By Paul Pringle

September 29, 2009
Los Angeles Times

Big Tujunga Canyon residents and others reeling from the Station fire called Monday for a federal investigation into what they termed a poor initial response to the deadly blaze by the U.S. Forest Service .

“It was beyond irresponsibility, beyond neglect,” said Cindy Marie Pain, who lost her Big Tujunga Canyon home to the fire, which broke out in the Angeles National Forest on Aug. 26.

Pain and other residents said they were outraged by a Times article Sunday that reported the Forest Service had underestimated the danger posed by the fire and scaled back an attack on the flames the night before the blaze began to rage out of control.

“When it’s small, that’s when you jump on it,” said Bronwen Aker, a Vogel Flats resident who set up a website, www.angelesrising.org, for fire victims.

Her home was spared, but those of many of her neighbors were destroyed.

“A lot of residents are incredibly embittered about the way it was handled,” Aker said.

Bob Kerstein, who lost a cabin and a house on gold-mining property (Monte Cristo Gold Mine) that his family owns in the forest, said Congress should investigate the Forest Service’s tactics.

“It’s crazy what happened here,” he said. “There are a lot of heroes in this — the firefighters who were on the line. But the people who should be held accountable are the people who made the decision not to put the fire out in the 48 hours after it started.”

Leo Grillo, an actor who runs an animal sanctuary that was threatened by the blaze, said any investigation should also examine the lack of a more aggressive air assault later in the fire, especially when it appeared to have flagged on Day Five.

“They had the golden opportunity to put it out and they didn’t,” he said.

The Times reported that the Forest Service had been confident that the fire was nearly contained on the first day, and the agency decided that evening to order just three water-dropping helicopters to hit the blaze shortly after dawn on its second day — down from five on Day One, documents and interviews show.

The Forest Service also prepared to go into mop-up mode with fewer firefighters on the ground, according to records and officials.

Early in the morning on the second day, the Forest Service realized that three helicopters would not be enough and summoned two more later in the morning, Angeles Forest Fire Chief David Conklin said. More engine companies and ground crews were also deployed, but it would prove too late.

On Day Two, the Los Angeles County Fire Department lent the Forest Service a heli-tanker but denied a request for another smaller chopper — an action that residents say should be reviewed. Chief Deputy John Tripp, the No. 2 official in the county department, said he withheld the second aircraft because he did not believe the fire was endangering neighborhoods near its suspected ignition point above La Cañada Flintridge, and because the county must hold on to some helicopters for other emergencies.

The Station fire would become the largest in the county’s recorded history, blackening more than 160,000 acres of the forest, destroying dozens of dwellings and killing two county firefighters who died when their truck fell off a mountain road.

Conklin and Tripp told The Times they probably will change their procedures so that the two agencies immediately stage a joint assault on any fire in the lower Angeles.

Several foothill residents have expressed suspicions that the Forest Service let the fire burn early on as a way to clear dry brush, and that the decision not to bring in more aircraft and firefighters for the second morning was based on cost concerns.

Forest Service officials have said both notions are false.

On Monday night, residents packed a Tujunga meeting hall to ask fire officials if more could have been done to save homes. The gathering became contentious at times.

Tripp said the county did the best it could without putting firefighters’ lives in jeopardy.

“If anybody thinks we take this lightly, we don’t,” he said in an emotional voice.

But Rob Driscoll, whose Vogel Flats home burned, was not satisfied.

“We’re angry and we need better answers than we’ve gotten tonight,” Driscoll said.

paul.pringle@latimes.com

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Founder and CEO, Scripophily.com
By Linda Segall
September 2009

Stock and bond certificates, to most people, represent a measure of financial investment in a company. The kinds of stocks and bonds I deal with represent insight into financial history. People like me who buy them are scripophilists, collectors of historical stock and bond certificates.

I remember the day in 1990 when I caught the scripophily bug. I had moved to the Washington, D.C., area to head up the finance and technology functions of a satellite communications company. One weekend, I went to a Civil War collectibles show and visited a booth where they were selling Confederate bonds bearing an image of Stonewall Jackson. I laughed, because I thought the paper was worthless. Then I began to ponder the history behind the certificates. I realized the paper was part of the fabric of U.S. and financial history. I got hooked; I became a collector.

One of my favorite certificates—and one I will never sell—is a certificate issued on Oct. 29, 1929, the date of the stock market crash. The company name—Shadyside Operators—says it all! To me, this certificate is symbolic of the sad financial history of the ’20s with its get-rich-quick schemes and the lack of appropriate government control.

My hobby began growing exponentially in the early days of the Internet, when people were just starting to consider the Web’s commercial applications. Because I had been involved as chief financial officer for technology companies, I quickly realized the potential for ecommerce, so I acquired the domain name, Scripophily.com, and set up a Web site to sell certificates in my free time. Eventually, I realized that my part-time hobby could be a lucrative full-time business, and I made the transition to become my own boss. That was in 1998. Today my company has 15,000 items available for trade. I also operate a complementary business, OldCompany.com, which researches the redeemability of certificates. Many of our clients are CPAs and attorneys.

Over the years, because of the expertise I have developed in scripophily, CNBC has interviewed me when stock in a company was being discontinued because of merger or scandal. When such scandals hit Enron, Worldcom, and Martha Stewart, it was a novelty that I discussed on the air; today, unfortunately, this has become more commonplace. People are understandably more concerned about their retirement instead of collectibles.

If I were to describe myself, I would say I am a technology entrepreneur grounded in history. Although that sounds far removed from accounting, it actually is not. Getting involved in technology was natural for me.

Like many young accountants, I started in public accounting at a Big Eight firm. Working in the firm’s Beverly Hills, Calif., office was a great training ground and a place where I developed good contacts. After three and a half years, however, I realized I wanted to be directly involved in a business. About that time, I met my wife, Susana, whose entire family was involved in the motion picture industry in Southern California. For my first private-sector job, it seemed natural for me to work for Warner Bros. It was fun being in the periphery of filmmakers, but after a few years, I realized working in financial reporting wasn’t as exciting as working on the production side of the business. When a former client asked me to join a cable TV company as controller, I jumped at the chance to get into the financial area of business management.

From cable TV, I was invited to join a then-emerging industry—cellular communications, whose potential intrigued me. That position led to the opportunity at the satellite communications company in Washington.

My career has been highlighted with opportunities to mold the financial and technology functions of related companies—for many years for other businesses, and now for myself. I owe a lot to those who gave me opportunities to do new things, especially to some of my mentors, who taught me how to focus on the big picture.

I love accounting; it got me started. And because of it, I have been able to pursue the things that not only come naturally to me, but are also my passion.

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American holders of unpaid 90-year-old Chinese bonds are looking for ways to get their money. Suing the ratings agencies is the latest tactic
While most investors are entering China buoyed by visions of a rosy future, others’ preoccupations with the PRC economy are rooted firmly in the past.

The pre-1949 Chinese government issued a number of sovereign bonds on the international market. Come the revolution and the advent of a Communist government, these bonds were disregarded and went into default. More than 50 years on, US bondholders are asking for their money back.

“It’s a debt that needs to be paid,” said US cattle farmer Jonna Bianco, who serves as president of the American Bondholders Foundation (ABF). “China has been given full access to our capital markets and it’s time for them to step up and be honorable.”

The ABF was set up in 2001 to represent holders of so-called “wallpaper bonds”, issued by countries under now defunct political regimes. It has identified over 5,000 people in the possession of bonds issued by China between 1911 and 1939, notably the 1913 Chinese Government Five Percent Reorganization Gold Loan, linked to the price of gold as an inflation hedge.

The Tennessee-based Bianco claims that, based on the current price of gold, the bonds are worth more than US$150 billion.

In the latest bid to force action on these bonds – which China has never expressed an interest in settling – a group of bondholders in Florida is preparing a class action lawsuit against the major credit ratings agencies. They claim that by awarding China a strong rating, Moody’s, Standard & Poor’s and Fitch Ratings have concealed the existence of these outstanding debts.

As a result, China has been unhindered in raising more money on the international markets.

Grounds for action

“We have developed a theory of liability and a theory of injury,” said Kevin O’Brien, president of Arizona-based financial advisory firm Sovereign Advisors, who is assisting the bondholders. “The ratings agencies have destroyed the ability of defaulted creditors to enforce collection of the debt contract.”

The ratings agencies, who have yet to see the complaint, believe they have done nothing wrong.

“As it is described to us, we believe there is no legal merit to the claim,” said a Moody’s spokesperson. Standard & Poor’s issued a similar response.

Adam Lerrick, a former investment banker who worked on the restructuring of bonds issued by Argentina in the 1990s that went into default in 2001, agrees with their stance. “It seems a bit of a stretch holding the ratings agencies liable. They are not parties to the bond contracts.”

As Lerrick discovered from his experiences in Argentina, settling defaulted bonds issued by a current government is difficult. But securing payment from a country that has undergone a regime change, he argues, is an entirely different challenge. Even if a judge were to issue a decision that the defaulted bonds be honored, enforcement is largely dependent on finding assets owned by the defaulting government. Embassies and state banks’ international reserves are off limits, so this is not easy.

“The second course of action is to pursue the debtor continuously in the courts,” said Lerrick, now a professor of economics at Carnegie Mellon University in Pittsburgh. “The debtor pays simply to eliminate the nuisance.”

According to Professor K. Geert Rouwenhorst, deputy director of the international center for finance at Yale School of Management, the nature of this business means that things can get ugly. People are drawn into buying defaulted bonds by the astronomical sums they are worth in today’s money on the basis of interest accrued, when there is really little chance of seeing a return.

Treacherous ground

“It’s often an investment scam peddled to widows and orphans,” said Rouwenhorst, who became involved when asked to attest to the value of some such bonds. “These sorts of pieces of paper can be bought on eBay for US$10.”

He insists bondholders are only likely to see partial payment on the face value of the bonds, stressing that no US court has ever enforced a gold clause such as the one attached to China’s 1913 issue.

But the bondholders are not to be deterred. Their argument is tied to precedent: Russia settled a number of defaulted bonds issued during the Tsarist era and, more significantly, in 1987 China itself paid UK citizens 36 cents on the dollar to cover outstanding debts. O’Brien, who credits Margaret Thatcher – “a leader with real backbone” – with forcing the UK settlement through, advises his clients to target a minimum 35% recovery, although the terms and timescale of repayment would need to be taken into account too.

He is currently working on a complaint to the Securities and Exchange Commission that China failed to comply with disclosure obligations by not mentioning the defaulted bonds when registering in 2003 to issue sovereign bonds internationally.

But perhaps the most imaginative solution comes from the ABF, which Bianco says is negotiating the potential transfer of the bonds to countries that have debts with China, thereby allowing them to wipe out some of the money owed.

“We are turning the bonds over at a discount, enabling other countries to settle their debts with China,” said Bianco. “It is ethically, morally and profoundly the right thing to do.”

O’Brien believes this international offset strategy would work to best effect if the country taking over the bonds has leverage with Beijing. For example, Iraq owes US$12 billion in sovereign debts to China but is also a potentially important oil source for China.

“The country is uniquely positioned to say they have offset the debt without jeopardizing the economic relationship,” O’Brien said.

Others, however, remain skeptical. O’Brien suggests that support for the bondholders in Congress might force through legislation championing their cause but Lerrick doesn’t believe there is sufficient political momentum.

“This is not an issue that is of interest to anyone in the international financial system,” he said. “It will only become of interest if someone finds a legal technicality that creates some kind of political or diplomatic problem.”

History from Economic Review