In the blogosphere, you will often read that someone does or does not have an interest in what they are writing about. Maybe they are writing on their blog about some subject that they find interesting but do not have a financial interest in, but the fact that they have their own blog and are promoting it essentially means that they have an interest in the success of the work. Thus self-promotion essentially runs counter to the full disclosure that a person has no interests in the products or things they are writing about. We live in a world of shameless self-promotion and we are all guilty of it.

Thus I have developed a full disclosure that any capitalist should consider adopting.

FULL DISCLOSURE:

I am a capitalist. What that means is that everything I do I do for my interest or any of these entities that are in my sphere of influence - my family, colleagues, portfolio companies, my community, or my profession. Given that I am a capitalist, a lot of what I do during the day is geared toward stimulating profits or the progress of the free markets. In short, I make money and help other people make money. Most of what I say or do works toward that effect.

My analogy is that of a large piece of land you own. The land is so large that very few buyers can buy it. If the asset can't be sold does that mean it is worthless? Certainly not. But what if there are rumors that your piece of land is toxic and there are environmental issues with it? Does that mean it is worthless? Maybe. But what if there is no evidence to prove that? Most people in that situation would just sit on the land and not really care what it was valued at. But let's say that one day you get into some financial trouble and your bank is forcing you to value your land in order to loan you money. Rumors continue to swirl that your land is tainted. Eventually you give in and value it close to zero.

This is essentially the situation we are in. However, the reason that CDOs are being forced to be valued so low is that the companies that hold them are public companies and investors are demanding that those assets be valued. There is no market in the CDOs because no one wants to touch them. But the truth is that no one knows what they are worth and no one knows how to value them. And the reason they are difficult to value is because they are debt obligations and the only way to know their true value is for them to play out and see which debts get paid back and which don't. Even the most scientific method of valuing debt obligations will not come close to what they truly will be worth when all is said and done.

Is anybody who is reading this wondering one key question - IF WE DO NOT KNOW HOW TO VALUE CDOs AND WHAT THEY ARE COMPOSED OF, WHY ARE FINANCIAL COMPANIES IN SUCH DIRE STRAITS? Well that question points to how messed up the entire situation is. It really is a combination of fear factor, overdramatization by the media, and those two factors forcing the value of CDOs be marked to market. In plain English it means that CDOs are difficult to value and investors got worried and labeled them as tainted. The public markets demanded to know their value and since no one was willing to buy them, they booked their value at close to zero.

If you look on TV in the days and weeks forthcoming you will undoubtedly hear people saying that CDOs will turn out to be good investments and that buyers of CDOs will make out like bandits. If that is true, why the hell did we force them to be valued at zero?

And if the government bailout occurs, what will happen is that a floor for the value of those CDOs will be set and then private equity and other buyers will come in and start buying them. And to make matters worse I suspect that even banks and investment banks will get back into the trading of those very CDOs that brought them to their knees!

One thing unique to private equity funds, particularly buyout funds is that they always have a war chest of capital to deploy. We happen to be at a point where cash in king and these funds can come in and pick up assets for pennies on the dollar. One great example of this is Lehman Brothers and their once prized Neuberger Berman wealth management unit. Word on the street is that Bain and Hellman may pick it up for 1/10th is true value! This is not like buying distressed assets and waiting for a turnaround. NB is a strong brand with excellent cash flow and is a cash cow that will virtually guarantee a high multiple return on both Bain and Hellman's funds.

Another excellent example of is Barclays picking up Lehmans IB unit. It's a complete steal and no wonder why Barclays walked away from the transaction last weekend.

Perhaps Lehman filed bankruptcy one week too early. Perhaps Merrill sold out too soon.

Either way, for those that picked up solid assets in this time of pain, they will see gain and you will start to see excellent returns from these buyers over the next several years.

The truth of the matter is that anyone who invests in the financial markets should take the blame. The simple reason why banks and financials are in trouble is that all of a sudden the investors in the stock market decided that the rules of lending were not palatable and that the asset to loan ratio of companies were too high. The rules of lending are established by the government and essentially allow a bank to lend more money than it has.

For example, for every one dollar that is deposited into a bank, the government allows that bank to lend out a multiple of that amount. Now you can see why banks are so eager to have you put your money into their savings accounts. They can turn around and lend that money several times over at exorbitant interest rates. As investors in banks, we have loved that business model that was essentially sponsored by government regulations on banking.

The banks did nothing wrong. The investment banks did nothing wrong. They continued to loan money at higher and higher ratios, but these ratios were within the rules of lending. As investors, we continued to bid up the stocks of those banks.

All of a sudden when people started defaulting on loans or when the specter of unpaid loans arose, investors started to get nervous. Short sellers saw opportunity and the market punished companies with poor quality loans or high loan to asset ratios. But no one violated any rules. People who borrowed just began to be unable to pay loans.

Now we are at the point where some significant financial institutions have gotten crushed. People really should not be upset about it because like any other business, the business model of the bank or investment bank has gone out of favor. I can think of hundreds of companies who suffered a similar fate. What I will say is that most failures come early in a company's life, not decades or centuries later as is the case with many of these banks. But the same concept is true - that the business model of these companies have gone out of favor.

I could go on further on this issue but I will save it for my next post - how private equity companies would handle the fix versus the government's fix.

Part II of this series will drill into the fundamental principles of email etiquette. Before we get there, let me ask you a few questions in order to take your email pulse:

* How much time do you waste decoding a poorly written email?
* How often are you unnecessarily copied on an email message?
* How often do you use email to say one or two words, such as "ok" or "thank you?"
* How often do you proofread an email before sending it?
* How often do you receive an email with an attachment but no text in the email body?

Is your pulse admitting guilt? I bet. It's common to experience these scenarios, especially staring at the screen to decipher an unintelligible email. I suspect it happens to you multiple times a week. I call it the lost in translation look, like the one experienced by Bill Murray while he sits on a Tokyo hotel bed in Sofia Coppola's thoughtful film Lost in Translation - click http://www.lost-in-translation.com/ to see the image.

Murray's mid-life angst, anxiety and earnest efforts to navigate the uniqueness of Japanese culture often gave him pause. Similarly, the current email divide should cause reflection since the development of email tools is outpacing our ability to use them effectively. Moore's Law and other innovative principles have flattened the world and radically altered society. When will we develop the skills and discipline to use these tools to communicate more effectively?"

It is interesting that the buyout occurs as the value of the listed fund is significantly below the original offering price. Clearly, this is KKR's way of going public despite what appears to be a hostile environment for financial firms and in particular private equity firms. Just look at the value of Blackstone, Carlyle's listed fund, and some hedge funds such as Fortress. I'm not going to say I told you so, but here are some thoughts about KKR going public. I still believe that going public is a mistake and that private equity should stay private.

As most CXO-level people will attest, being a CEO of a public company is not fun. You have to report to shareholders. You have to report to the Street. You are forever a public person, unable to hide in private.

From a financial point of view, there really should only be one time to go public - when the market multiple is extremely high, higher than you would attain from a buyer in the private market - clearly this is not that environment for a financial firm.

I still will tip my hats off to the guys at KKR -they have cajones. Perhaps they are just taking advantage of another buyout with great value - it just happens to be their own fund that they are buying out.

Indeed there are hundreds if not thousands of prospective hedge fund managers that are looking to get their fund seeded and get some investors. And most if not all will not have the pedigree or connections to get big dollars from a select few investors.

I continue to believe that there are generally two or three paths to starting your hedge fund. The first is having that pedigree and/or being in a lift-out situation with a strong track record and connections to investors in your old fund or even sponsorship from your old manager. The second is starting small and building that track record over time. The third is treating your fund as a startup company and actually going out and raising funds and selling equity in the underlying manager.

I'm not going to talk about the first method since I've addressed that in previous posts. The second and third paths are the interesting ones. They are the ones that are less glamorous. They are the ones that take time. They are the ones that depend on manager persistence.

The economics of a hedge fund really only start to make sense at the $50 mm and above level. At that level you can start to hire ancillary fundraising staff and really start to get a machine going. Under that amount you are bootstrapping and anybody involved in the fund is going to have to do a little bit of everything. Thus, how do you get to that level of assets under management that is scaleable?

Well, if you can't put together a few hundred thousand or even a million bucks then you probably have no business trying to be in the hedge fund business. When people say "the rich get richer" it is sad but true. Even in a true merit-based fundraising system, it would be unlikely to find someone with adequate financial experience and trading experience to be able to run a fund without having the economic ability to put together a million dollars either from friends, family, co-workers, or investors. As I've said before, running a hedge fund is really running a business. All business is based on sales. In the hedge fund business you need to be able to sell yourself and your fund to investors. If you can't sell the promise and hope of great returns then you definitely should not try to run a hedge fund.

Icahn owns a ton of shares and has enlisted the who's who of activist investors to buy in. These guys own a chunk of Yahoo now and want Yang out. Yang has no clue what and who he is up against. Now there is blood in the water and the sharks are circling. This is looking like it will likely go down badly for Yang and could potentially mar his legacy as the founder of Yahoo but also the one who was too stubborn to give in to Big Brother. Kind of reminds me of Hillary Clinton at this point.

This is also another example of what may happen when a founder stays on board or comes back as CEO. He or she is so in love with their little child that is all grown up. They fail to realize that when you are a publicly listed company it is not about changing the world anymore - it is about profits and money and that is what shareholders want. They do not want promises.