28 million from the sale of his software-support business in Orlando. With KPMG’s guidance, he initially invested $4.7 million in a series of transactions in late 1997, according to filings in federal court in Orlando. He bought stock in a Swiss bank and an expensive warrant from a private Cayman Island company, which in turn bought shares in the Swiss bank. He also bought “put” options and sold “call” options.
As a result of this activity, Mr. Jacoboni’s 1997 tax return showed more than $30 million in capital losses, erasing roughly $7.5 million in tax liability on the sale of his company. His actual cost, after factoring in the return on his investment, was only $2.4 million. The cost included a fee of $437,500 for KPMG. In 2001, the IRS started an audit of Mr. Jacoboni’s 1997 return. He then sued KPMG for fraud and negligent misrepresentation — allegations the firm denies. A trial is scheduled for next month.
FLIP, OPIS and another shelter called BLIPS are under scrutiny by federal prosecutors in the criminal-fraud investigation. The three strategies combined earned KPMG fees of almost $100 million from 1996 through 2000, according to the Senate subcommittee report.
In an expected move, Parmalat‘s dairy subsidiaries in the United States filed for bankruptcy protection yesterday in New York City. Included in the filing yesterday were the Parmalat USA Corporation and its Farmland Dairies and Milk Products of Alabama units. The move was expected after Parmalat, the food and beverage giant, sought bankruptcy protection in Italy in December amid an accounting scandal.