August 13, 2007
Accredited Home Lender Deal Falls Apart
Lone Star, a private equity firm, has informed Accredited Home Lender Holding Company that it will not honor the stock acquisition agreement signed with the company. Accredited Home has threatened to sue, binding Lone Star to the agreement. The argument centers on whether the sub-prime lending market plunge triggers exit clauses in the agreement (including a MAC clause). We have another Tyson Foods case coming if this goes to court. Several other private equity funds in "hanging buyouts" will watch this one closely.
The Journalist as Sucker
At the turn of the century, financial journalists at some of our finest papers were paid by our financial titans to post news that helped out the titans stock positions. It took some time for financial journalist to establish a reputation for trustworthiness. The new problems seems to be financial journalists played as suckers. The front page of the New York Times has an article by Eric Dash and Vikas Bajaj entitled "Small Investors Feel Less Pain as Stock Slide: Bigger Players Are Hit Hardest by Turmoil." Whenever the big time financial speculators get in trouble we get calls to "little guys" from everyone with a tie to rising markets -- politicians, bankers, brokers, and large investment funds -- that the little guys "not panic." This is an implicit recognition that although the big speculators play in the markets everyday, the smaller investors (who hold stocks and positions in mutual funds, ETFs, and private investment funds) are the backbone of the market. Once the little guys start to move their investments out of equity and risky debt into traditionally "safe" investments, the markets, already in a roil, will take some time to rebalanced and will rebalanced at lower levels. In short, many speculators will go broke and claims of a "healthy economy" are a bit more shallow. Journalist's dutifully report these calming claims, complete with data ("after 2001 those who held through the crisis have recouped their losses", etc.). I do not mind the reporting of the claims; I do mind the reporter's lack of acknowledgement that those making the pleas to the "little guy" not to panic (when the hedge funds are in a panic) are self-interested, at this time. Unfortunately, when the little guy hears such pleas for calm it is usually too late to sell.