Posts
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Just had a good lawyer and good friend call me, and we had a good chuckle over her question.
I'm representing an estate and she the major claimant against the estate. I had sent the final payment with cover letter, receipt and a pre-addressed, stamped, envelope for her to return the receipt once her client signed it. In the letter I referred to the "SASE" - Self-Addressed Stamped Envelope - and she hadn't seen the term before. Actually, it's fallen out of common use; before the internet a lot of advertisements said to use one if you wanted information; now the information is on-line.
But this reminded me of another stupid financial industry story. (here we go again!)
15 or 20 years ago I was working on a Small Business Administration backed loan. Involved were senior finance wonks in Richmond and Occupied (excuse me, that's 'Northern') Virginia. Naturally there had to be hazard insurance on the property, and because of the SBA there were three or four financial fingers in the pie.
Insurance companies don't really care who gets the money in event of a loss; with multiple parties listed as loss payees they frequently list them all and then say "As Their Interests May Appear" or, universally shown in industry shorthand, "ATIMA".
So I get a fax from one of the senior wonks asking "Who is ATIMA?"
DOH! "Here's your sign."
Shoulda sold my bank stock -- all the clues were there . . .
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Wednesday, October 13, 2010
Wednesday, October 6, 2010
Dumb and Dumber financing
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This is an old story -- about 25 years old -- but it illustrates some of the reasons for the failure of our financial system. Years ago I represented a major national commercial lender -- it's 'out of business' now having merged into one of the megabanks. I'll call it 'BlahCorp' and hope it's not someone's real name, and change names of others as well.
BlahCorp was, at the time, headquartered in Chicago. It specialized in commercial loans for trucks (18-wheelers) and heavy equipment (think Caterpillar, etc.) and so forth. Typically, the dealer selling the item helped the customer get the financing and had some stake in the ability of the customer to meet the payments (in the financial world this is called "recourse" financing)
SwampCorp was an equipment dealer -- earth moving equipment, cranes, all that big stuff you see on highway construction, mining, commercial buildings, etc. Heavy Lifting Inc. was a startup crane contractor in the area and bought $1Million in cranes from SwampCorp (probably $2.5+M now). Jane was President and sole shareholder of Heavy Lifting and submitted the documents to BlahCorp for the financing. Due to the size of the loan, it required approval of the Senior Vice President of Finance in Chicago; on the corporate totem pole he was #3 and had 25 years 'experience'.
Jane submitted financial statements for Heavy Lifting showing that the corporation had about $20,000.00 in equity, at cost value (not liquidation value). Jane had to personally guarantee the loan so submitted a financial statement showing her net worth of $535,000.00: the value of her stock in Heavy Lifting was $500,000.00; the sum total of equity in her other assets was $35,000.00 on a good day.
Heavy Lifting filed bankruptcy and I was hired to protect BlahCorp. The Sr. VP flew to Roanoke for the hearing. I looked at the financing and said "I'm only a lawyer, but I don't understand why you made this loan" He responded that the 'guarantors financial statement was strong'. My response was in the early days of being Rossiferous: "Nonsense; she shows $500,000.00 as value of Heavy Lifting, but it's financial statement shows only $20,000.00; didn't you notice that?"
"Um, we never looked at it that way"
D'OH
And the industry got dumber and dumber since.
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This is an old story -- about 25 years old -- but it illustrates some of the reasons for the failure of our financial system. Years ago I represented a major national commercial lender -- it's 'out of business' now having merged into one of the megabanks. I'll call it 'BlahCorp' and hope it's not someone's real name, and change names of others as well.
BlahCorp was, at the time, headquartered in Chicago. It specialized in commercial loans for trucks (18-wheelers) and heavy equipment (think Caterpillar, etc.) and so forth. Typically, the dealer selling the item helped the customer get the financing and had some stake in the ability of the customer to meet the payments (in the financial world this is called "recourse" financing)
SwampCorp was an equipment dealer -- earth moving equipment, cranes, all that big stuff you see on highway construction, mining, commercial buildings, etc. Heavy Lifting Inc. was a startup crane contractor in the area and bought $1Million in cranes from SwampCorp (probably $2.5+M now). Jane was President and sole shareholder of Heavy Lifting and submitted the documents to BlahCorp for the financing. Due to the size of the loan, it required approval of the Senior Vice President of Finance in Chicago; on the corporate totem pole he was #3 and had 25 years 'experience'.
Jane submitted financial statements for Heavy Lifting showing that the corporation had about $20,000.00 in equity, at cost value (not liquidation value). Jane had to personally guarantee the loan so submitted a financial statement showing her net worth of $535,000.00: the value of her stock in Heavy Lifting was $500,000.00; the sum total of equity in her other assets was $35,000.00 on a good day.
Heavy Lifting filed bankruptcy and I was hired to protect BlahCorp. The Sr. VP flew to Roanoke for the hearing. I looked at the financing and said "I'm only a lawyer, but I don't understand why you made this loan" He responded that the 'guarantors financial statement was strong'. My response was in the early days of being Rossiferous: "Nonsense; she shows $500,000.00 as value of Heavy Lifting, but it's financial statement shows only $20,000.00; didn't you notice that?"
"Um, we never looked at it that way"
D'OH
And the industry got dumber and dumber since.
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Tuesday, October 5, 2010
Monkeys and Bananas
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I just had a client ask me about a form another company wants him to sign as he is renting commercial warehouse space to the other firm. I reviewed the form: It's a hold harmless about engineering and design work, relates to purchase orders, covers subcontractors, etc.
My client had already questioned whether it was needed; the corporate contact said "we're required to get it in all our contracts". My guess is that he has no idea what the form does, just that "Corporate" has said "Get it".
Some years ago a sociologist did an experiment with monkeys. Check it out at Monkeys and Bananas
and a You-Tube: Banana Vid (I really like the corporate suits on the 'monkeys' in the video!)
Probably a lesson for our governments also.
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I just had a client ask me about a form another company wants him to sign as he is renting commercial warehouse space to the other firm. I reviewed the form: It's a hold harmless about engineering and design work, relates to purchase orders, covers subcontractors, etc.
My client had already questioned whether it was needed; the corporate contact said "we're required to get it in all our contracts". My guess is that he has no idea what the form does, just that "Corporate" has said "Get it".
Some years ago a sociologist did an experiment with monkeys. Check it out at Monkeys and Bananas
and a You-Tube: Banana Vid (I really like the corporate suits on the 'monkeys' in the video!)
Probably a lesson for our governments also.
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