Missing Pants Not Worth $54 Million

Missing Pants Not Worth $54 Million

(AP Photo/The Post, Lois Raimondo)

Roy Pearson, an administrative law judge who has filed a multimillion dollar lawsuit against his dry cleaner, leaves the courthouse after attending, dry cleaning in hand, the trial at D.C. Superior Court in Washington June 12. Pearson, representing himself, alleges that Jin Chung, Soo Chung and Ki Chung, owners of the mom-and-pop business, committed fraud and misled consumers with signs, since removed, that claimed "Satisfaction Guaranteed" and "Same Day Service."

 

 

WASHINGTON (AP) -- A judge ruled Monday in favor of a dry cleaner that was sued for $54 million over a missing pair of pants.

The owners of Custom Cleaners did not violate the city's Consumer Protection Act by failing to live up to Roy L. Pearson's expectations of the "Satisfaction Guaranteed" sign that was once placed in the store window, District of Columbia Superior Court Judge Judith Bartnoff ruled.

Bartnoff ordered Pearson to pay the court costs of defendants Soo Chung, Jin Nam Chung and Ki Y. Chung.

WSJ: A Good Deal Can Matter a Good Deal

Greg Stanton of Wall street without walls; Elyse Cherry also quoted

 

A Good Deal Can Matter a Good Deal

By NAOMI SCHAEFER RILEY
June 15, 2007; Page W11

"You know something in your life has changed when you go from reading 'Liar's Poker' to 'Pathways Toward Heaven on Earth,'" Gregory Anderson joked last week to an audience at the Yale Club. Mr. Anderson, a managing partner at Alexandra & James Inc., was addressing the semi-annual advisory board meeting of Wall Street Without Walls. And judging by the raucous laughter that came from the investment bankers in the room (some of whom were actually mentioned in the first book, Michael Lewis's account of bond trading in the 1980s), others in attendance also were surprised to find themselves dipping into the latter book, a collection of the religious wit and wisdom of Sir John Templeton.

But as its members will tell you, Wall Street Without Walls has gotten some men and women to do some surprising things. People who may not have a reputation for community-mindedness have been engaging in great work for those less fortunate than themselves. And these bankers and brokers (both retired and active) didn't have to write any big checks or volunteer at a soup kitchen. Instead, they were asked to do what they do best -- make deals.

In 1997, Greg Stanton was 42 years old and working at Drexel Burnham when he had two heart attacks in quick succession. He thought he'd just give up and become a "gentleman farmer," until he got the idea for Wall Street Without Walls at a gathering of major foundations he attended. Originally set up to provide nonprofits with advice from financial experts, the group's focus has shifted. For the past few years, the 80 or so volunteers at WSWW have worked "to connect the traditional institutions and financial products of the capital markets with community-based development organizations engaged in the economic development in low- and moderate-wealth communities."

Today, as the organization's founder and co-chairman, Mr. Stanton is charged with explaining what that means in layman's terms. There are a significant number of community development groups and financial institutions that lend money in high-risk (read: poor) areas, either through business loans or mortgages. They lend money to assisted-living facilities, affordable-housing developments and charter schools, among other institutions. Some of the lenders get their money from private foundations, some from tax dollars and others from a combination of both. The loans often have a high default rate, which means that either the borrower must pay a high rate of interest or the foundations and the taxpayer must assume a lot of the risk.

But what if the high-risk loans could be bundled together? As Mr. Stanton explains, "If you have sufficient data on the loans, you can structure them so an investor will always receive principal and interest, and then they begin to seem like any other for-profit." And private investors will be interested in putting their money into them. Or, as Mr. Stanton is fond of telling people, "If it looks like a duck and walks like a duck, people will invest in it like a duck."

Holding the mortgage to one charter school can be risky. Who knows if the charter will be revoked, teachers will stick with it or students will enroll in sufficient numbers? But buying 30 such mortgages spreads the risk and is a much more sound investment. And now, Wall Street Without Walls is helping to sweeten the deals for potential investors. The group has just helped to launch a company called Community Development Assurance. Nonprofit lenders can pay a small premium so that if their borrowers default on the loans, investors will still be repaid principal and interest for the duration of the loan. In return, CDA will help the investments get a higher bond rating, thus making them more attractive.

So far, WSWW has helped to get about $1.1 billion in private capital to fund these sorts of loans. Their projects have included business loans in New Orleans and mortgages for teachers, police officers and firefighters in Washington, D.C. And what has been required of the volunteers? Typically about six conference calls per deal, and as little as one deal per year. After the deals are made, the bankers are released from service and may even choose to have their own firms (Chase, Deutsche Bank, Morgan Stanley, etc.) invest in some of the projects.

* * *

Elyse Cherry, a member of WSWW's advisory board, recalls the "early days" of the organization. "People were wandering around thinking about what this market needed, what loans could really be bundled." Ms. Cherry, who is the president of Boston Community Capital, a lender in low-income neighborhoods in Massachusetts, says she was initially skeptical that such deals would really work. "It was a long, hard slog, but if this stuff were easy to get to capital markets someone would have done it by now."

Which brings us back to Sir John Templeton, the mutual-fund mogul, whose foundation has just given a little under a million dollars to WSWW to help expand its programs to 500 volunteers and 150 projects annually. Part of the foundation's mission is to support research on the benefits of free enterprise, including how our economic system can provide solutions to poverty. By helping community groups to rely less on public funding and more on private capital, there is no doubt WSWW is fulfilling this idea.

But the foundation has another goal -- helping people find purpose in life, especially in retirement. According to Marta Oliver, one of the foundation's program analysts, Sir John, who is now 91, has told the foundation's employees that he wants "to find ways to encourage people to enjoy their retirement as much as he has, and to be as productive as he has been." Ms. Oliver adds, "There are lots of people looking forward to using their talents in retirement, but it's difficult sometimes to find opportunities."

WSWW could not have found a more enthusiastic leader than Greg Stanton, who seems the perfect embodiment of "purpose." He believes he got "a second chance on life" after his health scares, and he tells me, "My work is my gratitude."

Ms. Riley is the Journal's deputy Taste editor.

URL for this article: http://online.wsj.com/article/SB118188000468136523.html

FW: Center of a Storm: How CDOs Work

Center of a Storm: How CDOs Work
By DAVID REILLY
June 23, 2007; Page B1

Mortgages are among the most widespread and simplest forms of financing.
So how is it that a bunch of home loans caused the crisis that has
gripped Wall Street for more than a week?

Because mortgages have morphed into something quite different on Wall
Street -- and some say more dangerous -- a trend that has accelerated
sharply in recent years. The two Bear Stearns Cos. hedge funds at the
heart of the crisis invested heavily in complex financial instruments
known as collateralized debt obligations, or CDOs, as a bet on the
mortgage market.
The Wall Street firm's wager under Bear executive Ralph Cioffi went
badly wrong after particularly risky home-loan borrowers defaulted in
record numbers as a result of lax lending standards and a slowing
housing market.
[R C]

But the funds' problems quickly became more than an issue for just
mortgage markets. Fears grew that other investors could suffer losses,
causing a ripple that would crimp lending and curtail the flow of
borrowed money that has fueled rallies in a variety of financial
markets. On Friday, Bear unveiled a $3.2 billion bailout of the funds
(see related article1.)

So what exactly are CDOs, the structures at the root of so much angst?
They are financial vehicles that bundle different kinds of debt --
ranging from corporate bonds, to securities underpinned by mortgages, to
debt backed by money owed on credit cards -- and cut it into slices.
These slices are sold to investors in the form of bonds. While the
slices contain the same debt, they differ in terms of which pay the most
interest and which are least at risk of losing money.

Slices that pay lesser amounts of interest are the last to get wiped out
by losses if there are defaults in the debt pooled in the CDO. Slices
that pay more feel pain more quickly. In other words, the CDO slice with
the lowest yield is at the front of the line on payday, but at the back
of the line when pink slips are handed out.

This is the way that some high-risk debts can be packaged to receive
investment-grade credit ratings.
That's a result of the CDO structure and the diversification gained by
bundling different debts. At the same time, CDOs use borrowed money to
amplify returns.

Although CDOs have been around for about 20 years, their use soared in
recent years. Investment banks in
2006 issued about $500 billion in CDOs, compared with about $84 billion
in 2002, according to research by Morgan Stanley. The popularity of CDOs
grew as low interest rates caused investors to embrace products that
offered the promise of higher yields.

Fans argue that CDOs allow investors to buy into higher-yielding
securities while taking on the same risk as they would with safe,
lower-yielding securities. They also say that CDOs are another tool that
allow financial markets to further spread risk so it isn't concentrated
in the hands of a few players.

But some investors think CDOs are an example of financial engineering
gone haywire. CDOs are "more sleight of hand" than a sound way to
generate diversified returns, said Brad Alford, founder of Alpha Capital
Management, an Atlanta-based investment advisory firm that caters to
wealthy families.
"They're a method for Wall Street to repackage securities as a way to
make more money."

Indeed, Wall Street has made millions of dollars in fees in recent years
by creating CDOs, selling them, servicing them and helping investors
trade them. The vehicles are generally used by institutional investors,
such as pension funds or hedge funds, not individual investors.

CDOs have generated debate because they are complex, and pose a risk
because they are several steps removed from the actual asset, or debt,
that is being packaged. Consider a mortgage. Jane Sixpack borrows
$100,000 from a bank to buy a house. The bank then pools Jane's loan
with thousands of other mortgages.
It then issues securities backed by this pool and sells those to
investors. Jane keeps making her payments to the bank, but her mortgage
is now owned by investors.

An investment bank creates a CDO, which is really just a company. The
CDO then buys some mortgage-backed securities, one of which holds Jane's
loan. The CDO then pools these with other mortgage-backed securities and
maybe some corporate bonds, slicing them up based on investor
preferences for yield versus risk.

The CDO manager sells portions of the package to other investors. In
some cases, other CDOs are the buyers.
There are even CDOs comprised of CDOs that have invested in CDOs.

The bundling of different debts, along with the fact that the CDOs are a
few steps removed from the debts they include, give rise to another
risk. It's tough to get an accurate price for CDOs, which don't trade in
active markets. When markets sour, the lack of available prices can make
it even more difficult to value a holding, or to get out of it without
taking a big haircut.

So investors often have to estimate the value of a CDO and have a lot of
leeway in how they do it. That's a worry for investors in hedge funds,
big buyers of CDOs. Hedge-fund managers make most of their money through
performance fees. This gives them added incentive to use price estimates
that work in their favor, even if they might not reflect the price at
which they could actually trade the CDO.

Or it could mean that the managers themselves don't know exactly what
their holdings are worth, because they are so far removed from the
underlying investment. In the case of Jane's loan, that means the CDO
buyer will have a tough time gauging whether she's a good risk or not.
And if she defaults, it may take a while before that affects the value
of the CDO, even though market conditions overall might have already
changed.

Write to David Reilly at david.reilly@wsj.com2
URL for this article:
http://online.wsj.com/article/SB118255822369045404.html

Hyperlinks in this Article:
(1)
http://online.wsj.com/article/SB118252387194844899.html
(2) mailto:david.reilly@wsj.com



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NYT: Foundation With Real Money Ventures Into Virtual World

Foundation With Real Money Ventures Into Virtual World
	Jun 22, 2007	New York Times
	STEPHANIE STROM For the first time, one of the nation’s largest foundations is venturing into virtual worlds to play host to activities and discussions and explore the role that philanthropy might play there. The foundation, the John D. and Catherine T. MacArthur Foundation, is sponsoring events in Second Life, the online world. The goals are to gain insight into how virtual worlds are used by young people, to introduce the foundation to an audience that may have little exposure to institutional philanthropy and to take part in and stimulate discussions about the real-world issues that it seeks to address. “This is not just some fad or something new and interesting that we’ve grabbed onto,” said Jonathan Fanton, MacArthur’s president. “Serious conversations take place there, people are deeply engaged, and that led us to think that maybe a major foundation ought to have a presence in the virtual world as well.” Second Life says it has more than seven million members, about one-third of them Americans. Each member uses a virtual self, known as an avatar, to navigate the virtual world. The MacArthur foundation, perhaps best known for the so-called genius grants it hands out each year, has given the Center on Public Diplomacy of the University of Southern California $550,000 to stage events in Second Life, including discussions of how foundations can address issues like migration and education. In one such event today, Mr. Fanton, whose avatar in Second Life is known as Jonathan MacFound, is going to discuss the role of philanthropy in virtual worlds with Philip Rosedale, the founder and chief executive of Linden Labs, the company that produces Second Life. In an interview, Mr. Fanton said MacArthur planned to eventually open an office in a virtual world and make grants through it that will become actual grants in the real world. “We’re still figuring out how to do that,” he said. “All of this is a learning experience.” Mr. Rosedale said making grants in the virtual world offered a way for foundations to explore concepts and develop programs before rolling them out. “You can start things very cheaply in Second Life, play with them and let them germinate, and then put more behind them if and when they take off,” he said. Charities and other nonprofit groups are also beginning to migrate into the so-called metaverse, seeking ways of attracting new donors and hoping to educate a broader audience about the issues they address. Adventure Ecology, a British group, staged a virtual flood in Second Life to show what global warming might bring, and a psychiatry professor at the University of California, Davis, created a way for his students to experience in Second Life what a person with schizophrenic hallucinations experiences. “It’s a wonderful awareness-building tool,” said Beth Kanter, a nonprofit consultant. “You can walk someone through an experience there or sit down with them to discuss the work you’re doing in a way that you can’t in the real world or on the Web.” The American Cancer Society has had success in raising real money with virtual walkathons in Second Life. Randal Moss, the society’s manager of innovation-based strategies and futurist, established an avatar in Second Life in 2004 — “It looks pretty much like me, maybe a little bit more muscular, with a little better haircut,” he said — and quickly noted that another avatar, named Jade Lily, was holding a silent auction to raise money for a charity. His avatar, R. C. Mars, talked to Jade Lily and persuaded her to head a virtual Relay for Life, as the cancer society’s walkathons are known. A few hundred avatars did that walk in 2005, raising $5,000. This year’s walk has raised $82,000 at a cost of $4,200 — and it will not take place until the end of next month. The benefits go beyond dollars. “We benefit by increasing brand awareness,” Mr. Moss said. “We’ve opened an office in Second Life, and through that, we will provide health information, link back to our Web site and provide space for community-based support groups to meet.” More than 30 nonprofits have opened offices in a virtual business incubator in Second Life called the Nonprofit Commons that is operated by TechSoup, a group that helps other nonprofits with technology.