New York Times: I had to look with one eye closed when the New York Times company mortgaged their building to fund current operations.
If real estate has not hit a bottom, won't this endanger the company long term.
Didn't anyone read your book, Pop?
Daniel Gross: The Times basically took out a home equity line of credit on its new home in New York. It wants to borrow about $225 million, I believe, which is probably only about 1/3 of the value of the building. So it's a pretty conservative move. And they're not using the proceeds to fund current operations. They want to use it to pay down some debt and have cash on hand in case they have difficulty rolling over existing credit lines.
I know that some people did read my book, Pop.
Evanston, Ill.: Hey Dan, you wrote a provocative book about why bubbles are good for the economy. Of course there are beneficial side effects but I think the questions is what is the net effect of a given bubble. Is it safe to conclude that the housing bubbles benefits are outweighed by fallout we are now living through?
Daniel Gross: Hi Evanston—I don't want to give away the whole book here. It's still available for sale, after all. But basically, the argument is that bubbles are good when they leave behind a new commercial infrastructure that others can use—like the telegraph, the railroad, or the Internet. In other words, without Web bubble 1.0, we don't get Google. Without the telegraph bubble of the 1840s and 1850s, we wouldn't have got the Associated Press and Western Union. When the bubble is in something like paper (credit, stocks) or in something that doesn't really create a new commercial infrastructure (housing), we don't get the same benefits.
Toronto: How do the sellers of the Tribune Co. feel about their sale to Zell now?
Do they feel as though they erred in selling to a person who used other peoples money and saddled the company with large debts, as opposed to selling parts of the Co. piecemeal to people like David Geffen, or do you think they simply do not care, because they made a lot of money in the sale?
Daniel Gross: I think the people who sold the Tribune Co. actually feel pretty good. They got a good cash price for their stock at what turned out to be the top of the market. Had they said no, and held on, that stock would probably be cut in half, just like every other media stock.
Miami, Fla.: Any idea why they took on additional $3B in debt? Seems they paid for business with $300 million from Zell and $9B from banks to pay off family, Wall St and Fitzsimmons. After this transaction Zell was able to add $3B additional debt—seems like straight forward corporate looting, especially when the business reported $100M-plus profits each quarter in 2007 and 1st 1/2 of '08.
Daniel Gross: I think—not sure, though—that the $3 b may have been existing debt. In other words, when you buy a company you assume all its assets and liabilities. That's why it's sometimes confusing when we report about the size of deals. If you put $1 billion cash down, and borrow $9 billion to pay $10 billion for a company that has $5 billion in debt, the price of the deal is $10 billion, but the value of it may be $15 billion, since the new entity is assuming that existing debt.
Washington, D.C.: In the early '90s, when my cousin used to connive to me about terrorists hijacking jets with box knives, I used to tell him that Communism was coming to America through the federal bankruptcy courts, not through firebombs in the streets. Then his younger brother would chime in that the government was going to provide us all with the cure for anthrax after a bioweapon attack—in exchange for our guns.
How much power does the federal court's overseer have in deciding which Tribune creditors get paid and which do not? That would be the most powerful job in the company, wouldn't it?
Daniel Gross: Bankruptcy court isn't supposed to be a place where the judge decides who gets paid and who doesn't. It's supposed to be a place where the creditors and debtors get together and work out deals under the supervision. There's a lot of negotiations, threats, discussions, and sometimes litigation in bankruptcy court. But in a typical bankruptcy, the parties work out deals without massive intervention from the judge.
Daniel Gross: Looks like the hour is coming to a close.
Thanks for all the great questions.
See you next time