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May 1, 2010

DEBT MARKETS, LAW AND M&A

Forward reviews books on business, economics and trade.

by Robert P. Smith
Amacom, 2009

Riches Among the Ruins: Adventures in the Dark Corners of the Global Economy

Let's say that your father has groomed you to take over the family business, has paid for an education that led only in that direction and has now set you up as his partner in the only life he can imagine for either of you. And let’s say you hate it. Fired by desperation, a wife with a serious shopping habit, a slim résumé in international business and a shipping container load of chutzpah, you set off for Turkey to enter into a sketchy barter scheme hatched after too much raki on a hotel balcony and end up as one of the founders of what is now known as the debt/equity swap. Sounds like a book, right?

This vivid, well-written albeit slightly repetitive book outlines how Bob Smith, a small-time collections lawyer from Brookline, Massachusetts, became an extremely wealthy man doing something that was largely illegal—mostly because no one had thought of it yet. He went to developing countries, most extremely dangerous, and with crushing restrictions on currency export, found out who owned government bonds that promised to someday pay off in hard currency, bought them in dollars for less than face value, found someone to buy them at a little more than that and used the “parallel” market to convert the difference back into dollars that he stuffed in a briefcase and took home. That last bit would be the illegal part.

Smith, so desperate to avoid working in his father’s firm that he signed on with US-AID in Saigon at the height of the Vietnam War, teaches quite a lot about the global debt market in this book. He avoids being killed more than once, earns a reputation as the Indiana Jones of the debt market (or King of the Jungle Bonds or an economic bottom feeder) and generally has a blast in conditions that would paralyze most of us, all because “I don’t have the attention span to sit long at a desk.” He is also very insightful and now very experienced in how the world’s economies actually work—and how to profit from that.

In the process, we learn many things:

  • Catching gonorrhea in Saigon is “an occupational hazard when you’re in the scrap metal business.” (Someone can surely figure out the real identity of “Pinchus Silverberg,” the Chicago scrap metal dealer who had the US DOD contract in Vietnam in 1968.)
  • Always join associations. All economies run on information and associations are the best place to find it.
  • The importance of circumspection. “Those who know don’t say, and those who say probably don’t know, or they’ve just had too many drinks.”
  • “Trust should not be dispensed too easily, you can travel a long way on a good bluff, and business is largely about shaping perception.”

Smith goes country by country to a sobering final chapter on the United States. Now that Smith has become an upstanding citizen and wealthy philanthropist, and the Wild West days of debt trading have ended in the face of digital transparency, he finds that he lives in a debtor nation. The way he identified opportunities in troubled markets now defines his own country. “The United States is a long way from becoming a third- or even a second-world country,” he writes. “I am simply saying that our preeminence at the high end of the scale can no longer be taken for granted.”

This book needs a better title, one that would tempt you to the great read inside.

by Jeffrey Toobin
Anchor Books, 2007, Updated 2008

The Nine: Inside the Secret World of the Supreme Court

Justice is not blind. It is fickle and ideological and as human as the people who mete it out. Since the Reagan years, the Supreme Court has become increasingly a policy tool, a way of crafting a lasting legacy of one political bent or another. Previous presidents, Franklin D. Roosevelt most famously, tried to use the court to set precedents and thereby institutionalize policy but were thwarted by the unpredictability of the justices themselves. That is not the case now. Conservatives have managed to take ideas that were at “the fringes of intellectual respectability to an apparent majority on the Supreme Court,” writes Jeffrey Toobin, a staff writer at The New Yorker.

Argue all you want about the sort of enormous societal issues the Supreme Court decides—abortion, gun control, Civil Rights, the death penalty—and you will not reach a conclusion. You will reach an opinion. And that is what the Court itself does. Their opinions are, of course, based on judicial precedent, experience, knowledge, even wisdom in some cases, but opinions nonetheless. One of the most interesting parts of this book is to discover the ideological foundation of the difference of opinion, rather than the individual rights or wrongs of those issues.

One of the two opposing factions on today’s Court believes that the Constitution is a living document, that its genius lies in its flexibility, the ability to interpret it as society changes and still have a healthy, functioning democracy. The other side believes that the Constitution should be interpreted as written. In its most extreme form, as practiced by Justice Clarence Thomas, the “fringe” concept of “originalism” says that “commerce” in 1789 did not include manufacturing or agriculture and, therefore, any federal regulation of those industries is unconstitutional. This is the legal basis of the effort to overturn Roe v. Wade. The argument is not whether abortion is right or wrong but that the Constitution does not mention the word “privacy” and, therefore, a woman’s right to choose as a private decision has no basis in constitutional law.

The fascinating part of the book—as opposed to the interesting—is the personality profiles of each justice. Sandra Day O’Connor, the soul of “centrism and moderation, those passionless creeds” succeeded in “putting her stamp on the law of a generation.” She also throws great parties and insists that everyone on her staff go for the gusto, whether they want to or not. Antonin Scalia is frustrated and rather bored, manifesting “juvenile petulance,” after 20-plus years on the Court and his inability to translate his “zest, passion and intelligence” into influence. Clarence Thomas emerges as the strangest of the nine bedfellows. He loves driving a Corvette and going out for barbecue with his staff but carefully nurtures the grudges stemming from his bruising confirmation hearing. “He gave the impression that he had no views, not simply that he was declining to express them,” Toobin writes. Thomas once went an entire Court session, hearing arguments on 140 cases, and never asking a single question. Justices O’Connor, Kennedy, the late William Rehnquist and Scalia “oozed contempt for Congress, which they clearly regarded as a bumbling, quasi-respectable institution.”

As any lawyer can tell you, getting the right judge can make all the difference in a case. It is not the quality of argument that matters but the personality of the judge. We might like to believe that the members of the Supreme Court are above that, that they park their human frailties and biases at the door, but as this book makes clear “judicial philosophy— ideology—means everything.” As the Court becomes more conservative, so will American life. The confirmation of Justice Sonia Sotomayor was a picnic compared with the battle Justice John Paul Stevens’ proposed replacement will face.

 

by Nirmalya Kumar
Harvard Business Press, 2009

India’s Global Powerhouses: How They Are Taking on the World

India's reputation is as a low-cost producer and outsourcing location. But that stereotype fails to account for such global powerhouses as ArcelorMittal, the Tata Group, Bharat Forge, Mahindra & Mahindra—the list gets longer and longer.

Nirmalya Kumar, a professor at the London Business School and author of four other books, none of them specifically about India, obviously writes a lot of case studies. Except for the first chapter and conclusion, this book consists of 10 case studies illustrating his overall point that Indian companies have the confidence, risk tolerance and management leeway to acquire foreign companies and transform themselves into forces to be reckoned with. They don’t mind damaged goods, they’re comfortable with very high debt-equity ratios and they are, obviously, on a shopping spree.

The case studies are interesting if rather sterile, and much of what you’ll read here has been covered in the business press already. Stacked one after the other, however, they remind you to heed BusinessWeek’s 2006 warning about “Emerging Giants”: “They’re hungry— and want your customers. They’re changing the global game. Be afraid, be very afraid.”