08 July 2011

The Last Dollar on Earth

...title sort of inspired by the musical guest on last night's rerun of Letterman, which was on in the background while I was wrestling with some contract language...

  • One of the problems of public discourse in the US is declarations that a particular proposed or actual government action (or even inaction) is "unconstitutional" as a means of shaming its advocates. Part of the problem is simply the nature of political struggle among various interest groups whose only weapon is rhetoric. However, there's a more fundamental problem caused by the lack of civics education, as Justice O'Connor has decried since long before her "retirement" from the Supreme Court. In its simplest terms:

    "Unconstitutional" means "prohibited means or goal for the government," not "stupid or self-defeating."

    Unfortunately, very few commentators — including several leading constitutional scholars — are making the distinction between "stupid and self-defeating because it's paralyzing" and "unconstitutional because it's a prohibited means or goal for government" in the rhetorical wars over the debt ceiling. The debt ceiling falls closely enough within a combination of the Commerce Clause and the Necessary and Proper Clause that — regardless of negative-spaces arguments based on the Fourteenth Amendment — it is not unconstitutional. It is, instead, stupid, self-defeating, and polemical self-aggrandizement for a mathematically- and evidentially-refuted version of Maxwell's Daemon applied to macroeconomics and partisan electioneering.

  • Perhaps the ultimate in journalistic and cultural schadenfreude comes from watching the cynical closure of the Voice of Sauron Rupert Murdoch's leading instrument of class and partisan warfare, the so-called News of the World (which makes the US version that used to be sold at grocery-store checkouts, published by the National Enquirer, look a paragon of journalism even without considering the wiretapping problems). My sick and twisted mind wonders just what Rebekah Brooks has on some member of the Murdoch family that keeps her from being fired (audio); but then, I lived Over There for a number of years, so perhaps I'm not entirely off-base with those musings...
  • If Xeno were formulating his paradox today, instead of worrying about reaching a tree, he'd be worrying about reaching an objectively verifiable, and clear, accounting statement. Leaving aside H'wood redefinitions of terms like "net profits" that, essentially, mean there won't be any, we can't even agree on basic accounting rules. This is more than mere technicality of interest only to those with green eyeshades; any difference in rules presents an opportunity for arbitrage... or, more to the point, claim inflation in bankruptcy.
  • Like, for example, the Borders bankruptcy.

    There is a bid on the table to "S[ell] Substantially All of the Debtors' Assets Free and Clear of All Liens, Claims, Encumbrances and Interests and the Assumption and Assignment of Executory Contracts and Unexpired Leases" (Doc. 1130 (PDF), hearing set for 21 Jul 2011). In short, there's a deal on the table — which requires approval by the Bankruptcy Judge — to sell Borders as a going concern to an investor group, along with its stores, etc.

    Yay, stores! No more closings, right?

    Not so fast. A little bit of math will show that this is a very, very bad deal for authors and publishers... and, nonetheless, about the best that they can expect to get. At the proposed initial-bid sale price of $215 million, the new operator is proposing to acquire (Doc. 1130 at 12; all ellipses added and relate to technical identification of the purchaser):

    ... to acquire all assets of Debtors (other than Excluded Assets) including (i) real property leases and contracts to be designated ... for assumption and assignment, (ii) equipment and improvements in transferred stores and distribution centers, (iii) intellectual property, (iv) inventory other than inventory in stores for which the leases are not being assumed and assigned ... (the “Store Closing Locations”), (v) accounts receivable from sales of inventory, (vi) Debtors' equity interest in Kobo, Inc., (vii) goodwill of the Debtors, (viii) books, records, files, including customer lists, (ix) cash, (x) rights to direct the disposition of inventory at Store Closing Locations and receive the proceeds thereof and (xi) foreign franchisor rights.

    which becomes more comprehensible when compared to what is being excluded (id. at 12–13):

    Specifically excluded from Acquired Assets are...: (i) corporate and tax records of the Debtors, (ii) claims of Debtors relating to Excluded Assets or Excluded Liabilities, (iii) tax refunds, pre-payments, net operating losses and claims for the period prior to closing, (iv) capital stock of the Debtors and their subsidiaries (other than the Debtors' interest in Kobo, Inc.), (v) claims ... related to the Purchase Agreement; (vi) real property leases and contracts not assumed and assigned ...; (vii) equipment and leasehold improvements in Store Closing Locations, (viii) inventory located at Store Closing Locations, (ix) business licenses and permits that relate exclusively to the Debtors' headquarters building or to any Store Closing Location, (x) certain designated deposits, (xi) confidential personnel and medical records of employees who do not become employees ..., (xii) assets relating to Debtors' employee benefit plans, (xiii) avoidance actions, (xiv) assets sold or disposed of between the date of the Agreement through the Closing Date and (xv) certain other specified assets.

    The bad news for publishers — and therefore for authors — is that accounts payable are not directly disposed of. This means, in turn, that that $215 million (or whatever final sales price is actually approved by the Bankruptcy Court) would go into the common pool of money available to compensate everyone who has claims. That's not just the publishers, but the landlords, the utility companies, the employees, the tax authorities... and the professionals who are facilitating the bankruptcy process, who are actually in line before any of those other claimants. And, in some magical math that always seems (under either US or European accounting) to be validated at the final tally in multistate-retail-sector bankruptcies, over 80% of any increase in the amount received over $215 million (the initial bid) will go to those professionals for their roles in increasing the total value of the sale. Based on everything that has thus far been declared, back-of-the-envelope calculations indicate that publishers eventually will be receiving between 20 and 25% of what Borders owed them on the date of the bankruptcy filing. <SARCASM> But authors don't need to worry at all; there's no way that publishers would even consider trying to pass the loss of income on to authors, no matter what the authors' contracts say. </SARCASM>