Show Whe m alt £akc Sfibun Wednesday October 23 1989 V Section Page 10 A CMERfS R OFTUE1R RIGHT PEOPLE Lessons From the Bay Area: Get Ready For 3 Days Alone Whatever it cost to send four of Utah's emergency management specialists to check out how San Francisco Bay Area officials coped with their Oct 17 earthquake it was money well spent The specialists who have been working on Utah's earthquake emergency management plan for quite a few years now were able to see some of their ideas confirmed as well as to find out that some of those plans need fine-tunin- g It was a worthwhile lesson or series of lessons that if properly implemented can do much to reduce the impact of the inevitable disastrous earthquake experts say is destined to strike this area Probably the greatest lesson learned by these four planners — Jim Tingey Fred May and Tony Popish all of the Office of Comprehensive Emergency Management and David Christensen a bridge engineer with the Utah Department of Transportation — is that it really takes 72 hours — three days — to get everything people and equipment assembled in order to start putting things right again Of course in the interim a lot will be going on as happened in the Bay Area Injured people are rescued and taken for treatment to intact hospitals or hastily established medical aid stations The utilities — gas phone electric and water — immediately push ahead with restoring service Unhabitable areas must be evacuated and shelter'found for their residents Also as was so dramatically demonstrated in the Bay Area with the collapse of Interstate 880 and a section of the Bay Bridge damage to the transportation infrastructure must be quickly assessed Then alternative roadways must be established Damaged airport runways also have to be quickly if tem porarily patched Rail transport in all its forms must get priority attention These and myriad other considerations big and small must be dealt with It is only by first "thinking about the worst" that planners would be able to envision ways of coping with disasters like the San Francisco Bay Area earthquake This is what people like Messrs Tingey May Popish and Christensen have been doing for some time now on behalf of Utahns Their "what do we do if?" thinking and the answers they work out will help take some of the bite out of the inevitable seismic disaster This is what makes their hurry-uarea trip to the San Francisco-Oaklanso worthwhile It will help them refine their thinking on how to cope with disaster In scholastic parlance it was a field trip to find out whether the classroom theory really works One lesson proven to the state planners was the "wisdom of Utah residents surassembling or purchasing a vival kit After all it took three days before California officials could really start putting things back together It stands to reason based on the California experience that practical-mindeUtahns would want to be ready to cope for three days without things like running water natural gas service ready access to a supermarket or even a roof over their head Consequently among the lessons p d 72-ho- d learned by Utah's four earthquake preparedness specialists during their 72 hours in the Bay Area is one for all Utahns: Get ready to exist virtually on your own for three days After all it's not a matter of "if" the killer earthquake will strike just a matter of when Blockbusting Parking Plan The Salt Lake Redevelopment Agen- cy and Mayor Palmer DePaulis have risen above an intensifying power struggle to do Block 57 right Parking for the pivotal downtown property apparently will go underground where it belongs RDA's board of directors as well as the mayor and developers of the block's anchoring office tower deserve strong encouragement and commendation for their community-mindecompromisd ing Block 57 bounded by Main and State streets between 200 and 300 South has become one of Salt Lake City's worst eyesores After years of RDA planning and land acquisition however the blighted block is now on the brink of becoming a spectacular centerpiece that will bring now segregated segments of the city together into a cohesive commercial civic and cultural package The RDA board which also serves as the Salt Lake City Council and The Boyer Co removed one of the last roadblocks to that promise this week when they tentatively agreed on a plan for financing subterranean parking for the office tower Their agreement means the monolithic sidewalk-straddlinl parking structure on 200 South will be razed making more room for the landscaped plaza and that will help create a lively community center Because of its implications for future development projects and traffic proposals parking posed a major challenge for negotiators Boyer was obligated to provide parking for its tenants but reluctant to construct underground stalls for more than twice the price of a surface structure RDA officials didn't g eight-leve- Another icw want to set a precedent for subsidizing private parking at the expense of city taxpayers and local mass transit goals After months of discussion the two sides have settled on a plan that serves both public and private interests Apparently recognizing that Block 57 would include parking space one way or another city officials decided to sell bonds for block improvements including a 1000-stal- l underground facility to be built leased and operated by Boyer In return The Boyer Co will give up a previously promised $27 million tax increment subsidy from RDA Revenue from Boyer's parking rental and higher property tax are expected to fully offset RDA's $9 million investment in these 1000 parking stalls The value of such an agreement is immense It will permit the magnificent master plan for Block 57 as deftly prepared by FFKR Architects Planners and Wallace Associates Consulting Group to proceed unhindered by the ungainly parking terrace At little or no cost to the taxpaying public the agreement will help provide an open accessible place for people to shop conduct business eat meals listen to music visit museums and just plain relax Of course the potential benefit extends beyond Block 57 With the masterful revitalization of that centralized piece of prime downtown real estate buildings from the commercial entertainment and cultural zone on the north and west to the government center on the south and east will combine to create a more vibrant prosperous community 10-ac- point Senators Should Be Subpoenaed From The New York Times The Mou-finvestigating t'ommittce hard-ri- g - the is finallv failure to mve prompt:' i'a n t a big mismanaged ' alifornia savings unii loan association It has subpoenaed a raft of witnesses but not five hose role is su nee) an'l rnav have been crujow-rnmri- t '1 s - cial Alan ''ranston Democrat of ' 'alif onna Dermis Democrat of Arizona John Glenn I)enocrat of Ohio John M "''a hi f'epublK an of Arizona Democrat of Michigan i fw senators received hundreds of ard: of dollars in direct and indirect n bij ' ion s from Phoenix millionaire '')'' ' banes his family and associates is (hairman and p inn pal stockholdk'i'2 er of an Oho company that acqtiim! 'hi- I in ' '!n Sjs ioj's and Loan of Irvine 1 ! t'iO'i I" ' a'd (( These senators prcsurcd the Federal Home Loan Hank Board to Mop investigating liri' o!n in UH1 Tvu if the five Cranston and !e oooiM intcreried again la it March Lincoln de lan-- bankruptcy m April ai'TO-that 'tie government was moving m ': nevi day The Federal Lepoiat Insurance t'rrp hairman William nan told !m- lio'i-committee that an audit in UHi immediate action again t Lincoln JJ 'I he delj' oj bailout rnav now cost 2 billion — trie cvtjet of all S L bankruptcies At eat per-isao- 'Od billion will be spent because regulators delayed Like many other thrifts Lincoln Unlike others it was backed by a man with the cash to make five senators pay attention In October 1986 the bank board's San Fran'-iscexaminers found serious deficiencies in Lincoln's operations Meanwhile Keating et al made hefty gifts to the senators and to political groups they were interested in Asked if his rnonev was influential KeatI certainly hope so ing said In April 987 four of the senators — Cranston DeConcmi Glenn and McCain — sumEdmoned the bank board s win dray to see if he could loosen the board's investment rules and call off his examiners A week later the same four and Riegle met with the examiners and according to the notes of a board lawyer at the meeting pressed to end the investigation In May the examiners recommended that Lincoln be placed in receivership — but nothing happened The new agency in charge of rescuing bankrupt Thrift- has now filed a SI 1 billion civil fraud and racketeering suit against Keating and associates Lincoln customers have also sued him and the FLP" and the House committee are investigating Hut who is h" conduct of the five senators'' All fee mav claim that the contributions were lenal and that their intervention constituted no more than service for a constituent But let them explain that m a proper forum a Hives-tigatin- Wall Street Is Fed Up Begins to Choke On Golden Crumbs of Its Many LBOs By Louis Lowenstein Special to The Washington Post Wall Street has finally choked on some of its golden crumbs The golden crumbs as author Tom Wolfe has called them are the vast riches accumulated by the leveraged-buyou- t firms and other middlemen whose merger-takeove- r deals had propelled the stock market to new highs in recent months But when the planned buyout of UAL the parent company of United Airlines collapsed the week before last — partly because the financing banks thought the upfront fees they were to have collected were not up to the usual gilded standards — the stock market went into shock flipping the ownership of whole businesses at a roughly 10 percent annual rate Chicago School economists claim the process is revitalizing US industry But the sheer magnitude of it makes us wonder whether that much of industry could have been so undermanaged or how it is that takeovers would cure so widespread an affliction Second the buyers of these companies have paid stunning prices In earlier merger waves a bidder might pay a premium of 20 percent over market for a target company but in current contested takeovers premiums have averaged 80 percent In some of the largest acquisitions such as RJR Nabisco and Kraft premiums were almost 100 percent A premium of 80 percent has img plications Your Aunt Dot back home is thrilled that her $10000 investment in Kraft or whatever is about to turn into $18000 Take an ordinary company worth a billion dollars or so and in no time at all you have $800 million of new wealth Wall Street has created a private mint And while everyone loves Aunt Dot still they are sorely tempted to scrape off a bit here and there for themselves Lawyers bankers and such regularly take about 5 or 6 percent of the total for running the mint or about $12 billion to $15 billion last year In RJR when it's all done we may see fees exceeding $15 billion Wall Street is about the only place in America that never has to sell its product cheaper by the dozen Some corporate presidents who otherwise would have cried when their companies came under the gun — and in public still do — take a piece of the 80 percent in the form of golden parachutes One of them Gerald Tsai of Primerica (nee American Can) sold off good packaging businesses to buy a brokerage house and the like Then he decided not to waste his life running a business when he could bail out in a $50 million parachute by selling it Third this merger boom still would not have been very different from others but for the fact that the bidders were using almost entirely borrowed money The rule of thumb for these buyouts nas been that you can borrow at least nine dollars for each one of your own With stocks selling recently at an average of $ 1 2 or so for each $ i of annual earnings if you pay a premium of 80 percent over market you are going to pay at least $20 for each $1 of earnings you have bought — about a 5 percent return By issuing bonds instead of stocks to raise the money by paying interest that is tax deductible instead of dividends that are not you can eliminate the corporate income taxes that the old company poor fools had been incurring That increases your return to 7 or 8 percent By projecting sharply higher earnings — and no one projects lower ones — you can increase your expected return to 10 to 1 1 percent But at that point the string has run out Except for an occasional miracle the supply of which is limited you have a break even situation at best Since all that borrowed mon far-flun- Louis Lowenstein a professor of law at Columbia University is author of "What's Wrong With Wall Street" What seemed like bad news was in fact The buyout of UAL at $300 a share would have burdened the airline with $7 billion of debt when its fleet needs replacing and airline profits and the economy are trending down Moreover United's top officers Stephen Wolf and John Pope were scheduled to take $110 million out of the deal — and to put back only $15 million Not much risk there — at least for them boom The real risks in the merger-takeove- r have instead been borne not by the financial entrepreneurs who have profited most from them but by the larger financial community and the US economy In most recent deals the prices being paid for companies have been so high that the buyer was frequently losing money from day one To avoid the truth banks and other investors have invented new yardsticks of value that say "it isn't so" and new securities that postpone — but not avoid — the day of reckoning There is an increasingly familiar shape to the process It is the shape of a bubble We have only to think back to the "nifty-fifty- " stocks of the 1970s when respected money managers thought it was prudent to buy Xerox and Polaroid at prices as high as 100 times their annual earnings Or the conglomerates of the 1960s when the names were different but the story was essentially the same And so on back to tulips in the 17th century and whatever it was in Athens that excited men's greed and for a time robbed them of their judgment The current takeover boom does not rival tulips but for several reasons it is no mere kiwi either First the volume of takeovers leveraged buyouts (LBOs) and other such deals is itself a big deal Last year announced mergers of all kinds friendly hostile or somewhere in between reached $268 billion And that's only part of the picture: Many companies rather than wait for a raider borrowed heavily and shrank their businesses to buy back much of their outstanding stock Whatever the precise total we have been good news ey will cost 12 percent and more the earnings are unlikely to exceed the interest charges In many of the largest transactions the company's earnings are actually less than the interest on its debt The new Allied Stores started life with earnings "of $290 million to cover interest charges of $460 million the new Duracell $125 million of operating income to cover $203 million of interest At some point in each merger boom two things happen The first is that a number of economists insist that everything is fine that the market is working its inevitable magic even if it's not visible The second is the invention of funny money As prices escalate there isn't enough "serious" money to keep the game going The funny mqney syndrome is inescapable In the 1960s it was common stock in one form or another In the 1920s pyramided holding companies accomplished the same thing For today's empire builders Wall Street has created an updated version of funny money called the junk loan Junk can be a bond issued publicly or a loan from a bank or more usually a combination of both About $200 billion of junk bonds are now outstanding But banks have also lent aggressively to the same borrowers bringing total LBO-typdebt to more than $300 billion Those are very large numbers There is an inexorable logic in the numbers A new LBO company cannot seriously promise to pay $150 of interest for each dollar of income without resorting to smoke and mirrors or what I call "superjunk" These are the discount or debentures that have proliferated in recent deals where it is obvious that the issuer — be it Federated Department Stores Fort Howard or Turner Broadcasting — has assumed so much more debt than it can service that it needs an immediate moratorium on part of the interest payments Swiss bankers I am told make it a rule never to lend to those who have to borrow still s again to repay the interest neatly dodge the problem You simply cannot default on a zero obligation At this point the obvious question is who buys this junk? The answer surprisingly enough is not your Aunt Dot — at least not directly Ninety percent of all junk bonds are bought by institutional investors More than $50 billion of junk bonds have been bought by mutual funds for example whose managers seem to lack the simple wisdom — or is it integrity? — of Aunt Dot The takeover of UAL has aborted at least for the moment The lead US banks were ready to go but Japanese banks and some US banks too balked They seem to have gagged on earnings projections that went up every year as if the airline industry would no longer be cyclical deals are on hold or as in Other junk-bonthe case of the Campeau department store group collapsing The "golden era" of junk takeovers may be winding down But in the immortal words of Yogi Berra "It ain't over til it's over" low-rate- d e zero-coupo- n d Zero-coupon- Bush Is Secure in Vice Presidency New York Times Service They say Ronald Reagan has had his phone number unlisted Apparently it's a case of a Gipper Too many phone thoroughly fed-ucalls in the night from George Bush Here's story going around: It's 3:30 in the afternoon Reagan is sleep' ing deeply Phone rings Mister President" "I'm not your Mister President anymore Who is this anyway''" "It's the vice president sir Reagan is not the dim bulb depicted by the liberal press No sir "Dan Quayle!" says Reagan "You re a great Republican from Indiana and since I love Indianal hope you won t invite me to lecture there D'an because coering my lecture fee could bankrupt the Russell Baker a trea-sury- "This isn't Quayle Mr President It's Vice President Bush " Word is that Bush has been phoning Reagan constantly to ask whether he should do something or just lie low Naturally Reagan is irritated What he doesn't want is to be badgered every other day by a president who thinks he is serving a third term as vice president of the I 'nited States Speaking of Dan Quayle have you heard this one: They say Quayle showed up at the White House a couple weeks ago and infuriated Hush by addressing him as "Mr President "What's the idea of calling me Mr President'?" Bush demanded "Are you trying to make me fP( responsible for doing something around hen '' Just wdio do you think you are anyhow Mr Pretty Boy?" Quayle of course said he thought h£ was the vice president Well they say Bush just glared as if in contempt for a pipsqueak and said: "Vice President indeed' Even if you'd had only four or five years' experience as a vice president you'd know better than to go around doing things" "I didn't do anything" said Quayle Oh you didn't do anything'' What about calling me Mr President ? Is that what you call not doing anything" If the president found out about it you can bet he'd think you were doing something Then he'd dump me from the ticket for disloyalty and I'd never get a crack at a fourth term" What do mind doctors say? As usual practically everything depending on the client they're testifying for Here's what one psycho-sourctold us just 10 minutes ago: Bush has been psychically mutilated by too much experience in the vice presidency The vice president's sole occupation is to avoid upsetting anybody Many people can go four e years without upsetting anybody and suffer only light damage Spending eight years at it though almost invariably produces eerie personality traits The last man to do it was Richard Nixon Need more be said about the exotic consequences likely to result from two full terms in this wretched job'' Possibly terrified that he might like Nixon go completely off the scanner Bush seem to have retreated into the delusion that he is still a mere vice president and must then-foravoid doing anything that might conceivablv upset anybody To do so might cost him nomination to a fourth term and his chance to enjov ye another electoral triumph without having to risk his career by trying his hand a! the controversial work of governing Nothing can cut a man s popularity ratings down faster than governing Hence Bush's refusal to do anything not endorsed by poll numbers If poll signal' are mixed as on the present bill that would fund abortion for poor women victimized by rapists and incestuous family Bush lets the most bloc — forces in this case — have its way If Bush becomes a four term vice pM si dent he would rank right up then- y it) ' riiu lin Roosevelt the only four term piesident Roosevelt was the creator of the V j He said the only thing we hac fear rir itself Bush didn't hear that His con'i ibidion to f n history is called the N summarizing utterance of his eta is bead my single- -minded jij lips" |