A Subprime Primer

Others have linked to it as well, but it's still good.

Friendly's Update

Front page article in Globe today on the status of Friendly's, and the deteriorating relationship between co-founders and brothers Pres and Curtis Blake. The current management of the company has engaged Goldman Sachs to consider selling it, but at the same time has reached out to Curtis Blake to have him convince his older brother not to vote his shares with a hedge fund that has a significant position:

After meeting with the executives for a few hours at his home, the younger Blake the next morning faxed a handwritten, five-page letter to his older brother. The siblings, who started Friendly's during the Great Depression, live just 12 miles apart but haven't spoken to each other in more than a year because of a falling-out over the business. But Curtis broke the silence to protect Friendly's from what he called "a corporate raider."

"Our company is now in a very precarious position," Curtis wrote in January. "You alone are now in the position to control the entire future"...

"I'm sorry my brother isn't with me on this," Prestley said, "but I'm going to keep going because I know I'm right. I'm going to keep going until I can't go any further."

Said Curtis: "I'm very disappointed. He was my best friend for 85 years. It would have been a nice story if we ended up best friends for our entire life."

Friendly's For Sale?

Friendly's has apparently hired Goldman Sachs to advise them on possible options, including a possible sale. Perhaps in a related event, two hedge operators who own a sizable stake in the company sent a letter to shareholders, as highlighted by the Globe:

Meantime, on Tuesday Sardar Biglari , one of the firm's largest stockholders, sent a letter to other shareholders outlining his strategy to shake up the chain if he and business partner, Philip L. Cooley, win the two directors seats up for election at the company's annual meeting in May. He said the firm needs to convert more company-owned stores to franchises and curb executive compensation.

With founder Pres Blake's suit still pending, it seems likely that there will be more to come from this corporate story.

Dow's Down...and Down...and...

It will undoubtedly take some time to sort all out, but it appears that today's near meltdown in the DJIA was a function of a computer glitch, as reported by the WSJ:

There was a temporary lag in calculation of the 30 large-stock average due to a surge in order flows as the market continued to tumble in afternoon trading, much like a clogged pipe. Just before 3 p.m., Dow Jones Indexes switched over to a backup system to calculate the average, which nearly instantly registered the huge move.

Jim Cramer blames ETFs. Perhaps this is just the new code word for "program trading", the alleged cause of the (in)famous 1987 meltdown.

Friendly's on the Front Page

Stephen Syre's Globe business column today noted the corporate battle between Friendly's founder Press Blake and San Antonio hedge fund manager Sardar Bilgari, on one side, and current Friendly's Ice Cream management on the other. (Ed. note: as a long-time resident of Wilbraham, I am perhaps more cognizant of the story than others might be.) Blake is 92 and Bilgari is 29. Talk about strange bedfellows!

SEC Proposes New Rules

The Securies and Exchange Commission voted yesterday to propose new rules, that would in effect, apparently create a new definition of "accredited investor" for those investing in hedge funds and certain other pooled investment vehicles. The current definition of "accredited investor" is a person with over $1 million in net worth, or $200,000 in income ($300,000 for a couple). The new proposed standard would apparently be $2.5 million in 'investment assets', which (currently) excludes the value of the primary residence.

The WSJ reports that the net effect of the proposed rule would to reduce the percentage of American households that would qualify as 'accredited investors' from 8.5% to 1.29%. The percentage of households that qualified as 'accredited' in 1982, when the $1M/$200K standard was adopted, was 1.87%.

The rules, which still need to be published for comment, and then formally adopted, could have a definite effect on certain hedge fund vehicles. What also could be interesting is whether the SEC looks to apply this proposed standard to private offerings (Reg D), such as angel round financings for small companies. While there's no indication that the SEC is interested in regulating anything other than hedge funds with these new rules, there will be potentially different definitions of "accredited investors" in different contexts (i.e., private companies vs. 'pooled investment vehicles') and therefore an individual could be 'accredited' in one type of investment but not in another.

The proposed rule itself is not available yet on the SEC website. More information may be forthcoming.