The American Spectator

The Investor

Rudy Giuliani has been on a hot roll for so long that maybe he can be forgiven for thinking it will last forever. He spent two terms as an effective, popular mayor, a Republican in a Democratic stronghold. He chose the right issues, developed effective measures, and actually changed the city's attitude about itself, as well as the country's. His composure, dignity, and resolve following the terrorist attacks on his city became a rallying point for the nation.

Until this week, it looked like that roll could sweep Giuliani into whatever political office he might seek in 2006 or 2008, even the presidency. The former mayor has been making some serious money this year -- a best-selling book, another on the way, $100,000 per speech, consulting deals on crime prevention and crisis management -- without compromising himself or his popularity. At the same time, he has forged relationships with the nation's business leaders that will prove valuable for any future political run.

So why in the world is Rudy Giuliani getting mixed up in WorldCom's bankruptcy reorganization? On Monday, his consulting company, Giuliani Partners, confirmed that he was working with vulture-investing whiz David Matlin to raise money to continue buying WorldCom's depressed debt securities and control its reorganization. Matlin is already WorldCom's largest creditor, having spent $300 million. (The face value of that debt was about ten times that amount.) Matlin and Jim Manley, a fund-raising specialist, supposedly brought Giuliani in to find at least ten investors willing to put up $100 million each.

Although nobody should begrudge Rudy a chance to make some money, this looks too much like a cash grab. Now 58 years old, Giuliani has spent his entire career, and used all his skills, for the public good. If the public sector is going to continue attracting great talent, we have to allow these guys some breaks to make money. If Giuliani had chased the bucks instead of becoming mayor, he would have become a partner in a Wall Street law firm and made $10-20 million during the Nineties, instead of saving New York City and leading the nation's recovery following the September 11 attacks.

When Giuliani signs on to help Mexico City cut crime, it makes sense because he has a great record as a crime fighter. With WorldCom, however, it sounds like Matlin and Manley are just buying his name and integrity to convince a bunch of big institutions to pony up $100 million apiece. Admittedly, my head would turn if someone told me my reputation could make people fork over $100 million, but it just doesn't look right. It looks like he is being paid for who he is, not for what he can do.

The WorldCom situation provides Giuliani relatively little to which he could add value. According to Giuliani Partners' press release, "This is an opportunity to make a positive contribution to WorldCom, its employees and customers. In particular, we would work to establish a model form of corporate governance that the company could use when it emerges from bankruptcy."

WorldCom is a long-distance provider and has some business communication networks. Those are not good businesses to own right now, and probably won't be for the foreseeable future. If someone offered him the job of Chairman of AT&T -- same assets without the controversy, strife, or bankruptcy -- could he really do something Michael Armstrong isn't doing? Whoever runs WorldCom after it reorganizes is going to have to lay off a bunch of people. Shareholders usually end up with nothing in a bankruptcy reorganization and this should be no exception. Nevertheless, they now have a familiar face to blame when they hear they are being excluded.

As far as corporate governance is concerned, if he has some ideas, he should share them. I think he is smart to be uninterested in running the SEC -- they don't pay particularly well and, as Harvey Pitt learned, you look like some kind of a criminal if you ask for a raise -- but a book by Giuliani about what's wrong with corporate governance and how to fix it would make some money and would aid the debate a lot sooner than waiting until WorldCom emerges from bankruptcy.

A bankruptcy reorganization is a bad place for someone with a positive Q-rating. The best players in bankruptcy reorganizations are called "vulture investors" and their goal is to accumulate enough securities to block someone else's reorganization or push forward their own. Once they reach the latter position, they finish the bankruptcy process with the "cramdown," in which they force all the other securities holders to follow their plan. It's perfectly legal, it performs a valuable economic function, it's part of our great capitalist system, but it is a vicious, contentious process, more suited to experts at street-fighting than state-making.

Come to think of it, this sounds exactly like something at which Rudy Giuliani would excel. But that would be work for The Old Rudy -- an effective in-fighter who could succeed with his agenda but left lots of enemies in his wake, not the guy who seems more presidential than the President. But why go back to fighting and making enemies when you don't have to?

This is a huge risk for Rudy Giuliani, and an unwarranted one. If he wants to shake things up by going into business, he should position Giuliani Partners as a leading provider of services, like Microsoft, in connection with the new Department of Homeland Security. Or run United Airlines. Even these ideas are riskier than following the Churchill model of writing and speaking to make money until it's your turn to govern.

But Rudy Giuliani has never favored the easy way, so this should be no exception. I wouldn't bet against him in a fight, but this is a fight he doesn't need.

topics:
Business, Law