From the humor category, BNET recently published its list of Business Blunders of 2009. Some were amusing. For example:

Mistake #3: The “Smart Choice” food label

In August, 14 of the country’s largest food companies — including PepsiCo, Kellogg’s, Kraft, and General Mills — join forces to launch a multimillion-dollar food-labeling program, dubbed “Smart Choices,” to guide consumers in selecting nutritious foods amid the nation’s obesity epidemic. Soon, however, the program’s green checkmark logo is seen popping up on jars of fat-laden mayonnaise and boxes of Froot Loops cereal, a product that lists sugar as its top ingredient. In October, after the FDA announces plans to crack down on misleading labeling, the program is voluntarily halted.

Mistsake #5: IBM offers foreign assignments to its laid off employees

IBM lays off thousands of North American workers, and then gives them the opportunity to apply for similar jobs in countries such as Brazil, India, Nigeria, and Slovenia — if they’re “willing to work on local terms and conditions.” Big Blue magnanimously offers to help with moving costs and provide visa assistance.

Mistake #6: Unions firing their own employees

The powerful, 1.7-million-member Service Employees International Union announces a layoff involving 75 national field staffers and organizers. The union representing those employees, the Union of Union Representatives, quickly files a complaint with the National Labor Relations Board, accusing the SEIU of engaging in unfair practices such as unilaterally laying off UUR members without proper notice, outsourcing their jobs to non-union workers, and selecting workers for layoffs “because of their [UUR] membership and/or activities.”

Mistake #12: Now here’s an incentive

In July, jobless citizens seeking benefit information from the Web site of the Brazilian Labor Ministry must type in the passwords “shameless” and “bum” to access the relevant details. The ministry blames the prank on a private Internet security firm whose contract with the government had not been renewed.

Mistake #20: Now this is REO

After a couple hit by the Bernie Madoff ponzi scheme is forced to surrender its $12 million beachfront home in Malibu, Calif., to Wells Fargo, neighbors notice something odd: a large party being thrown in the presumably vacant house. After an investigation, Wells Fargo admits that the house was being used by an employee, identified by the Los Angeles Times as Cheronda Guyton, a senior vice president in charge of foreclosed commercial properties. The employee, who neighbors say had been spending weekends at the house with her family, is fired for violating bank rules against personal use of bank-owned property.

There are some other good ones in there. To see the full list, click through to Business Blunders of 2009. Some funny stuff!

On the 10th anniversary of the AOL-Time Warner deal, The New York Times published a set of retrospective interviews with Jerry Levin, Steve Case, and various others who were party to the deal (see How the AOL and Time Warner Merger went So Wrong).

When the deal was announced on Jan. 10, 2000, Stephen M. Case, a co-founder of AOL, said, “This is a historic moment in which new media has truly come of age.” His counterpart at Time Warner, the philosopher chief executive Gerald M. Levin, who was fond of quoting the Bible and Camus, said the Internet had begun to “create unprecedented and instantaneous access to every form of media and to unleash immense possibilities for economic growth, human understanding and creative expression.”

The trail of despair in subsequent years included countless job losses, the decimation of retirement accounts, investigations by the Securities and Exchange Commission and the Justice Department, and countless executive upheavals. Today, the combined values of the companies, which have been separated, is about one-seventh of their worth on the day of the merger.

To call the transaction the worst in history, as it is now taught in business schools, does not begin to tell the story of how some of the brightest minds in technology and media collaborated to produce a deal now regarded by many as a colossal mistake.

MY COMMENT: That sounds about right. We generally refer to it as among the worst deals of all time. In fact, in the years after the merger I used the AOL Time Warner case as my final exam. I asked students to evaluate the deal – from the partner selection to the pricing to the integration. Students generally agreed that there was some real complementarity between the businesses, wedding distribution and content. However, as I’ve stressed many times on this blog, pricing and integration matter a great deal (see Why M&A Deals Go Bad and Appreciation for the Complexity of Acquisitions). The AOL Time Warner merger was fraught with integration difficulties from the get go, and it was never able to recover.

Some snippets from the interviews:

MR. LEVIN We were emerging from not just old media but from an analog world into a digital world, and philosophically people were beginning to understand that the digital world was a transformational universe.

AUTHOR COMMENTARY The deal was sealed at a dinner in early January at Mr. Case’s house in McLean, Va. The transaction was spun to the world as a merger of equals, but in reality AOL, with its more valuable stock, was acquiring Time Warner. AOL would own 55 percent of the new company and Time Warner, 45 percent. But the new board would have an equal number of AOL and Time Warner directors. Mr. Levin would be chief executive, and Mr. Case would be chairman.

Over a weekend, the two sides conducted due diligence, with teams of lawyers camped out in two law offices in Manhattan.

MR. LOGAN Dumbest idea I had ever heard in my life.

MR. LEONSIS I was one of the loudest advocates for not doing the deal.

MR. BOGGS Just real regret and dread.

MY COMMENT: Now this is news. I had no idea that some of the top executives strongly opposed the deal. Hopefully their answers do not simply exhibit some form of self-serving bias or retrospective rationality.

Back to the Times story…

AUTHOR COMMENTARY The optimism surrounding the deal was brief. In May of 2000, the dot-com bubble began to burst and online advertising began to slow, making it difficult for AOL to meet the financial forecasts on which the deal was based. The world began moving quickly to high-speed Internet access, putting AOL’s ubiquitous dial-up service in jeopardy.

The companies had another problem: both sides seemed to hate one another.

MR. PARSONS I remember saying at a vital board meeting where we approved this [deal], that life was going to be different going forward because they’re very different cultures, but I have to tell you, I underestimated how different.

MR. BEWKES …The enduring debate is whether the deal collapsed because the concept was flawed at the start, or because the cultures were too different and the execution of the merger was a failure.

MR. CASE It was a good idea, but the execution of it wasn’t what it needed to be, and I accept responsibility for that.

MR. PARSONS The business model sort of collapsed under us, and then finally this cultural matter. As I said, it was beyond certainly my abilities to figure out how to blend the old media and the new media culture. They were like different species, and in fact, they were species that were inherently at war.

My take: The strategic logic behind the deal was not terrible. Some aspects of it were even visionary. Unfortunately, the deal was a bit on the early side, during a period when the technology itself had not yet evolved to a point where the synergies were realizable. And oh yeah, the execution was horrendous too.

Interestingly, Comcast is making a similar play by acquiring  NBC Universal. Time will tell whether Comcast can succeed where AOL Time Warner failed. The outcomes of the Comcast NBC Universal deal should provide insight into whether AOL Time Warner was simply early, or truly ill-advised.

Nevertheless, the Times article was definitely worth the read. I encourage you to read it in its entirety (How the AOL and Time Warner Merger went So Wrong). Interesting stuff!!

Interesting cover story this week from The Economist about the Chinese economy (see China’s Economy: Not Just Another Fake). In that article, The Economist questions whether asset prices in China are becoming unsustainable, and if China resembles Japan circa the 1980′s. To be a bit of a spoiler (if you have no interest in reading on), their take-away is NO.

The similarities between China today and Japan in the 1980′s may look ominous. But China’s boom is unlikely to give way to a prolonged slump.

CHINA rebounded more swiftly from the global downturn than any other big economy, thanks largely to its enormous monetary and fiscal stimulus. In the year to the fourth quarter of 2009, its real GDP is estimated to have grown by more than 10%. But many sceptics claim that its recovery is built on wobbly foundations. Indeed, they say, China now looks ominously like Japan in the late 1980s before its bubble burst and two lost decades of sluggish growth began.

On the face of it, the similarities between China today and bubble-era Japan are worrying. Extraordinarily high saving and an undervalued exchange rate have fuelled rapid export-led growth and the world’s biggest current-account surplus. Chronic overinvestment has, it is argued, resulted in vast excess capacity and falling returns on capital. A flood of bank lending threatens a future surge in bad loans, while markets for shares and property look dangerously frothy.

Just as in the late 1980s, when Japan’s economy was tipped to overtake America’s, China’s strong rebound has led many to proclaim that it will become number one sooner than expected. In contrast, a recent flurry of bearish reports warn that China’s economy could soon implode. James Chanos, a hedge-fund investor (and one of the first analysts to spot that Enron’s profits were pure fiction), says that China is “Dubai times 1,000, or worse”. Another hedge fund, Pivot Capital Management, argues that the chances of a hard landing, with a slump in capital spending and a banking crisis, are increasing.

Scary stuff. However, a close inspection of pessimists’ three main concerns—overvalued asset prices, overinvestment and excessive bank lending—suggests that China’s economy is more robust than they think.

Start with asset markets. Chinese share prices are nowhere near as giddy as Japan’s were in the late 1980s. In 1989 Tokyo’s stockmarket had a price-earnings ratio of almost 70; today’s figure for Shanghai A shares is 28, well below its long-run average of 37.

China’s property market is certainly hot. Prices of new apartments in Beijing and Shanghai leapt by 50-60% during 2009.

Average home prices nationally, however, cannot yet be called a bubble. On January 14th the National Development and Reform Commission reported that average prices in 70 cities had climbed by 8% in the year to December, the fastest pace for 18 months; other measures suggest a bigger rise. But this followed a fall in prices in 2008. By most measures average prices have fallen relative to incomes in the past decade (see chart 1).

The most cited evidence of a bubble—and hence of impending collapse—is the ratio of average home prices to average annual household incomes. This is almost ten in China; in most developed economies it is only four or five. However, Tao Wang, an economist at UBS, argues that this rich-world yardstick is misleading.

Furthermore, Chinese homes carry much less debt than Japanese properties did 20 years ago. One-quarter of Chinese buyers pay cash…China’s property boom is being financed mainly by saving, not bank lending.

Although I agree that there are some important differences between China today and Japan in the 1980′s (see my recent interview in the Effective Executive), I remain skeptical about whether China’s recovery is legit and that it is, in fact, not experiencing another bubble. For the flip side of the argument I point interested readers to the work of Andy Xie (see China has become a Giant Ponzi Scheme or Trapped Inside a Property Bubble):

Many would argue that China isn’t experiencing a bubble. The high asset prices just reflect China’s high growth potential…

I want to make myself perfectly clear on China’s asset markets today. They are a big bubble. Its bursting will bring very bad consequences for the country.

The most basic approach in studying bubbles is to look at valuation. For property the most important measures are price to income ratio and rental yield. China’s average price per square meter nationwide is quite close to the average in the US. The US’s per capita income is seven times China’s urban per capita income. The nationwide average price is about three months of salary per square meter, probably the highest in the world. As far as I can tell, a lot of properties can’t be rented out at all.

The stock market is in a final frenzy again. The most ignorant retail investors are being sucked in by the rising momentum. They again dream of getting rich overnight. As in the past, retail investors usually lose, especially like the ones jumping in now. The final frenzy usually doesn’t last.

from Trapped Inside a Property Bubble:

The biggest risk to China’s economy is the desire to maintain past economic growth rates by maximizing investments in property — an unproductive asset. It supports short-term growth by sacrificing long-term growth as capital’s average productivity declines over time.

Bubbles exaggerate reality but are not formed out of thin air. Cheap money and strong growth are the usual ingredients for bubble-making. Both existed over the past five years. But now, China depends entirely on cheap money to support overvalued assets. Cheap money came from past exports and was warehoused in banks. Cash also came from hot money inflows due to the yuan’s peg to the dollar and weak Fed dollar policy.

Neither money source is sustainable.

So there you have it – two opposing views on China. Funny thing. These arguments sound vaguely familiar to me. They seem to parallel the ongoing debate as to whether the U.S. is experiencing a sustained recovery or whether its asset prices are similarly over-inflated. Nevertheless, when it comes to China, I think that asset prices are currently overheated and will likely experience a near-term correction. But there is no question in my mind that China is on a long-term growth path toward prosperity, …provided it can avoid political calamity.

I remember passing the National Debt Clock on frequent visits to New York City in the late 80′s and early 90′s. At that time, the National Debt Clock was located in Times Square. I also vividly remember when it was shut down — with rousing fanfare during the Clinton administration — because the U.S. started running a surplus and the national debt declined. Unfortunately, the National Debt Clock was reinstated once we began running fiscal deficits again in 2004. Although it is it now longer located in Times Square, you can now find it on the corner of 44th St. and 6th Ave.

But the Times Square National Debt Clock is so yesterday. Move over physical National Debt Clock, the digital National Debt Clock is available for all to behold (ht Matt). How fitting that the clock is now available on-line, and the timing with which the link arrived in my inbox could not have been more appropriate. Now that the financial crisis has largely abated, we can all watch, in real time, whether the banking crisis will morph into a sovereign debt crisis as Rogoff suggested (see Rogoff, Ferguson Say Financial Crisis Not Yet Over). To see the online National Debt Clock, click on the image below (or on the link underneath). And enjoy, …or not.

US National Debt Clock Online

In January of last year I predicted (see Notable Bankruptcies of 2009: Q1) that “major” corporate bankruptcies in 2009 would challenge the 383 mark set in 2001 (the high-water mark after the dotcom bubble). I even suggested that it was possible that we could exceed 400 “major” corporate bankruptcies in 2009.

It looked good for awhile, …but what a difference a year makes!!

Although corporate bankruptcies in 2009 were the greatest since 2002, we finished well shy of my predicted mark, and the pace of corporate bankruptcies, in fact, decreased as the year progressed. According to Bankruptcydata.com, “major” filings reached 249 in 2009, more than 100 bankruptcies shy of my prediction.

As I mentioned in a previous post (see Notable Bankruptcies of 2009: Q3), the stylized fact that the pace of corporate bankruptcies decreased through Q2, Q3, and Q4 begs the question of whether the underlying cause was a structurally improved economy or the massive Fed/Treasury liquidity programs keeping weaker firms on artificial life support. My sense is that it had more to do with the latter than the former, but we will find out for certain once the Fed/Treasury start to unwind their extraordinary liquidity programs.

With that in mind, it is my expectation that corporate bankruptcy filings will increase in 2010, for a couple of reasons. First, bankruptcies are a lagging economic indicator. As with employment, bankruptcies typically peak well after the economic trough. As an example, although the dotcom bubble burst in March of 2000, bankruptcies did not peak until 2001, and were elevated into 2002. Second, if fundamentally weak companies are being propped up by the provision of credit/liquidity to an economy that cannot structurally support them, it is only a matter of time before bankruptcies begin to reflect the true underlying economic fundamentals.

So my baseline (over/under) call for 2010 stands at 300 corporate bankruptcies.

Anyhow, below you can find an updated list of what I see as the “noteworthy” corporate bankruptcies of 2009 (as reported by Bankrupctydata.com). New additions since October appear in RED (please note that this is not an exhaustive list):

• 1st Centennial Bancorp (Banking)
• AbitibiBowater Inc. (Paper)
• Accuride Corporation (Trucking)
• Adamar Inc. dba Tropicana Casino & Resort (Gambling)
• Advanta Corp. (Banking/Finance)
• Altus Pharmaceuticals (Pharma)
  
• American Community Newspapers Inc. & LLC (Newspapers)
• ARG Enterprises, Inc. (Restaurants)
• Aurora Oil & Gas Corporation (Energy)
• Aventine Renewable Energy Holdings, Inc. (Energy)
• BankUnited Financial Corporation (Banking)
• Barzel Industries, Inc. (Manufacturing)
• Baseline Oil & Gas Corp. (Energy)
• Bearingpoint, Inc. (Consulting)
• BI-LO, LLC (Supermarkets)
• Bruno’s Supermarkets, LLC (Supermarkets)
• Butler International, Inc. (IT Services)
• California Coastal Communities, Inc. (Real Estate)
• Cape Fear Bank Corporation (Banking)
• Capital Corp of the West (Banking)
• Capmark Financial (Banking)
• CCS Medical, Inc. (Medical)
• Champion Enterprises, Inc. (Real Estate)
• Charter Communications, Inc. (Telecom)
• Chemtura Corporation (Chemicals)
• Chrysler LLC (Automobiles)
• CIB Marine Bancshares, Inc. (Banking)
• CIT Group (Banking)
• Citadel Broadcasting (Media)
  
• Colonial BancGroup, Inc. (Banking)
• Cooperative Bankshares, Inc. (Banking)
• Cooper-Standard Holdings (Automobile)
• Crescent Resources, LLC (Real Estate)
• Cynergy Data, LLC (Banking)
• deCODE Genetics, Inc. (Biotech)
• Eddie Bauer Holdings, Inc. (Retail)
• Edge Petroleum Corporation (Oil & Gas)
• Ennis Homes, Inc. (Real Estate)
• Extended Stay Inc. (Hotels)
• Fairpoint Communications (Telecom)
• Filene’s Basement, Inc. (Retail)
• Finlay Enterprises, Inc. (Jewerly)
• Fleetwood Enterprises, Inc. (Recreational Vehicles)
• Fortunoff Holdings, LLC (Retail)
• Fountainbleu Las Vegas, LLC, (Hotels)
• Freedom Communications Holdings, Inc. (Media)
• Fulton Homes Corporation (Real Estate)
• General Growth Properties, Inc. (Real Estate)
• General Motors Corporation (Automobiles)
• G.I. Joe’s, Inc. (Retail)
• Goody’s LLC (Retail)
• Gottschalks Inc. (Retail)
• GSI Group, Inc. (Semiconductors)
• Guaranty Financial Group Inc. (Banking)
• Herbst Gaming, Inc. (Gambling)
• Holley Performance Products, Inc. (Automotive)
• ION Media Networks, Inc. (Television)
• Idearc (Publishing)
• Imperial Capital Bancorp (Banking)
• Irwin Financial Corporation (Banking)
• JL French Automotive Castings, Inc. (Automotive)
• Journal Register Companies (Newspapers)
• Lazy Days RV Center, Inc. (Recreational Vehicles)
• Lear Corporation (Automobile)
• Lyondell Chemical Company (Chemicals)
• MagnaChip Semiconductor LLC (Semiconductors)
• Magna Entertainment (Gambling)
• Majestic Star Casino, LLC (Gambling)
• Masonite Corporation (Real Estate Manufacturing)
• Metromedia International Group, Inc. (Media)
• Midway Games, Inc. (Entertainment Software)
• Monaco Coach Corporation (Recreational Vehicles)
• Muzak Holdings LLC (Entertainment)
• Nortel Networks, Inc. (Telecom)
• NTK Holdings – Nortek, Inc. (Construction)
• NutraCea (Health/Nutrition)
  
• Oscient Pharmaceuticals Corporation (Pharma)
• Pacific Energy (Oil & Gas)
• Penn Traffic Company (Supermarkets)
• Philadelphia Newspapers, LLC (Newspapers)
• Proliance International, Inc. (Manufacturing)
• RathGibson, Inc. (Manufacturing)
• Reader’s Digest, Inc. (Media)
• Recycled Paper Greetings, Inc. (Greeting Cards)
• R.H. Donnelley Corporation (Marketing)
• Ritz Camera Centers, Inc. (Retail)
• Samsonite Company Stores, LLC (Retail)
• Security Bank Corporation (Banking)
• Shane Company (Jewelry)
• Silicon Graphics, Inc. (IT/Computing)
• Silver State Bancorp (Banking)
• Simmons Company (Bedding)
• Six Flags, Inc. (Entertainment)
• Smurfit-Stone Container Corporation (Paper Manufacturing)
• Source Interlink Companies, Inc. (Marketing)
• Southern Community Bancshares, Inc. (Banking)
• Spectrum Brands (Consumer Products)
• Star Tribune Companies (Newspapers)
• Station Casinos, Inc. (Gambling)
• Sun-Times Media Group, Inc. (Newspapers)
• Tarragon Corporation (Real Estate)
• Team Financial, Inc. (Banking)
• Temecula Valley Bancorp (Banking)
• Teton Energy Corporation (Oil & Gas)
  
• Thornburg Mortgage, Inc. (Banking)
• TLC Vision Corporation (Vision/Eye Care)
• Trump Entertainment (Gambling)
• UCBH Holdings (Banking)
• U.S. Shipping Partners L.P. (Marine Transportation)
• Velocity Express Corporation (Delivery)
• Vineyard National Bancorp (Banking)
• Visteon Corporation (Auto Supplies)
• Walking Company Holdings, Inc. (Footwear)
• Wall Homes, Inc. (Real Estate)
• WL Homes, LLC (Real Estate)
• Young Broadcasting, Inc. (Television)

In addition to “major” corporate bankruptcies (e.g., those firms with assets greater than $50M) tracked by Bankruptcydata, the U.S. government tracks all bankruptcy filings by type (e.g., Chapter 7, Chapter 11, Chapter 13). You can find detailed bankruptcy statistics at the U.S. Courts website. I will update the charts that I presented earlier in the year when the final 2009 numbers are released, which should be sometime in March (see Notable Bankruptcies of 2009: Q1).

Happy Holidays and Happy New Year! I hope you all enjoyed the holidays and I wish you a happy, healthy, prosperous, and peaceful 2010. May it treat you better than did 2009.

It’s been a few weeks since I’ve posted anything. My apologies for that. I took some time off to wrap up a busy semester and to spend some much needed vacation time with my family. First we had family come visit from California and Texas. We then went to New Hampshire to spend some time skiing. I am incredibly thankful to have spent the holiday surrounded by family, and incredibly fortunate for the privilege to travel.

Although most of my time in New Hampshire was spent skiing with family at Loon, I did take a one-day detour to ski at Bretton Woods and visit the fabled Mount Washington Hotel. It was at the Mount Washington Hotel where, in 1944, the Bretton Woods meetings took place and the Bretton Woods agreement was ratified (see also Bretton Woods System). Bretton Woods is where the IMF, the IBRD, and GATT were born; where a precursor to the WTO was proposed; and where an international system of exchange rate management was established that lasted for nearly 30 years. The visit to Bretton Woods was one of the highlights of my trip.

Anyhow, now that I’m back in the office and back to work, I’ll look forward to posting on a more regular basis. I have a few things already in mind to discuss, and of course, I shall shortly post the Q4 (and year end) 2009 list of notable bankruptcies.