Personal Finance QuickTake: Carl Icahn

Carl Icahn is a pretty interesting guy. Along with Henry Kravis of KKR, he was one of the most feared names in Industry. The shear mention that Carl Icahn was "on the phone to talk to you", would scare most CEOs into writing him a check to go away!

60 Minutes had a great piece on him and how he makes his money, and as one of the Top 20 richest people on the planet, he does know a thing or two about how to make money. He might not make companies cower with just a call anymore, but he does know how to rattle his sabre.

Icahn was one of a handful of Corporate Raiders that bought up companies with little or no cash, loaded the company with debt and would then spin then off or tear them apart. Think Gordon Gekko from the movie "Wall Street". Icahn's famous takeover of TWA in 1985 is the stuff of legends. But the Airline was stabilized and saved, at least for a time, but a lot of people were put out of work.

He is now known more as a Board of Directors worst nightmare. In an era of huge CEO pay packages Carl has the audacity to ask if they are worth it! And if doesn't get the answer he wants he isn't afraid to try and replace the Board themselves.

His recent fight with TimeWarner about their disastrous merger with AOL is a great example. He disagreed with the direction of the company, tried to force CEO Dick Parson to sell or spin off large portions of the company, and even though he lost got the stock moving enough to still make $300 Million in the process.

Like him, hate him or don't understand him, he is still fascinating and offers a great glimpse into what happens backstage at some of the largest companies in the world. And bigger isn't necessarily smarter!

Learning Finance from the "Smartest Guys in the Room"

I was looking for a movie to watch tonight. I going through our DVD library I hit this one. Maybe it was the 60 Minutes thing yesterday about Mortgages, but I guess I wanted to see what started a different economic mess.

"Enron: The Smartest Guys in the Room" is a documentary, and before you roll your eyes and start thinking about those horrible ones in school with the hand-cranked filmstrips, or Michael Moore knocking on doors looking for a sandwich (kidding!), this is pretty darn captivating stuff.

What separates this one for me is that it really is the people involved discussing in archival footage what went on. The sub-title sums it all up; "It's Only Business."

Enron wasn't always a punchline. It was the seventh largest company to ever declare bankruptcy. A company so powerful they created the California rolling power outages!

So what can we learn from the movie in regards to personal finance. I think that here are some great lessons:

• 401K investments - Never over invest in your companies stock! People thought that they were missing out if they didn't. That they weren't showing company spirit! Meanwhile the Executive team was selling as fast as possible, often after telling the rank and file to buy!
• Don't be afraid to ask questions - This is a great story of the Emperer Has no Clothes. When a couple (and it was VERY few) analysts asks questions on how they were really making money, Enron talked to them like they were too stupid to understand, and killed most probing into the company until it was burning. There are NO stupid Questions.
• New Economy - There is no new economy. You have to make a profit, if you don't eventually, and sometimes in spectacular ways, you will run out of money. Money is finite...even when there is a lot of it. For your finances this means you cannot continue to charge things without paying it back, because...money is finite, whether it is yours or the banks!
• Integrity is Everything - There are no get rich schemes, no magic new ways to riches. You certainly can lie for a bit to get ahead, but it will catch up to you, or if you are one of the very few and lucky, everyone around you.
• Slow and Boring - Which stock would you rather own, Enron or GE. GE has been going nowhere for a long time, no rapid movement, but...it makes money day in day out. Any other kind of investing is gambling!

The other side note, which was interesting, Ken Lay died before he could go to trial. Given that he was never convicted, he is innocent, so no one can go after his estate. Pretty hard way to protect your family!

Slow and steady is boring, 5-10% a year is boring. But Personal Finance is not a Video Game that needs to go back to GameFly tomorrow. Risk=Rewards, but excess Risk=Broke!

How about you? Any movies inspire your Personal Finance choices?

Mortgage Crisis vs Integrity

There was a great story about the Mortgage Crisis on 60 Minutes. While we have all heard the various issues explained about how much inventory is out there, how many people have been pushed out of their homes due to the ARMs resetting. But something struck me hard while watching the videos.

I have always felt bad for the people who lose their home. We nearly went through it as a kid and it was a horrible experience. There was real shame in being in a nice middle-class neighborhood and really not being able to afford it anymore. However, in the videos a couple were basically saying..."Whatever!"

In the "walking away" video, the couple admits that: they overpaid, they got a ARM knowing it would reset, and that they can pay the new payment after the increase...but they are going to let the house go and be repossessed. When asked by Steve Kroft, "Why?" They basically say that they aren't going to pay that kind of payment for that kind of house. Basically if the investment was working they would continue to pay, but now that is not...Oh well! They will go rent for a few years, get their FICO back up and give 'er a try again!

Maybe we are weird, or it is just the way we believe that you should act, but we would just never do that. If we lost, or gave up our house it would only be after every measure was taken. When we were going through trying to pay all of our medical bills and old debts, a bunch of people (including one of the ladies at the hospital) suggested to really consider bankruptcy, but we believed that we weren't disputing any of the charges, so we had the obligation to repay them.

Maybe some feel it is OK to some because 50% of this (or more) falls on the backs of the lenders giving loans to those with very little hope of paying them back. But for us integrity is blind. I am not saying that if you decide you must go bankrupt you are doing wrong, just that it should be a last, ditch effort. For us it is worth the effort and harm to our budget to try and pay our debts. No matter to whom.

So how about it? Are we just Luddites, and hopelessly out of step with the way the world works?