NEWS ITEM: Jailed "junk bond" king Michael Milken has been "tutoring prison inmates seeking high school equivalency diplomas, teaching them English, math, science, social studies and writing," Reuters reports.
Although Filo "Fingers" Finnegan was serving a 10-year sentence for unappreciated creative writing -- repeatedly forging checks in amounts of $100 to $250 -- he was not an educated man. He figured prison would be a good place to pick up his GED. And when he found out that Michael Milkem, serving 10 years for involvement in securities frauds involving billions of dollars, would be his tutor, Fingers figured he might indeed learn a few things.
At their first session, Milkem said, "Let's start off with English. I've made up a work sheet with some simple sentences we can analyze and diagram. Read the first one."
"Finagle & Flimflam Mortgage Trust, a publicly held finite-life REIT, is fully invested in participating, shared appreciation, convertible and fixed-rate mortgages and joint-venture financing secured by office, retail and R&D facilities located throughout the United States," Fingers read haltingly.
"Good," Milkem said. "Any questions?"
"Yeah. When are we going to study English?"
"Well, want to try the second sentence?"
"Issuance of subordinated debentures," Fingers read, "will capitalize the company without unfavorably impacting cash flow or excessively exposing the company to non-deductible long-term costs."
"You understand that, don't you?"
"Let's see. Capitalize -- that's when you use big letters at the beginning of sentences and proper names, right?"
Now Milkem looked confused.
"Look, Mike, couldn't we start with something simpler?" Fingers asked. "Like, 'See the cat running across the street.' "
"Sure, that's good. 'See the cat running across the street to ask research how the redemption of short-term 12.50 percent notes in exchange for convertible preferred stock will affect fully diluted earnings per share.' "
"Uh, maybe we should set aside English for later," Fingers said. "Could you help me with history? I was reading about a period when business interests controlled legislatures, financiers manipulated stocks and executives drained companies and left them to fail at the expense of their workers and the public."
"You were reading the newspaper?"
"No, I was reading about the late 1800s. You know, the robber barons and all that."
"Ah, the period when men of vision and imagination used innovative management and financing to build great empires of enterprise and the strong sinews of the nation. The Golden Age."
"Um, the book I read called it the Gilded Age."
"What's the difference?"
"Well, golden would be precious metal all through. Gilded means a covering of gold over something cheaper, something that would create a false impression of gold."
"What's the difference?"
"Maybe we better pass on the history, too," Fingers said. "How about math?"
"Numbers," Milkem said enthusiastically. "That's my racket -- I mean, business."
"This is my weakest subject. I need help with division. Like this problem: 65 divided by 13."
"Let's see -- 65 -- six, five -- and you divide -- hmm." Milkem scratched his head. "I'm stumped. How can they expect you to work with such small numbers? Got anything with billions in it?"
"I don't think I can handle that. Let's compromise. How about 1,485 divided by 165?"
"OK. First you break down the divisor into its components. One, four, eight, five. Take the one -- that's too low, clearly an under-performer. Sell it off to raise capital so you can focus on your core number. Let's assume a price of 100. Write that down.
"Now we have four and eight. Combine those and we have 12. No, that's not enough to make this deal work. Let's multiply them -- four times eight, 32. Taking into account economies of scale and elimination of duplication, make it 30. But the economies of scale increase productivity and decrease unit costs, so double the 30. Write down 60.
"That leaves us with one part of the divisor: five. OK, here's where we take a mathematical shortcut -- we raid the pension fund. Let's assume the five has overfunded the pension to the tune of 15,000. Write that down.
"So we have 100 times 60 times 15,000. That's 90 million. Divided by 165, which we depreciate to 16.5. Ninety million divided by 16.5 is 5.45 million and some change."
"So I put down 5.45 million as the answer?" asked the befuddled Fingers.
"No, first we take out fees and commissions. That's our share for doing the work. Make the answer 4 million," Milkem said. "If you learn nothing else from me, remember this: Always take your cut. That's what got me where I am today."
Bruce Guthrie is a copy editor of The Sun.