Prosecute the Sun and the Post

The New York Post is running a front page photo of Saddam Hussein in his underwear (published earlier by The Sun, in London). They also make attempts at comedic references:

The photos offer the first glimpse of the former despot beyond a brief court-appearance last July.

Several parties (e.g., here, and here, for example) have suggested that the release of these photos constitutes a violation of the Geneva Conventions.

If this is, in fact, a potential violation of the Geneva Conventions, then the Post should be held to task. I know that the Post often adds a more conservative voice than some of the more liberal papers, but "freedom of the press" does not offer immunity from "war crimes." Even a conservative voice that violates principles of responsible journalism should be pursued with all the enthusiam that would be employed against the more liberal MSM.

I find it amazing that regardless of the breach of ethics, of good taste, or of the Geneva Conventions - the MSM is given a pass. There should be a clamoring by blogs and by the MSM for an investigation into war-crimes violations by the Post and Sun.

We Need an Institutional Mathon

There seems to be this “thing” going on in Mesa, Arizona that is causing quite a stir. Apparently a group of very prominent local real estate professionals are under serious investigation on all sorts of charges relating to investment funds they have raised.

A former Arizona attorney general who is representing a Mesa firm accused of violating state securities laws said he is trying to work out an agreement on how to recover money for investors who have millions of dollars at stake.

Grant Woods, attorney for Slade Williams & Associates, said he hopes to know today if a deal can be worked out with the Securities Division of the Arizona Corporation Commission on how to proceed with recovering money owed to investors in the Mathon Fund and Mathon Fund I.

Last week a Maricopa County Superior Court judge issued a temporary restraining order closing the investment firm and appointed a receiver to control its assets while the division continues its investigation. The division accused Slade Williams of operating a Ponzi scheme and violating eight provisions of the state securities act, including failing to fully inform investors of the risks they were taking.

According to the commission, the funds used $150 million in investors’ money to provide short-term, high-interest bridge loans to borrowers who needed quick cash but had sufficient collateral to cover the loans if the borrowers should default. The commission said most of the loans were in default and investors instead were paid from income from later investors — the classic Ponzi scheme.

Slade Williams denied the charges and said the vast majority of the investors are supporting the company and its activities. Woods said several key real estate transactions that served as collateral for loans are pending that would provide money to pay off investors. But those deals may be in jeopardy now that the state has moved against the company, he said.

The Mathon Funds and Slade Williams are in the business of “hard money” lending. This end of the lending market is specially tailored for desperate borrowers. The rates the lenders charge for money are extreme, but they also take quite a bit of risk and are willing to move very, very quickly. In a booming market (like Arizona real estate) opportunities sometimes spring into existence and fade over very short time horizons.

Normally a business like Mathon would consist of a small group of well-connected friends who put their personal money up for opportunistic real-estate deals that needed to be closed quickly. Mathon’s problem, it seems, is that they tried to grow beyond the typical small, opportunistic, enclave format and they actually tried to make this into a full-time business. They raised additional capital beyond their own, and they tried to create a steady flow of investment “opportunities.”

The business of opportunistic lending is a very valid one, but it usually takes place in small back room, not within the light of day. Anyone that has seen the fast pace of deals in a booming market knows that lenders who can turn on a dime really can be worth the exorbitant rates that they charge. So the difficulties faced by the Mathon / Slade Williams group isn’t in their primary line of business. Their lending practices (at very high rates) and their lending niche seem both to be reasonably sound.

Mathon / Slade Williams, however, got into trouble with the way that they raised money. They apparently made promises to investors that cause the state to believe that they violated securities laws. The charges, in fact, (see the state’s complaint here) all seem to relate to securities law, and not to the lending side of their business (the T.R.O. is here). The state cites investors who claim they were quoted annual returns of 36%, 75% and even 120% on their investment. Those types of promised returns, apparently, are in and of themselves grounds for securities law scrutiny.

The state, in seeking to minimize the damage associated with the Mathon / Slade Williams group, has shut down their business. They have closed the doors of Mathon and are seeking to liquidate the loans and other assets of the Mathon Funds. But shutting down a business like Mathon is a very tricky matter. It is a bit like a juggler who is juggling several fine-china plates being accused of a crime. If you just snatch the juggler and haul him off to jail, the plates will fall and are guaranteed to break. In this case, the complaint is (at least in part) that the investors (who gave the juggler their plates to juggle) are at risk of not getting their plates back. The state can assure that the investors loose by just shutting Mathon down. They cannot guarantee its success.

In my conversation with one of the principals of Mathon, he was convinced that the Mathon business model is sound and that Mathon can, in fact, produce the types of returns promised – if the state will just let them wind things down. The Mathon principals are very experienced real estate professionals, and they really do know the business of opportunistic lending. They seem to be saying, “Just let us work our magic, and everything will come out OK.”

I personally believe that the state does not have the current investors’ interests as their sole concern. They seem to want to prevent future investors (which they might call future “victims”) from suffering. Consequently, the state will sacrifice much of the salvage opportunity with the current Mathon investors by forcing the existing Mathon Funds to wind down in a disorderly fashion. These loses will cast a pall on the “opportunistic lending” business in general. I think that this is the unfortunate reality.

Experienced “boom” developers know the benefits of opportunistic lenders who can quickly assess risks and turn on a dime. I feel we need an institutional investor that knows the risks inherent in opportunistic lending that will come in and fill this niche. That institutional investor might even be willing to come in and take the position of the Mathon Funds, thereby "rescuing" the current investors. Absent this rescue, extraordinary losses are on the horizon.

The current Mathon investors and the professionals at Mathon may be the short-term loosers. The loss has been exacerbated by the state in its zeal to protect future victims. But, the long-term loser will be the boom-driven developers who have come to need these opportunistic lenders.

It looks like a lake...

Chun's 10 May, 2005

Chun's looks like a lake today (but note that one poor soul is out waiting for a miracle). Yep, its flat, no waves... it may be a good day to hit Shark's Cove, though, and snorkel. There are some lava tubes and caves at Shark's Cove that are fun to swim through. I like to think of these tubes as being of two categories - fun ones and scary ones.

The fun ones are those that you can swim down to, swim through and get back up for air in 30-45 seconds. The scary ones are those that take a minute and a half or more. I don't know why we do the scary ones. I really get the willies even thinking about it. But, when you are out with friends and even other old guys (like my Surfing Buddy who is also over 50) and want some fun, we just give in to peer pressure...

My 18 year old daughter, who is on the Kahuku High swim team and the women's water polo team, well, she also taunts me. "Come on, Dad!" she says - and then darts for a cave opening. When we finally pop our heads up through a hole gasping for breath, there is that nervous giggle. Maybe she knows that she is in better shape than I am and that what is a challenge to her might be considered "life threatening" to me (well, it feels like it).

I remember my first cave, though. It was a dive from outside the cove back into "the Blue Room." I had never gone through a cave before, and I was just snorkeling around with my wife. We happened to run into one of my old students and his wife who were walking around out on the reef shelf where it is rocky and dry in all but really high tides. We were in the water and my student says, "You should go through that cave there to the Blue Room." He pointed out where the cave entrance was, and told me that it wasn't too far. Well, I thought that I could go in far enough to see how far away the cave was, and then I could turn and swim back out if it was too far.

I dove down about 6 feet and looked into the cave (which seemed large enough to turn around in). As I started into the cave, it was erie. The water got darker and darker, then just as I was starting to get a bit nervous, I saw the water getting lighter just ahead. As I swam toward the light I really had to exert myself more than I had imagined. But, I emerged into this small cave that opened on one side to the air. I thought is was so cool. After catching my breath I turned and headed back out into the open sea. As I started from the cave, though, I could see the lighter water from the outside cave entrance even as I started my swim from the cave. So, going back out wasn't nearly as nerve-wracking as going in the first time. I think it is always easy to swim toward light. It is scary to swim into darkness.

One of the scariest caves I've done requires that you swim down to an opening about 35 feet below the surface. You swim straight in for about 20 feet, then hit a wall and have to swim down another 6 feet or so. The water is nearly pitch dark here, but you go by feel. Then you swim under this ledge for another 6 feet or so, and the cave opens up a bit more. Once the cave starts to open up, you can see that just 20-30 feet ahead there is a faint light in the water You swim for that, and a hole opens up that is about 6-8 feet across. It doesn't have straight sides but goes mostly straight up for 40 feet or so. When you you come up to the surface the hole you are in is say, 8-10 feet across and are in the middle of a big shelf - maybe 60 feet from the ocean. When the waves are really big it is sort of a blow hole. But, you can always feel the surge if there are any waves at all... It seems really scary to swim that one. It takes me way more than a minute to swim the whole thing. Fortunately there is another way in and out that is only down 10-15 feet and goes out in another direction. That other way out even has a little "rest-stop" cave that you can come up in and catch your breath if you don't want to swim the whole way in one breath.

Well, maybe diving will be fun. It is only possible when the waves are small on the North Shore...

Chun's Reef Rocks

All who read this probably know by now that Chun's Reef is one of my favorite surfing spots.

Well, today was one of those spectacular days when the crowd was small (4-5 other surfers) and the waves were unbelievably nice. Sets were a bit over head high, and with no one to fight with for waves, everbody caught all they could handle. I surfed my 9'3" Robert August Wingnut special - it's such a fun board.

As for me, I surfed my fill, and then to cap things off caught some white water on the paddle in and saved myself about 300+ yards of paddling. I paddled 20 yards more and was in the little sandy channel near the point. I didn't even have to clamber over the reef or the rocks near the shore.

It was a really great day.