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LoginTom Barrack On Bloomberg West
By Scott Rubin
Benzinga Staff Writer
March 10, 2011 10:55 AM
Tags: Colony Capital, Tom Barrack
Posted in: News, Hedge Funds, Movers & Shakers, Topics, Media, Life
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Colony Capital's Tom Barrack appeared on "Bloomberg West" with Emily Chang and Cory Johnson to talk about the role of the U.S. government in the financial crisis, his plans for Michael Jackson's Neverland ranch and investing in technology. Barrack, who said that Colony is focused more on debt than equity investments, said that "we sent out invitations to a gigantic party and nobody came" and that "the government allowed banks to slowly and in an orderly way work out of what we'd all anticipated was the $3 trillion tsunami."
On actions by the U.S. government and the Fed in the wake of the financial
crisis:
"We sent invitations to a gigantic party and nobody came. The Fed and the Feds may have done exactly the right thing two years ago in abating this process. What is different is that we all anticipated a banking meltdown. On the heels of 2007 and the Wall Street malaise as a result of debt crush, we all predicted that what would happen is that banks would in a disorderly manner dispose of those bad assets at gigantic discounts. What none of us envisioned was two things: the power of 0% interest rates, which was amazing. The Fed's reaction to lowering interest rates and allowing the banks to earn their way out of the problem on one hand. And the power of the United States to print money. Other countries do not have the confidence to be able to dig their way into a deficit and out of a problem the way that we do. If you are Brazil or Portugal or Ireland, you have a quantitative restriction. What happened was that the banks did not have to sell their assets. They changed the capital regulatory rules for banks so they could hold those assets. Interest rates went to zero. The government allowed banks to slowly and orderly work their way out of what we had all anticipated was the $3 trillion tsunami--a wave of distressed assets."
On the FDIC:
"The FDIC has done a fabulous job at resolving the banks and getting rid of the assets. In 1990, it was only a real estate problem. It was just the savings and loans industries that really hit the fan and it was primarily real estate based. In 2007, you had a global problem and it took a global resolution. What's happened is that the pricing of those assets is somewhat confusing. Instead of marking them to market on day one and they'll return to a market trading price on day two, these are all paralyzed assets limping along with owners that have option value and banks that have assets that are under market value, but still paying debt service. The jury is still out on the ultimate realization of a value from those assets."
On his plans for Michael Jackson's Neverland Ranch:
"Our plans have been to work to restore it to its original greatness. The place is amazing. It has not only the beautiful spirit and softness of Michael, but a legacy of a thousand years of Indian culture that had transacted upon it. We have just been restoring it, renovating it. We have not really wanted to do anything commercial with it. The estate of Michael Jackson--they have done a great job in managing the estate. We are kind of waiting for them to decide what really they would like to do with us and with it. We are just being good stewards of a very special place."
On a Miramax/Netflix deal and if he would be willing to take Netflix stock as currency for the deal:
"I think Netflix is smart enough not to make me take their stock. It is a $10 billion market cap company. It is trading at very large multiples of EBITDA. I think it is 30 or 50 times EBITDA. It has no debt. That expendable business model, if you use ESPN as an example, when it first came out it was 50 cents or so of subscription value. Today, it is pushing close to $5. The Netflix model, if you take away the fear risk of what happens with technological intervention, if Facebook all of the sudden ends up on your television, what happens in a Netflix-Facebook face-off is pricing power availability of that particular product. We are interested and anxious to do business with all of them. They understand that their marketplaces much better. I am not in the business of taking stock for receipts today. Netflix is a great company. I would not mind taking their stock in the day on a personal basis."
On investing in technology:
"Technology is the user of product. It's intervened in every segment of the marketplace. If you look at bricks and mortar and let's say you want to start at a real estate point of view, you have so many elements of bricks that have become physically obsolescent. If we page back to Blockbuster two years ago, a $5 billion company--today, it is questionable what is worth. If you went back two years ago, Netflix was probably a $50 million company. Today, it is a $10 billion company. If you look at Amazon it's probably the largest retailer in the world versus Walmart, Carrefour, etc. Logistics of everything have changed. Everybody is using less of everything. The ease and delivery of the entertainment information, retailing, services, is all via global distribution. Playing that distribution chain is critical in deciding if you want to be long or short--any kind of assets."
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