July 2010 Mailbox
RE: “Buffett and the Prince” June 2010 I’ve read many articles on Warren Buffett. It was fascinating to see how yours interwove the personalities. It makes me want to read more about both men. Dick Wendelburg, Big Canoe, Georgia
RE: “Rebuilding the House of Cards” June 2010 Your article explained a lot about the credit industry. I’ll hang on to my American Express and be aware of the tricks and traps. If consumers are abused by banks, banks will lose the consumers. Charles Westfall, Chula Vista, California
RE: “Estate-Tax Trap” June 2010 Under the federal estate-tax law that expired on Dec. 31, when a family business owner or farmer passed away, heirs paid the Internal Revenue Service 45 percent or more of the value of all assets above $3.5 million. In 2001, the rate was 55 percent on assets above $675,000. If Congress fails to act this year, the rate returns to 55 percent on Jan. 1, 2011, on assets above $1 million. Under the temporary 2010 law, families owe taxes only if they sell assets. A capital-gains tax that’s owed when they sell is more reasonable than an estate tax that breaks up businesses. Adam Nicholson, American Family Business Institute, Washington
RE: “Red Card for Rio” June 2010 I’m less concerned about unleashed dogs on Rio’s beaches than about pigeons. I was relieved to find it’s still possible to enjoy an agua de coco at one’s favorite barraca. Cariocas have found ways around the “order shock,” which sounds at odds with the laid-back way of life that attracts foreigners to the Cidade Maravilhosa. Robert Wood, New York
Updates Goldman’s“Colorful” CDO When Thomas Montag, former head of sales and trading in the Americas at Goldman Sachs Group Inc., called a set of mortgage- linked investments “one shitty deal,” he wasn’t the only one with doubts. Internal e-mails from Montag, now president of Bank of America Corp.’s global banking and markets, referred to a collateralized debt obligation called Timberwolf Ltd. that Goldman sold in March 2007. Senate investigators disclosed the e-mail on April 26 after the Securities and Exchange Commission sued the bank a week earlier for fraud regarding another CDO. In “The Ratings Charade” (July 2007), Bloomberg Markets reported that ratings companies worked with banks to create CDOs stuffed with subprime mortgage debt. Banks paid the raters triple what they pay for bond ratings in return for stamping the CDOs with high safety approval. The story cited Timberwolf, noting that the return offered on one investment-grade-rated slice was more than twice that of a similarly rated corporate bond. “When you see something like that, you know it’s pretty risky,” University of San Diego law professor Frank Partnoy said in the Bloomberg story.
Within five months of Timberwolf’s debut, it had lost 80 percent of its value. “In 2007, I called this trade ‘pretty risky,’” Partnoy says. “Now we see that a trader at Goldman was saying essentially the same thing back then but with a more colorful adjective.” David Evans
Sticky Wicket for Modi Lalit Modi, chairman of the Indian Premier League, is facing corruption charges that may cost him his job running the world’s most lucrative cricket competition. The sport’s ruling national body suspended Modi on April 26 as India’s government began a probe into financial irregularities at the IPL. In “India Strikes Back” (November 2008), Bloomberg Markets reported how Modi, 46, a Mumbai-based entrepreneur, founded the IPL in 2008 to capitalize on the popularity of Twenty20, a rapid-fire game that lasts about three hours. The story showed how Modi had clashed with the Board of Control for Cricket in India over revenue from competitions before he became part of it and started the IPL. On May 15, Modi denied in what he said is a 15,000-page document that he had rigged bids for club franchises, profited personally from the award of international telecast and Internet rights and helped relatives buy teams. Richard Tomlinson and Abhay Singh
China Billionaire Gets Jail Time Huang Guangyu, a peasant’s son who became China’s richest man, has been sentenced to 14 years in prison for graft. Bloomberg Markets’ “China’s Uneasy Billionaires’’ (July 2006) and “The Fall of China’s Billionaires’’ (April 2009) chronicled his meteoric rise and even swifter decline. Huang, now 41, founded Gome Electrical Appliances Holding Ltd., which grew into China’s biggest home appliance chain and went public on the Hong Kong Stock Exchange. His fortune rocketed to 43 billion yuan ($6.3 billion), according to official media. Last year, he was charged with bribery, insider trading and other offenses. On May 17, a Beijing court sentenced him to jail, fined him 600 million yuan and ordered 200 million yuan of property confiscated. Huang admitted guilt and assisted investigators, according to official Chinese media, which reported he’s likely to appeal what he considers a strict sentence. William Mellor
Corrections: In “Rebuilding the House of Cards,” a chart on page 81 wrongly stated the loss suffered by Citigroup on its Citi-branded credit cards in 2009. The correct figure is $0.1 billion. In “Estate- Tax Trap,” Congressman Earl Blumenauer was mistakenly identified as Congressman Earl Pomeroy in a photo caption.
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