A TALE OF 2 COMPANIES

In the not too distant past, times were much like they are now. You probably remember a time in the 1970’s when times were tumultuous and recession or even depression seemed almost imminent. During these times there were two companies that are representative of many during that time.

One company did what it could to prepare, It cut spending and used all of the conventional methods but that’s about where the preparation ended. The company had some assets that were valuable. Unfortunately, that company doesn’t have those assets today--in fact, the owners of that company don’t have the company today.

You see, when times got tough, the company’s creditors moved in and took the assets away. The company fell victim to economic hard times.

Then there was the other company. In addition to the conventional steps that the first company took, this company took some creative action. This particular company also had certain valuable assets and it still has them today. Here’s what they did...

The company got heavily in debt to another company…it borrowed heavily and used all of It’s assets as collateral for the debt. A strange way to prepare for possible hard times you say--yes it was. The catch is that the owners of that company also owned the creditor--the company that was in debt and the company that it was in debt to were controlled by the same people.

So, even if creditors wanted to move in on the assets of the company, they could not. Not without paying off the secured creditor first...and the secured creditor was controlled by the same people.

This company was recession proofed--depression proofed--judgment proofed. The company was prepared!

The strategy that the prepared company implemented came to be known as the “Warbucks/Red Inc. strategy”.


"If you let the fear of consequence prevent you from following your deepest instinct, then your life will be safe, expedient and thin."

-- Katharine Butler Hathaway