Case Blog

We have reached the point in ‘08 where we can look back and take stock on the full year and start to look forward to ‘09.  Without question ‘08 has been the most challenging year for the world financial markets since the end of World War II. We have experienced the collapse of Bear Stearns and its purchase by JPMorgan Chase (JPM). We have seen the venerable Lehman Brothers collapse into bankruptcy when no one stepped in to save it. And we saw the news of Lehman’s collapse quickly followed by the legendary Merrill Lynch (MER) agreeing to be acquired by Bank of America (BAC). We also found out what too big to fail means with the rescue of American International Group (AIG).

The world’s credit markets quickly froze on the news of the Lehman Brothers’ failure. After a false start, the U.S. Congress passed TARP and gave the Bush administration some new tools to use to stave off the collapse of the world financial system, brought low by the toxic subprime mortgage market.  With 30 days left of the Bush administration, they have decided to extend a lifeline to General Motors (GM) and Chrysler with loans from the TARP funds, something they resisted for the past 45 days. This will allow the incoming Obama administration some time to determine if a longer-term survival plan for our domestic auto industry is feasible.

Should the newspaper industry also look to the federal government for TARP funds? They certainly seem to be in as much trouble as the auto industry, with the Tribune Company in bankruptcy and the speculation as to who will be next, MediaNews Group or McClatchy (MNI).  I have started to read Michael Wolff’s “The Man Who Owns the News: Inside the Secret World of Rupert Murdoch,” just released by Broadway Books in November. Perhaps we should give Rupert some TARP funds to allow him to further consolidate this challenged industry?

We did not manage to escape ‘08 without one final global financial debacle –  the avuncular Bernie Madoff’s global Ponzi scheme! I trust that we will find the SEC looking to more closely regulate hedge funds as we enter ‘09.

I had lunch earlier this week at Michael’s with Bill Cohan, author of “The Last Tycoons.” Look for his new book “House of Cards” on the collapse of Bear Stearns, which will chronicle these events. It will be published by Random House in March.

As many of you saw yesterday, we decided that it was an excellent time to buy financial information providers and have agreed to acquire Asset International. There will be more to follow on this in the new year as we partner with Charlie Ruffel and his team to extend the reach and accelerate the growth of this 20+ year old company, based in Stamford, Connecticut and London, England.

The first half of ‘09 will continue to be a challenging deal market, but we should start to see some improvement in the 2nd quarter and hopefully the start of a recovery in the 3rd quarter. I do not envision large media deals, with leverage, happening until late in ‘09 or early in ‘10.

Let’s enjoy this holiday break and prepare for a recovery in the second half of ‘09!

As we prepared for Thanksgiving last week on Wednesday afternoon, November 26th, the horrific news from Mumbai of a well-planned terrorist attack reached us and it dominated the news for the next 48 hours.

In July of 2007, I wrote in Private Equity in India: “During my final year with Reed Business, I served as vice chairman, with a focus on establishing new joint ventures or subsidiaries in China, India and Russia. Our team found an excellent partner in Infomedia India LTD, which is listed on the Bombay Stock Exchange. I am writing this as I return from an annual shareholders meeting and a board meeting for Infomedia…During my current visit, I once again enjoyed the comfort of the Taj Mahal Hotel in Mumbai. This 100+ year old hotel knows how to make a guest feel welcome…I highly recommend this outstanding establishment.”

We now know that the Taj, along with the Oberoi Hotel, the central train station and the Chabad House (a Jewish community center also called the Nariman House) were targeted by the 10 terrorists. The human carnage caused by these terrorists intruded on our Thanksgiving weekend to remind us, once again, that there is a dark side to the world.

We have learned that Indian intelligence and the Mumbai police were not well prepared for this attack, in spite of earlier warnings. We have also learned through the interrogation of the one terrorist who survived this suicide mission that the Pakistani group, Lashkar-e-Taiba, which had its roots in Kashmir, was behind this senseless attack.

Secretary of State Rice is shuttling between India and Pakistan in an attempt to ease tensions. She is also delivering a very stern message to the new government of Pakistan President Asif Ali Zardari, that the world will not tolerate terrorist camps operating within Pakistan’s tribal areas and that the government must be committed to rooting out and destroying these hotbeds of terror.  This message has been delivered before, after 9/11 in New York.  President Zardari lost his own wife, Benazir Bhutto, just a short time ago in an assassination plot that originated in these same tribal areas.

I wrote on the evening of the 26th to several of my friends and colleagues in Mumbai. One response stood out, from a sage counsel, Shardul Thacker, ESQ, with whom I shared several outstanding evenings at the Oberoi Club: ” You are so right to conclude Mumbaikers will return to normal life soon, as was done after the two serial bombings, and once again demonstrate to the world that terrorism will never shake the spirit of Mumbai.”

This past week Treasury Secretary Hank Paulson admitted that the plan he backed so vociferously just a short time ago, to buy toxic mortgage assets, was not going to work. With the recession deepening around the globe, world leaders continue to seek ways to turn around the global financial markets.

Over the weekend, President Bush hosted leaders from more than 20 countries (G-20) in an attempt to write a new agenda to avoid future meltdowns and to find a way to jump-start economies that do not seem to be responding to earlier efforts. Just prior to the meeting, China unveiled a large stimulus package that was applauded around the globe, but this news was followed by the European Union announcing, to the surprise of no one, that they were officially in recession. President-elect Obama was invited to the summit, but chose instead to send former Secretary of State Madeleine Albright and former Republican Congressman Jim Leach.  By deferring to the current administration, the Obama team buys some time to get a cabinet in place and work on some clear positions to address the current malaise. The G-20 Summit ended on Saturday with the leaders of the G-20 pledging to stabilize the world’s financial markets in order to restore growth and agreeing to five broad principles. They also agreed to meet again before the end of April ‘09.  We also learned last week that approximately half of the authorized TARP funds, $350 billion, will remain uncommitted and that the Obama administration will have some flexibility as they take power.

On the home front, a deal to bail out the domestic auto industry is looking less likely as Republican opposition is growing.  The U.S. auto industry’s slide has been prolonged and it is difficult to envision Detroit regaining lost market share from its global competitors. It is clear that this industry needs a lower wage and benefit base and has to develop common platforms that will deliver autos that people will buy.  When gas touched close to $5 per gallon, the love affair with the SUV came to an end. Now that it is selling closer to $2 per gallon, the recession-plagued economy is keeping people out of new car showrooms. With oil sliding toward $50 per barrel on weak demand, T. Boone Pickens has disappeared from our airwaves with his hedge funds absorbing very large losses. He and his wind farms will not be missed.

I sense that eventually we will get a recovery from all the concerted efforts being put forth, but that it will be in the second half of ‘09 and it will be gradual. In the interim, the media deal market will remain very slow.  However, strategic investors and private equity funds  that are willing to use cash and think about the impact of leverage later should be able to find some excellent assets available at attractive prices.

Over the weekend Mary Claire and I went to the theatre to see “Speed-the-Plow” by David Mamet. It stars Jeremy Piven, Raul Esparza and Elisabeth Moss. Piven of Entourage fame and Moss a star on Mad Men were excellent when combined with the talented Esparza. It is scheduled to run until February at the Ethel Barrymore Theatre on W. 47th St.

Late this week, we will depart for Blackhawk for Thanksgiving. I know that everyone will look forward to the Thanksgiving interlude, which will provide some needed relief from the continued bad news in the global markets. We will host our friends, Cate and Joe DeMarco.

Another friend, David Crosby, reminded me recently that I had not written about Pride Mountain Vineyards, except for a brief mention in an earlier blog. As you try to pick a wine to go with your Thanksgiving dinner, you would not be disappointed with Pride’s exquisite Merlots. They have just released their ‘07 Vintner’s Select Merlot. I am a great fan of their Cabernet Sauvignon releases as well.  This winery is a longtime favorite of mine. It was founded by a husband and wife team, Carolyn & Jim Pride. Jim Pride passed away in ‘04, but the winery continues to be run by the family. www.pridewines.com

For those of you who would like something a little more refined with your turkey dinner, but with a full body and much nuance, I would recommend Peter Michael’s Pinot Noir: Le Moulin Rouge. I would also recommend you start your meal with their Sauvignon Blanc: l’Apres Midi. www.petermichaelwinery.com

Finally, one will never go wrong with the outstanding Chardonnay & Pinot Noir wines from Kistler Vineyards.  Their Cuvee Catherine & Cuvee Elizabeth Pinot Noirs are two of my all-time favorites from the Sonoma Coast.    www.kistlervineyards.com

You should be able to find limited quantities of these wines in your better wine shops. In New York City, I recommend you try Crush Wine & Spirits, which has an excellent selection of wines. They are  near the corner of 57th and 3rd, at 153 E. 57th Street.  www.crushwineco.com   You can also try Sherry-Lehmann, which recently relocated from Madison Avenue to the corner of Park Avenue and 59th St. www.sherry-lehmann.com

Happy Thanksgiving!

In April of this year, in a blog entry titled, Transitions, I focused on the analog to digital transition that media companies were faced with, and how difficult this would prove in a challenged economy. In many ways, I did not envision the challenges that September and October would present us. This is clearly the most difficult advertising environment that we have experienced since the fourth quarter of ‘01, after the tragic events of 9/11.

I would like to focus, though, on the transition that will take place between President-elect Obama and the current Bush administration. After a primary season that seemed to go on forever and a bruising fall campaign, it became clear on the evening of the  election, which I spent in London, that President-elect Obama and his team had run a flawless campaign, which was evidenced by his commanding margin in both the Electoral College and in the popular vote.

Our democracy, around the world, will be judged on the transition between administrations. We should all take a deep breath and allow the Obama team the time to select the key positions in their administration. As President-elect Obama has pointed out, we have one president at a time, but his transition team  should be able to focus, in a collaborative way with the departing Bush administration. Some have been too quick to criticize his pick of Rahm Emanuel, as chief of staff, as too partisan of a choice.  History has shown that within the modern presidency, this is a critical choice and one that only the president can make.

President Bush has reached out and tomorrow the Obama family will visit the White House, which is very appropriate. In a time where we are challenged at home and abroad, we should allow President-elect Obama to prepare for the next four years.  As someone, who has taken over companies and divisions from previous CEO’s and their administrations, I have come to appreciate most, those who have left me a clean balance sheet. I hope that the Bush administration takes this approach and acts in the best spirit of bipartisanship. As the new opposition party, the Republicans will have plenty of time to critique and reflect on why they lost the support of the majority of the American public and what they must do to address this, as the minority party.

Turning to football, why have the Miami Dolphins improved to 5-4, with 3 straight victories, to find themselves in the thick of the AFC East divisional race, after finishing 1-15, last season? During the past several seasons they have employed some excellent coaches, for example Nick Saban, who now has Alabama back on top of the college polls at #1, and yet was not able to turnaround the Dolphins.  Bill Parcells, who has directed winning transitions for the Giants, Patriots, Jets and Dallas got bored in his latest retirement. He realized that the sidelines were really for a younger person, but he put together a strong transition team, mostly from his days in Dallas, and arrived with new head coach, Tony Sparano, and once again has turned a losing franchise into a winner.  They have even given the NFL the Wildcat offense, which is being copied around the league. 

I spent Saturday evening, in Chestnut Hill with my brother-in-law, John McQuade, watching Boston College defeat Notre Dame for the 6th straight time. The final score was 17-0. Several observations; Charlie Weiss has an improved Notre Dame team, but it is not of caliber of the teams in the top 25, although it is one victory (6) away from being bowl eligible. Clausen will complete all four years at Notre Dame, because the NFL is not going to call on him to enter the draft, early. I got my tickets late and found myself in the far end-zone, with many Notre Dame fans. I was impressed to see several rows away, Mike Golic, co-host of Mike & Mike in the Morning on ESPN with Mike Greenberg, sitting with other parents and Notre Dame fans. His son, Mike, plays for the Irish. Obviously, during an ESPN broadcast, he could have been in the booth, but on Saturday evening he was there as a parent.

Transitions are never easy, but when executed well they can be exhilarating and allow a new team to prepare for all the challenges they face!

As I indicated in California Dreaming, this recession is going to be deeper than we anticipated just a few short months ago. For the media industry, the advertising slowdown will not spare any categories, as marketers move quickly to cut their variable expenses.

Several years ago before the newspaper industry began its steep decline, Bruce S. Sherman of Private Capital Management (PCM) built up significant positions in many major newspaper companies, including Knight-Ridder. As he saw the storm clouds forming for classified ads, a very profitable category for the newspaper industry, and started to realize that Craigslist’s free classified model would be difficult, if not impossible, to compete with, he pushed Knight-Ridder into play. It eventually was acquired by the family controlled McClatchy Company (MNI), which established two classes of stock, with the voting rights residing in the Class B shares controlled by the family. At the time, their publicly traded A shares were over $50.00 per share and their CEO, Gary Pruitt, got some glowing reviews. He quickly moved to sell off the larger papers, such as the San Jose Mercury News and the Philadelphia Inquirer, where the unions, particularly the Newspaper Guild, were seen as strong. Today, McClatchey shares trade below $3 a share and Sherman’s PCM fund is no longer a major shareholder in the newspaper industry.

This past week, The New York Times Company (NYT), which without a doubt produces the highest quality reporting of any national newspaper in the country, reported that their 3rd quarter income declined by 51%. Their revenue for the quarter declined 9% to $687M (WSJ, October 24, 2008). Based on the anticipated accelerated advertising slowdown, Standard & Poor’s downgraded the company’s credit rating to junk status.  This could take a very significant toll on the controlling Ochs-Sulzberger family. In spite of declining fortunes, they have been able to continue annual dividends that pay the family members approximately $25M annually.  The company’s CFO, James Follo, felt compelled to announce that they would review the dividend policy before year-end.  Like McClatchey, they will also most likely have to take a further write-down on their Boston assets, in particular the Globe. Their shares are trading near $10, which is a 52-week low.  The New York Times has a particularly able online leader in Martin Nisenholtz and recently brought in the very talented Cella Irvine to run About.com.  I had the pleasure, many years ago, to work with Cella at Harcourt Brace Jovanovich.  Even with significant online assets, they reported an overall decline of 16% for advertising revenues, with New England leading the decline at 19.4% (WSJ Friday, October 24th, 2008).  Has any one heard Jack Welch making a case to buy the Globe recently?

Several years ago before this decline became an avalanche and the credit markets dried up, private equity firms and hedge funds would have been lining up to compete for the right to take the New York Times Company private, together with the Ochs-Sulzberger family.  Today that option seems like a distant dream. What options do the families have? Unfortunately, they are going to have to take some painful measures, including a dividend cut, during this protracted downturn to protect their core franchises. I am certain that coming out of this recession that all newspaper companies, including The New York Times Company, will look very different than they do today. Many of their print assets that are determined not to be core will have been jettisoned and replaced by digital assets that will require a new, less people-intensive content creation model. Media companies that cannot weather the storm will disappear and be replaced by start-ups that are more nimble and have business models that have been tested during this perfect storm.

On January 15th of this year, I wrote of the presidential candidates in both parties who had momentum coming out of Iowa and New Hampshire and those who were trying to regain momentum. At this point, with just over a week to go to the election, it is clear that Senator Obama has momentum and that Senator McCain is still trying to find a message beyond Joe the Plumber. I hold to my earlier prediction that Senator Obama’s momentum will carry him to president-elect Obama, by a wide margin, both in the popular vote and the Electoral College.

The University of Texas, led by Heisman candidate Colt McCoy, and the resurgent University of Alabama, under the able tutelage of Nick Saban, clearly have momentum.  It is a long way until the BCS Championship game, but a match-up between these two storied programs would be outstanding.  I do have to call my good friend Bob Biolchini, CEO of PennWell, to place our annual wager on the upcoming Boston College vs. Notre Dame game that will take place in Chestnut Hill on Saturday, November 8th. Bob and his wife, Fran, were gracious hosts at Del Posto, in New York City, when the Eagles defeated the Irish for the NCAA Hockey Championship earlier this year. With Notre Dame being much improved and Matt Ryan now playing for the Atlanta Falcons, it is a toss-up as to who will host our next dinner. Today’s loss to North Carolina demonstrated again that this is not last season’s team. I will be in the stands rooting for the Eagles!

In closing, I need to bring another winery to your attention. For all of you who love the sensitive Pinot Noir grape, I recommend the reference standard, Williams-Selyem (www.williamsselyem.com). With their extensive offerings and storied history, Williams-Selyem has set the standard for Pinot Noir vineyards in both California and Oregon. Today it is owned by John Dyson, the former lieutenant governor of New York, and his family, who have maintained the high standards of the founders.  Our good friends and neighbors in Blackhawk, Elise and George Riggs, have the most outstanding collection of Williams-Selyem wines, with vintages stretching back into the early ’90s. George had a very long and distinguished career in the newspaper industry and has earned a retirement that includes bike trips throughout the Burgundy region of France and picnics and dinners accompanied by wonderful Williams-Selyem wines.

With all the market volatility and less than three weeks left until the ‘08 Presidential Election, I have decided to move up my Thanksgiving wine column. I considered writing a column on Joe the Plumber, but his 15 minutes of fame will pass quickly. I sense that we all need some diversion from the wild swings in the global markets. I do believe that the recession will be deeper than one would like over the next several quarters, but our British colleagues have shown us a clear path to more stable financial markets with their direct capital investments in the major banks.

I have started receiving my fall orders from my favorite winery mailing lists. What follows are some nuggets:

Abreu Vineyards
The ‘04 Abreu Madrona Ranch Cabernet has been released. Their second growth, the ‘04 Rothwell Hyde Red (I do not understand the branding), is always outstanding. Their olive oil is also worth ordering. www.abreuvineyards.com

Araujo Estate
I always look forward to these excellent Cabernet releases, ‘05 (RP98). www.araujoestatewines.com

Arietta
The ‘06 Quartet is a Bordeaux-style blend included in this fall’s release.  The quartet of grapes is sourced from the famed Lucia Abreu Vineyard on Howell Mountain, with the addition of Cabernet Sauvignon  from the Madrona Vineyard in St. Helena. I tasted the Quartet back in June when I visited with Fritz Hatton and have been looking forward to the arrival of my order. www.arietta-wine.com

Aubert Wines
Mark Aubert has moved from Colgin to Bryant Family Vineyard. For me though, his Aubert Pinot Noirs have quickly become a favorite. I just wish that the quantities were not so limited! www.aubertwines.com

Colgin Cellars
I have served my time on this list and for the first time I have received the ‘05 Cariad release (RP96+). Mark Aubert has been replaced by his former assistant Allison Tauziet. She has been well received by the critics. www.colgincellars.com

Kongsgaard
For all you Chardonnay fans, The Judge ‘06 is a special blend named in honor of John Kongsgaard’s father, who was a judge (RP96-98). www.kongsgaardwine.com

Martinelli Winery
I always look forward to my shipments from Martinelli. I particularly enjoy their Zinfandels. The ‘06 Jackass Vineyard will be included (RP94). They are very complex and full bodied. www.martinelliwinery.com

For those of you who would like to try several of these new releases and do not want to wait to get on the mailing lists, I recommend www.finewinecollector.com.  This Internet business is owned and operated by Edward Mackauf, who is very knowledgeable and has an excellent inventory.

The volatility in world markets remains, one week after the historic votes in the Senate and the House that authorized the rescue plan. It clearly will take time for the global markets to return to normal and it will also take some time for the Federal Reserve and the Treasury to use all the new tools at their disposal.  Almost no one believes that we will escape a global recession. The best we can hope for is that these concerted actions around the globe, including the unprecedented coordinated rate cut yesterday by six of the most powerful central banks, will insure that we do not slide into a global depression. In the United Kingdom, the government has taken ownership positions in several banks to help restore confidence and there is speculation that the United States Treasury will take similar actions with the new authority they have been granted by Congress.

Confidence will be restored and over the next several weeks the world’s credit markets will come back to life. We should realize that global financial markets will be much more regulated than they have been over the past decade. Alan Greenspan’s tenure as head of the Federal Reserve will also be re-evaluated and history will not be kind. With AIG on the brink of collapse several weeks ago, we all started to learn the risks and exposure that unregulated derivatives can cause to even the strongest financial institutions. On Sunday, September 28th, Gretchen Morgenson wrote on the front page of The New York Times, “Although America’s housing collapse is often cited as having caused the crisis, the system was vulnerable because of intricate financial contracts know as credit derivatives, which insure debt holders against default. They are fashioned privately and beyond the ken of regulators — sometimes even beyond the understanding of executives peddling them.”  She goes on to document the rise and fall of AIG’s Financial Products group, run out of London by Joseph J. Cassano, which eventually brought AIG to the brink. Cassano helped start the unit in 1987 and resigned this past February when his unit started hemorrhaging and the auditors started to assess the exposure.  I highly recommend this excellent piece of reporting, “The Reckoning: Behind Insurer’s Crisis, Blind Eye to a Web of Risk,” which demonstrates why good journalism still matters and how fortunate we are to still have the New York Times and not only aggregated news services.

We have also learned that in a time when confidence is essential, proving the theory of “moral hazard” by letting Lehman Brothers go under was a terrible idea. It clearly is the point of demarcation as to why the credit markets froze. If Bernanke and Paulson had coordinated a Bear Stearns/JPMorgan Chase-like solution, we may have avoided all the dislocation that has followed. Once the markets are calm, we will need to study the demise of both Bear Stearns and Lehman Brothers to understand why they collapsed and the best approach to deal with unprecedented financial strains in the global markets.

Finally, with slightly more than three weeks to go until the presidential election and after two presidential debates and one vice presidential debate, the polls are now clearly pointing to the election of Senator Barack Obama as our next president.  Senator McCain has not been able to find a message with which to connect to the American voter and only seems to find his comfort zone when he is dealing with foreign policy issues and war strategies. National defense issues are critical, but this election will be decided on economic issues and the momentum is clearly with Senator Obama. I sense that when the final votes are tabulated that Senator Obama will have won in a landslide that will be reminiscent of the defeat of another Arizona Senator, Barry Goldwater, by Lyndon Johnson in 1964.

On Monday, September 29th, with the whole world watching, the House of Representatives failed to pass the financial rescue plan. After several days of testimony the prior week from Ben Bernanke and Hank Paulson and support from leaders of both parties, the House vote was short by 12 votes. The rescue plan was opposed by 95 Democrats and 133 Republicans. We should not be surprised that George Bush’s capital is spent. He knew he needed the support of both presidential candidates, who returned to Washington DC for a White House briefing on the bill. Senator McCain made a detour first to meet with the House Republicans. Did he wink at them on his way over to the White House, with regard to supporting the bill? It has been reported that while Senator Obama asked several questions about the bill and its impact, Senator McCain, who announced he was suspending his campaign because of the financial crisis, remained silent during the White House meeting. He finally decided on Friday to resume campaigning and showed up on the University of Mississippi Campus for the first of three scheduled presidential debates.  This was only after Senator Obama’s camp made it very clear that he would hold his own town hall meeting if Senator McCain did not find his way to the debate.  Neither senator scored a knockout punch and both seemed more comfortable speaking about issues other than the financial crisis.

One also wonders if the late Speaker of the House, Tip O’Neill, ever went into a critical vote without knowing if he had the votes necessary to pass the bill. Speaker Pelosi decided to make a very partisan speech prior to the vote, which many felt gave the Republican House members the rationale they were looking for to vote against the bill.  The speech would have been more appropriate, if she felt it was necessary, after the vote.

The stock markets around the world reacted immediately  and a blood bath of unprecedented proportions took place as people rushed out of equities to find a safe haven.  On Wednesday the Senate voted on the bill, with some sweeteners,  and passed it 74 to 25, with senators Biden, McCain and Obama all voting for it. Senator Kennedy voiced his support for the bill, but did not leave his home to vote.

The spotlight has once again turned to the House, where they will vote this morning. Will they demonstrate the courage to stare down the Rush Limbaugh audience and move the country forward in a time of crisis?  The credit crisis is very real and each day we see another major bank failing and businesses folding because on top of a slow economy, they cannot survive without access to credit facilities. We are also seeing media deals that were done with significant leverage go into default. Avista Capital’s Minneapolis Star Tribune defaulted on a debt payment yesterday. How many more defaults will we see in the coming weeks? Can any sizable deals get done in the current credit crisis?

We have seen the legendary investor Warren Buffett step in and make two very significant investments in General Electric (GE) and Goldman Sachs (GS). Both deals were done on very favorable terms, but it was clear that the Buffett dividend was still powerful and that he believes these two powerhouses will emerge from the current crisis in even stronger positions. I once had the pleasure of sitting next to Warren Buffett at a dinner, right after the merger of Capital Cities and ABC. It was during a senior management meeting in Phoenix and he had just provided the $500M that allowed Capital Cities, the smaller company, to acquire ABC. His words of wisdom, with regards to investing or acquiring simple businesses where you could quickly understand how you made money, have always stayed with me. He also had ample praise for the management team of Tom Murphy and Dan Burke. He likes to bet on strong franchises with excellent management.

While we waited for the House to vote again, we got to watch Senator Biden and Governor Palin debate last evening. This was their first meeting and was the only scheduled debate between the two vice presidential candidates. Governor Palin did not need a “life line”  (from Tina Fey on Saturday Night Live), but it was clear that well-rehearsed lines could not carry the day against a very experienced senator.  My views expressed in my earlier blog entry, Leadership, remain intact.

While the world’s financial markets are frozen and we are seeing the foundations of our financial system shaken, the post-season playoffs have returned for our National Pastime.  After making the playoffs for 12 straight years under Joe Torre’s leadership, the Yankees did not make the cut. The American League wild card was won by the Red Sox. Torre’s record remains intact, though, as he leads the Los Angeles Dodgers into the post-season for the first time in many years. He had a great assist from Manny Ramirez, who the Red Sox traded during the summer after it was clear that he needed a new home.  The Mets had another late-season collapse, and while it did not match their ‘07 collapse, it was still very painful for Mets fans. The playoffs did open with both Chicago and Los Angeles having two teams in the hunt.

Chicago is a great sports town and there was euphoria, for a short time, having both the Cubbies and the White Sox in the post-season playoffs. This was the first time since 1906 that both teams were in the playoffs in the same season. The euphoria was short-lived, however, as Joe Torre’s Dodgers have taken a 2-0 lead over Lou Piniella’s Cubs. Piniella led the Cubs to 97 wins, for the best winning percentage in the National League, but they have their backs to the wall as they travel to Los Angeles in a short best–out-of-five series.  Will the World Series drought that stretches back to 1908 continue for the Cubs? The White Sox find themselves down 1-0 to the surprising Tampa Bay team.

The Cubs’ current owners, the Tribune (a sale process is progressing), are facing their own uphill battle. Under Sam Zell’s leadership, will the Tribune be able to avoid default later in the year, as the newspaper industry continues to see eroding advertising revenue?

This past weekend lived up to my expectations, with the U.S. Ryder Cup team pulling off a surprise upset of their European rivals.  The U.S. captain Paul Azinger created a team, while European captain Nick Faldo seemed to remain aloof,  and there appeared to be a lack of camaraderie on his side, in spite of his most controversial pick, Ian Poulter, winning 4 points, more than any other player.  On the U.S. side we continued to see the rising star of Anthony Kim.  This son of Korean immigrants was a proud American, and with his outstanding play Kim took center stage. Sergio Garcia, one of my current favorites on the PGA tour, was overshadowed by him.  Finally, Boo Weekley led the good ol’ boy contingent, while Kim led the rookies. They were deceptive with their approach, but they played outstanding golf and are to be congratulated as a team.

Dallas went into Green Bay and finally won at Lambeau. The NFL East with the Cowboys, Giants, Eagles and Redskins certainly looks, at this point, as the NFL’s strongest division. They will clearly beat up on each other as the season progresses, but the next Super Bowl champion could well emerge, once again, from this division. Miami’s turnaround continued with a strong showing against the Patriots, who clearly miss Tom Brady. In the college ranks one of the surprise teams so far is the Colorado Buffaloes, who upset West Virginia to go 3-0. Their next three games are against Florida State, Texas and Kansas. We will know after these games if they belong in the top 20 and if this program has been turned around by Coach Hawkins and his son Cody, the Buffaloes’ quarterback.

The weekend also saw Treasury Secretary Hank Paulson make the rounds of the Sunday morning talk shows. In an exchange with Tom Brokaw on Meet The Press, Paulson was very clear that this was not about the stock markets, which had rallied on Thursday and Friday, but about the frozen credit markets. Will either presidential candidate be able to attract a talent like Paulson to their administration? The Fed Chairman Ben Bernanke  has studied and written about the causes of the Great Depression and clearly understands the need to take unprecedented actions. We are in uncharted waters and the Bush administration has taken a page from FDR’s playbook, as opposed to Hoover’s. There are times that the government needs to step in to restore confidence.

Many of us have been vocal about our opposition to government intervention into free markets, but at this point what are the alternatives? Are we prepared to have our financial markets unravel? Will we see more deals fall through, like the Informa (INF:L) acquisition in the United Kingdom, which failed because Providence, Carlyle & Blackstone (BX) could not raise their price in the current frozen credit markets? The price drop has been precipitous for shareholders. We also learned as the weekend ended that Goldman Sachs (GS) and Morgan Stanley (MS) would survive as bank holding companies, changing the landscape of investment banking in a very significant way. And we saw Warren Buffett reading a market bottom and making a $5B dollar investment in Goldman Sachs on very favorable terms. As I am writing this, GE (GE) cut its earnings guidance. To preserve capital in these challenged markets, GE has suspended their stock buyback and most likely will maintain their dividend, but not raise it for the first time since the ’70s. GE Capital has been a significant funding source for many of the B2B mid-market deals over the past several years.

It is time for both parties to work together on a solution and to put finger-pointing aside. The world is looking once again to America for leadership, and our leaders need to demonstrate that they understand what it means to operate in a bipartisan fashion. The presidential campaign needs to go forward and the American people deserve to have debates to better understand the fine distinctions between the candidates. But while we move forward the current administration and the Congress must move to fashion a solution that restores confidence.  There will be plenty of opportunity for history to assess blame for the subprime debacle.

When I wrote Autumn Crush on Saturday, I did not anticipate I would be writing the sequel on Wednesday, but so much has transpired over the past 48 hours that we are back with Autumn Crush II.

We have learned that the team of Hank Paulson and Ben Bernanke decided to let one of the independent investment banks go under and that Lehman Brothers was not going to be rescued.  I am surprised that we have not heard from Lehman CEO Dick Fuld, who was very vocal up until the end about their viability. Was it hubris last spring and summer when he turned down several reported deals?  It is clear that the hedge fund manager, David Einhorn, was correct and that Lehman’s former CFO Erin Callan was incorrect about the financial strength of their franchise. It was tragic to see 25,000 jobs lost on Monday morning. The human carnage and the loss of wealth rank right up there with the Enron debacle. Will the SEC introduce new regulations as they did with the Sarbanes-Oxley Act of 2002? As of late yesterday, Barclays Bank had petitioned the bankruptcy court to take over many of Lehman Brothers assets, but not the most risky ones that put them under pressure. It looks like the court will accept Robert Diamond’s offer of approximately $1.75B and that about 40% of the Lehman Brothers jobs will be saved.

In contrast to Lehman Brothers, we have seen “Mother Merrill” find a new corporate home with Bank of America. John Thain clearly saw over the weekend that there were limited options and managed to negotiate a sale with a significant premium from Friday’s closing price to the benefit of Merrill Lynch’s shareholders and employees. I trust that down the road we will realize that Ken Lewis negotiated two beneficial transactions for Bank of America’s shareholders over the past year: Countrywide and now Merrill Lynch.

We have also learned as of this morning that the “too big to fail” label was applied to AIG and that the federal government now controls it.  Hank Greenberg’s bid to return was not accepted. Hank Paulson informed the current CEO Robert Willumstad that he would have to exit as well, and Paulson replaced him with Edward Liddy, the former head of Allstate.

The amount of shareholder value that has been lost in the past 48 hours exceeds anything we have seen in recent memory. It is clear that the credit crunch will continue and that large private equity deals will continue to be challenging, under the current market conditions.

Goldman Sachs and Morgan Stanley are our last two large, independent investment banks. Will they remain independent, and will there be a role for some of the largest private equity firms to step into the void left by the demise of The Bear and Lehman Brothers?

The upcoming weekend’s football games will provide some welcome diversion from the drama on Wall Street. Will the Super Bowl champion Giants improve to 3-0 versus the Bengals? Will the Patriots, without their leader Tom Brady, go to 3-0 versus the revitalized Miami Dolphins? Brady, who is also the face of the NFL, along with Peyton Manning, is clearly missed.

Will Ohio State recover from their devastating loss against USC and beat up on Troy? Finally, BYU and their Heisman candidate quarterback, Max Hall, should continue to roll against Wyoming. Hall to the tight end Dennis Pitta has to be the best brother-in-law combination in football!