Welcome to week 347! The articles below caught my attention this week. What areintended to be relatively objective “briefs” are preceded by dashes (——–),whereas additional material or relatively subjective comments are precededby asterisks (********). Article titles preceded by [SR] require a subscription.
(3 December 2018): “Sign Here to Lose Everything: Part 4” Bloomberg.com
********This article, “Business-Loan Kingpin,” is the fourth of four articles on the cash-advance business that preys on small businesses nationwide but processes the bulk of its cases in the state of New York. This installment focuses on Jonathan Braun, who is awaiting sentencing on a marijuana trafficking charge and works in the cash advance business. Business rivals of his say “he brags that he makes millions of dollars a month.” All this testifies, once more, to the profitability of a business model based upon confessions of judgment. As the article notes: “Collecting a debt from a deadbeat borrower used to be time-consuming.” But confessions of judgment “speed up the process.” By signing, those received the cash advance “agree to lose if there’s a dispute with the lender. Armed with this paper, lenders can go to court, secure judgments against borrowers without telling them and then seize their assets.” Since 2012, “Cash-advance firms have obtained more than 25,000 judgments in New York courts.” Richmond Capital Group LLC, for whom Braun works, “has been awarded 252 judgments by confession against small-business borrowers” since 2015. From a map accompanying the article, it looks like about eight of those judgments were awarded for North Carolina businesses.
(6 December 2018): “What Monks Can Teach us about Managing our Work Lives” JSTOR Daily
——–Theology scholar Jonathan Malesic notes, “finding meaning through work is a concept that has been closely associated with Christianity. But Christian theology may also offer reasons, and methods, to make work less central to our lives.” Typically, attitudes toward work have centered on vocation and co-creation, but for many 21st-centry work is “precarious, lacking the identity-defining stability associated with a calling. Modern work is also abstract . . . To make sense of today’s working life, Malesic suggests drawing from . . . the asceticism of Benedictine monks.” For them “work is primarily penitential. Labor is necessary to keep the basic functions of a monastery running, but its more central spiritual function is to mortify bad impulses and promote patience and devotion. In contrast to the industrial capitalist model of work, this perspective makes the subject experience of work, rather than its products, central.”
********This post connects nicely with the recent book The Job, by Ellen Ruppel Shell, which was noted in TIF Weekly 340 (24 October 2018). Shell referred to work in relation to job, career, and calling, but Malesic seems to be adding something a little different by noting the Benedictine notion that “work is primarily penitential.” This is a hard idea for me to nail down, but it seems to be aimed at preventing monastics from placing “labor ahead of prayer.” To learn more, read Malesic’s article, which can be downloaded near the end of the post.
(6 December 2018): “The U.S. Just Became a Net Oil Exporter for the First Time in 75 Years” Bloomberg.com
——–“America turned into a net oil exporter last week, breaking almost 75 years of continued dependence on foreign oil . . . The shift to net exports is the dramatic result of an unprecedented boom in American oil production, with thousands of wells pumping from the Permian region of Texas and New Mexico to the Bakken in North Dakota to the Marcellus in Pennsylvania.” The shale revolution has turned the “U.S. into the world’s largest petroleum producer, surpassing Russian and Saudi Arabia. The power of OPEC has been diminished, undercutting one of the major geopolitical forces of the last half century.”
********Although this might be hailed as “energy independence” by some, “American refiners continue to buy millions of barrels each day of overseas crude and fuel. The U.S. imports more than 7 million barrels a day of crude from all over the globe to help feed its refineries, which consume more than 17 million barrels each day.” The growth in U.S. exports of crude oil has required extensive re-tooling of “export infrastructure along the Gulf Coast.”
(8 December 2018): [SR] “Bernie Madoff’s Legacy: Whistleblower Inc.” The Wall Street Journal
——–“Ten years ago, Bernard Madoff’s multibillion-dollar Ponzi scheme, the biggest fraud in U.S. history, shocked the financial world. It soon emerged that a forensic accountant, Harry Markopolos, had been alerting regulators for years o Mr. Madoff’s fraud, but no one had listened. At Mr. Markopolos’s urging, the Securities and Exchange Commission created a cash-for-tips program, designed to encourage reports of financial wrongdoing and prevent the lapses in oversight that gave Mr. Madoff free rein. Today, an entire industry is devoted to surfacing tips from company insiders and expert analysts who scrutinize corporate filings.” At the center of the industry “stands the Securities and Exchange Commission’s Office of the Whistleblower, which has paid more than $326 million to 59 whistleblowers in seven years. The potential for sharing in such a huge payday has attracted plaintiffs’ lawyers, forensic accountants and former FBI agents to this government-sanctioned fraud hunt. Critics say the deluge of those seeking rewards is now overwhelming the system. More than 5,200 tips have been filed this year, compared to 3,000 in 2012.” The deluge of filings has “slowed the pace of payments, potentially discouraging future tipsters.”
********You can learn more about the SEC’s Office of the Whistleblower, and access its 2018 Annual Report to Congress, here. The lengthening of the payout period for fraud rewards has led Mr. Markopolos to consider changing how he operates. “Now, he’s looking for accounting frauds involving publicly-traded companies, hoping to profit working with hedge funds betting against share of the companies. Working with short sellers enables Mr. Markopolos to ‘get paid the same year in which I do the work,’ he said.” So there are at least two ways to derive financial benefit from detecting financial fraud.
********A related article is “Madoff’s Victims Are Close to Getting Their $19 Billion Back” Bloomberg.com. As the article notes, Madoff ran the world’s biggest Ponzi scheme, and although the total amount on customer accounts was $65 billion, a little more than $45 billion of it included fake profits. Of that $65 billion, $19 billion have been approved for lost principal and $13.3 billion of those claims have been recovered, a 70% recovery rate, which is “extraordinary and atypical” according to Los Angeles bankruptcy lawyer Kathy Bazoian Phelps. Recoveries for Ponzi schemes typical range from 5 to 30 percent. The trustee in the case, New York lawyer Irving Picard, “has focused on a simple formula to recover principal cash for victims: Suing customers who withdrew more money than they put in. The strategy sparked controversy but was ultimately blessed by the courts.”
(12 December 2018): “For Big Tobacco and Brewers, Grass Is Greener” The New York Times
——–“Proponents of legal marijuana spent decades fighting a slow battle for mainstream acceptance. Now, with recreational use legal in Canada and many states in the United States, big business is suddenly swooping in.” Bethany Gomez, the director of research at Brightfield Group, which conducts research on the cannabis market, comments: “There’s always been the expectation that big business was going to come in; we’ve been hearing rumors about ‘Marlboro Greens’ for decades . . . Now we’re past the point of no return.”
********As the article notes, “The arrival of large multinational corporations portends sweeping changes for an industry that until recently operated in the shadows. As billions of dollars pour into product development, marketing and manufacturing, these companies will be looking to create big brands with the market share to match.” Still, it is thought that will be a place for smaller producers. F. Aaron Smith, the executive director of the National Cannabis Industry Association, suggests that “Ultimately cannabis will look a lot like beer . . . You have the large firms that dominate the market, but there’s still a thriving marketplace for craft beer.” Craft pot, anyone?
********The overwhelming passage by the U.S. Senate of the Farm Bill, which includes provisions for hemp legalization, moves the U.S. closer to broader legalization of marijuana and the day when the investments of “Big Tobacco and Brewers” are realized. Although there are many stories about Farm Bill in the last day, CNBC tends to focus a bit more on the hemp dimensions of the bill. More extensive coverage of the hemp provisions of the bill can be found in Hemp Industry Daily. What the NYT article so clearly indicates is the role of potential competition in markets. In this case, there are many firms with substantial resources waiting, as it were, on the periphery of the hemp and cannabis markets just waiting for legal cover to participate. The Farm Bill, which looks to be a shoe in for passage in the House and signing by the President, goes a long way toward providing that cover.
May you have a good week!