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The Parable of Michael Jackson’s Debts

With the sad passing of Michael Jackson, the King of Pop, at age 50 on June 25, another fiction of America’s mega wealth was laid to rest: even those living in gated mansions in LA are dying a little each day from debt stress.

From the U.S. Government to the Queen of England to the state house of California, to the millions of homes on both sides of the Atlantic with foreclosure notices nailed to the front door, a good chunk of the globe shares Michael Jackson’s lifestyle:  too much spending, too little income, too much stress from worrying about it.

Three days after Michael Jackson died with over $400 million in debts in a California mansion rented for $100,000 per month, British papers announced that Queen Elizabeth II will likely run out of funds by 2012 if she isn’t given an increase to run her three palaces.  The royal family’s expenses for the past year include the following items: $10.76 million for travel; $661,302 for a remake of the royal family’s website; $496,000 for cleaning the royal homes; $827,209 for food; and over $600,000 for garden parties.

If none of us had ever heard or seen how royal families lived, if there were no such thing as royal families, might we all be more content to live in homes and lifestyles we could actually pay for out of current earnings.

We’re engaged in a hopeless competition.  Royals are funded with the public purse. The King of Pop (and much of the rest of society) was funded with subprime loans at 20 per cent interest.

The ABCs of love may be as simple as 1-2-3, but the ABCs of fiscal prudence appear to have never been whispered in the ear of the colossally cash poor by any responsible financial advisor: A: “Under spend your annual income by at least 10 percent, and put that away for a rainy day.”  B: “Let your profits run, cut your losses short.”  C: “Never put more money in an investment unless it’s shown you a profit.” Also known as, “Don’t average down.”

Michael Jackson held on to the 2500-acre cash draining palatial estate called the Neverland Ranch in Santa Barbara County, California long after it became clear it was both a cash guzzler he could not afford as well as a perpetual drain on his efforts at image resuscitation as an ever present reminder of allegations of child molestation.

According to public documents and media reports, Mr. Jackson owed over $300 million to Barclays Bank PLC collateralized by his 50 percent interest in Sony/ATV Music Publishing, which owns the Beatles catalogue along with thousands of other music royalty rights.  He also owed $73 million (according to the Wall Street Journal) borrowed from an undisclosed source collateralized by his company, Mijac Music, which owns his own compositions.  He owed an unknown amount to Colony Capital, a private equity firm that bought Mr. Jackson’s $24.5 million loan against his Neverland Ranch from Fortress Investment Group.  Neverland is now controlled by a joint venture between Colony Capital and Mr. Jackson called Sycamore Valley Ranch Co., LLC.  Mr. Jackson was believed to own just a small interest in the venture.

At one point, Mr. Jackson was believed to be paying 20 per cent debt interest on approximately $270 million in loans or roughly $54 million per year, according to the New York Times.  His income was far below that amount, thus leading him further and further into debt to pay the debt service.

Mr. Jackson’s loans were eventually restructured at a lower interest rate with a guarantee of repayment from Sony.  (Sony, in exchange, won concessions for more autonomy in running Sony/ATV Music Publishing and the guarantee that it would be able to buy a controlling interest in the joint venture at some point in the future.)  Even if Mr. Jackson had received the low loan rate of 6 per cent  on the restructured, guaranteed $300 million loan, as was rumored, that would have resulted in $18 million a year in loan payments and that still left additional loan payments on the other $73 million.  Mr. Jackson’s total annual income from royalties was believed to be in the range of $19 million and that included $11 million per year from Sony/ATV.  The $11 million annually from Sony was only guaranteed through September 2011, according to documents obtained by the Associated Press.

In other words, without some miracle comeback, Mr. Jackson was swiftly heading toward certain bankruptcy, following the path his parents took in 1999.

I attended a funeral service a few years back where the elderly and wise decedent had left a little written message for her grandchildren: “Think carefully about your choices; your life becomes the decisions you make.”  Looking at the photograph of the happy, bubbly face of the 11-year old Michael Jackson and the gaunt, stressed out face of the 50-year old Michael Jackson, I am haunted by the tragedy of the decisions Mr. Jackson made for his life.  I am also haunted by what the faces of our grandchildren will look like when they’re 50 if we continue allowing our government to spend wildly beyond our means, including hundreds of billions to prop up zombie banks.

Michael Jackson’s fortunes got an earnings bump from his death.  The same fate does not await our national Treasury.

PAM MARTENS worked on Wall Street for 21 years; she has no security position, long or short, in any company mentioned in this article.  She writes on public interest issues from New Hampshire.  She can be reached at pamk741@aol.com

 

 

 

 

 

 

 

 

 

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Pam Martens has been a contributing writer at CounterPunch since 2006. Martens writes regularly on finance at www.WallStreetOnParade.com.

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