Think of a cross between Bonneville Stake Conference and a temple dedication. Music arranged by Bill Evans and played by the strings; the President of the Church, two members of the Twelve and a Seventy; chairs and television monitors in every room; an office for the General Authorities to wait in, complete with snacks and drinks on starched table cloths and flowers.


Kathleen and I went over about 3:30 to oversee the final arrangements. It was flurry of activity - chairs being set up, video cabling being connected, furniture being re-arranged, and the the chapel beginning to fill.

There was some question about whether or not Grandpa would actually make it - Ginny called about 3:30 to say he did not seem well and wondering what the backup plan was (it was to have Elder Oaks give the prayer). But the security men arrived about 4:00 p.m. to do final arrangements and setup. Elder Oaks and Elder Wirthlin arrived about 4:45, and Grandpa arrived with Dick about 4:50. They brought him in the the far east door (where a red carpet runner had been laid from the door to the parking lot) in a wheelchair and rolled him all the way down the hall to the front of the chapel; a security man on each side helped him up the two steps to the stand.

We began the meeting by singing "The Spirit of God" accompanied by Elaine Sharp at the organ (who sat on the front row 69 years ago when Pres. Heber J. Grant dedicated the building) and the strings. Ted Evans, twice bishop of the ward, offered the invocation, after which the choir and strings performed Bill Evans' arrangement of Bless this House (arranged for the occasion). I spoke, followed by Elder Wirthlin and then Elder Oaks, all of whom were brief. Dick and then helped Grandpa up to the podium and he gave the dedicatory prayer - several pages in length. Following the prayer the choir, strings, and Primary children sang a special arrangement (by Bill Evans) of "We Ever Pray For Thee". There were few dry eyes. Bishop Close gave the benediction, and it was all over by 5:35.

It was, as Robert Fowles would say, a spiritual hot tub.

Mitt Romney's campaign is still and alive and well, at least until Super-Duper Tuesday. The 2008 Summer Olympics will broadcast from Beijing this summer. And it would be nice to be able watch You've Got Mail, Casablanca, or the battle of Helm's Deep when the urge hits.

So we made the first big step and bought 32" Vizio LCD flat-screen television at Costco yesterday and installed it in the office.

Stay tuned for more.

Pops

The following story appeared first in the London Herald, then on the front page of the business section of the New York Times (Friday, January 4, 2008)

Now You See Those Securities, Now You Don’t

What better time of year is there than New Year’s Eve to release some bad news?

On the other hand, what better time of year is there for a money manager to engage in a little window dressing to make a portfolio look better?

Either way, one end-of-year incident in 2007 illustrates two absurdities: the techniques that banks use to make themselves appear healthier than they really are, and the determination of some portfolio managers to get dubious-looking securities out of their portfolios by the end of the year.

Perhaps, just perhaps, it also shows that some investors have overreacted to the credit squeeze of 2007, and that there really are buying opportunities around.

The bank in question is Zions Bancorporation, which operates in 10 Western states from a base in Utah. On the afternoon of Dec. 31, it notified the Securities and Exchange Commission that it had been forced to bail out an off-balance-sheet affiliate by purchasing $840 million of securities from it. That move produced an immediate loss of $33 million, since Zions paid more than the securities were worth.

Zions added that the affiliate, called Lockhart Funding, still owns $2.1 billion of securities, which it estimates are worth $22 million less than book value. Under the current accounting rules, it doesn’t have to take that loss. At least not yet.

Let’s first look at Lockhart and why it exists. In a world with sensible bank regulations, and accounting that reflected economic reality, it would never have been created.

Lockhart, which was set up by Zions in 2000, provides the cash for Zions to make small business loans. Zions turns those loans into securities and sells the securities to Lockhart, which then borrows money in the commercial paper market. Lockhart also buys securities not put together by Zions.

Why bother? First, the loans disappear from Zions’ books. Second, the bank regulators accept that fiction when they calculate how much capital Zions needs to have. As Clark B. Hinckley, a Zions senior vice president, told me, “It enabled us to essentially originate these loans and not have to keep tangible capital behind them.”

The reason this is all fictional is that Zions has a “liquidity agreement” with Lockhart. If any of the securities go bad, Zions will buy them at book value. If Lockhart cannot raise money by selling commercial paper to investors, Zions will buy the paper or buy some of Lockhart’s assets. For all practical purposes, Lockhart is part of Zions.

Zions has disclosed this arrangement over the years, so investors presumably understood it. But the arrangement made Zions appear to be better capitalized than it really was. The same is true of dozens of other banks.

The reason for the last-minute disclosure of the purchase of assets is that as 2007 ended Lockhart found it impossible to sell enough asset-backed commercial paper, even though Zions itself has purchased $710 million of Lockhart paper. Since Lockhart could not sell the paper, Zions had to buy the assets.

And that brings us to the evidence of investor absurdity. An investor buying Lockhart’s asset-backed commercial paper knew that Lockhart’s assets backed the commercial paper. If that was not enough, the liquidity agreement means Zions effectively stands behind the paper.

Mr. Hinckley reports that these days Zions can, and does, borrow in the unsecured commercial paper market, and at lower rates than Lockhart was offering to pay. That seems odd. Why would anyone prefer lower-yielding paper with less security? If I’m willing to lend you money without collateral, why would I refuse to lend if the loan was backed by both collateral and your promise to repay, and had a higher interest rate?

The answer is that asset-backed commercial paper has gotten a bad name, as unwary investors learned that the assets in question sometimes were funny securities backed by subprime mortgages. So money managers, whose year-end portfolios will be subject to scrutiny by customers, fled from such paper. The amount of outstanding asset-backed commercial paper declined rapidly as the end of the year approached, although it edged up this week, after the year-end numbers were recorded.

The Financial Accounting Standards Board and the bank regulators know all about this, and they have been talking about making changes for years. But it is complicated, and nothing seems to happen.

We probably will get action if and when there is a good scandal. Perhaps some bank will fail even though it seemed to have plenty of capital. Then there will be expressions of shock, and calls for changing the rules to reflect economic reality. In the meantime, banks will be able to keep assets off their books — until they have to report the losses when the assets go bad.

"Pollan is a believer, there's a pew with his name on it at Chez Panisse."

The attached podcast from Slate.com gives an engaging review of Michael Pollan's new book. Just click on the title above to read the review.

Bon apetit!

January 3, 2007 I checked into New England Medical Center for a 15 day stay in the Maternal Special Care Unit. To win this luxury vacaiton package, all I had to do was contract every 4 minutes, dilate to a 3, and be 27 weeks pregnant with twins. To kick off the big event, I recieved 2 injections of steroids separated by 24 hours of a magnesium sulfate drip, a foley catheter, med students checking my vitals and reflexes every two hours, and no food for the duration. After the initial excitement, I settled into a routine of "group" with the social worker and other MSCU residents every Thursday, the dessert cart every Tuesday and Friday afternoons, doctor's rounds every morning at 6:00, and all-you-can-eat room service.

January 3, 2008: I am happy to report that today I woke up to snuggles from two healthy, adorable, giggling babies. Thanks for all your prayers and support that got us here!