The following columns were submitted for the 2008 Pulitzer Prize for Commentary:
Industries Could Take Cues From Hollywood on Self-Control
When the studios found themselves in a competitive race to the bottom in the smuttiness and violence of their movies, Jack was clever enough to foresee the likely political and regulatory backlash, and convincing enough to persuade his members to accept a movie rating system that has, in effect, become a form of industry self-regulation.
Mortgage brokers, student lenders and health insurers are only now realizing what Jack Valenti learned long ago: The purpose of a trade association is not simply to protect its members from government, but to protect its members from themselves.
The Takeover Boom, About to Go Bust (Jun.13-2007)
In other words, a deal like this would never get financed in normal times. Bank lenders and bondholders would demand that the new owners use more of their own money and take on less debt. Or they would demand interest rates so high that the company, as presently configured, wouldn't be able to generate enough cash to cover debt service. Either way, the buyers would never have agreed to pay $8.2 billion.
But these are not normal times, and overpriced and over-leveraged deals like Avaya have been getting financed in record numbers. Back in 2004, about $275 billion in loans were issued for such highly leveraged transactions. By last year, that had risen to $490 billion. And in just the first five months of 2007, that record was broken.
New Order Ushers In a World of Instability (Aug.10-2007)
One concern is that rather than spreading risk among millions of investors, the current system has reconcentrated risk on the books of a dozen global broker-dealers who lend most of the money to fund managers so they can buy all those credit instruments. And it is many of the same firms -- Goldman Sachs, Bear Stearns, Deutsche Bank, Citicorp -- that have also underwritten hundreds of billions of dollars in corporate takeover loans that, suddenly, they cannot sell as they had planned. It's no coincidence that the shares of such firms have taken a beating in the past few months as rumors swirl around Wall Street that one or another is facing major losses.
It's Not 1929, But It's The Biggest Mess Since (Dec.5-2007)
It was Charles Mackay, the 19th-century Scottish journalist, who observed that men go mad in herds but only come to their senses one by one.
We are only at the beginning of the financial world coming to its senses after the bursting of the biggest credit bubble the world has seen. Everyone seems to acknowledge now that there will be lots of mortgage foreclosures and that house prices will fall nationally for the first time since the Great Depression. Some lenders and hedge funds have failed, while some banks have taken painful write-offs and fired executives. There's even a growing recognition that a recession is over the horizon.
But let me assure you, you ain't seen nothing yet.