Take it Like a Man

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No! Never!

You’re not telling us the BANKS were involved in Enron’s little schemes? Knowingly and wittingly? And that they still sold the company’s securities to the public at large?

No, you’ve been watching too much of that X-files stuff, or else surfing too many of those Michigan militia websites. Next, you’ll be telling us that Enron was largely underwritten by those infamous u2018Open Door’ agencies, Exim and OPIC and that it was trying to get the Veep to arm-twist the Taliban into agreeing to let it build a pipeline late last year, so it could fuel its disastrous White (Indian) Elephant project in Dabhol and so stave off its onrushing bankruptcy!

What never ceases to amaze, is people’s prodigious ability to indulge in a little cognitive dissonance when they think it will make them rich.

For several years past a coterie of solid, sceptical writers and contrarian investors have been cogently pulling apart matters like GM’s wild pension fund assumptions, GE’s earnings smoothing from its unregulated, quasi-banking arm at GE Capital, Cisco’s aggressive use of pooling, Intel’s Dot.Com u2018investment’ gains, Microsoft’s stock options scheme, Dell’s aggressive use of put options to pad the income statement, a host of senior Execs’ avoidance of full regulatory filing by the use of total return swaps and non-recourse loans to cash in their options grants, IBM’s ability to achieve double digit earnings growth with barely changed revenues — and more besides.

True, only the very adept few had picked up on the power company’s Byzantine web of trading scams, or the Telecom industry’s u2018hollow swaps’, but securitization, such as is now plaguing El Paso, for one, was an issue many of us raised at the time.

After all, if the engaging, but distinctly second-rate Scottish gigolo, Rod Stewart could raise $10 million in 1998, following up the ground-breaking $55 million u2018Bowie Bond’ of that year — so instantly extinguishing all economic value from a series of highly contingent future royalties on a faded back catalogue of hits — think what a real company could do!

But, why, if instant shareholder gratification was all that was needed to make the board rich and to get the CEO on Letterman — why not book all foreseeable revenues up front via the magic of securitisation? Who was complaining back in 2000 when you u2018beat the Street’, however much u2018financial engineering’ was required to achieve this?

Do you think this had anything to do with the explosion of credit derivatives, the exponential rise of financial sector debt (think SPV’s) and the bidding war for u2018structured finance’ personnel on Wall Street and in the Square Mile?

But ain’t it funny how nobody listened to any of this when stocks were going up 5% a day just ‘cos Battapaglia & Blodgett, Abbey & Acampora, and Glassman & Greenspan were egging the mug punters on to believe in the New Paradigm?

Oh, those bandits in the boardrooms, those shyster lawyers, those crooked accountants and devious wildcat bankers, that energy regulation-killing Rubin, that options-expense scotching Liebermann, that money-pumping, cheerleading Fed Chairman — why could they not just continue with the game just a little longer so I could have got mine out before the House of Cards came tumbling down!

I’m sorry, people! Most of you were warned, you just chose not to heed it, so, when you start moralizing about u2018Infectious Greed’, just remember to look in the mirror when you mouth the words.

If you had done some homework — or even a little clear thinking about the probability that you might actually not be able to furnish a comfortable retirement for yourself based on a portfolio of 70-plus P/E stocks which had never paid a dividend and which existed in a rapidly changing (and largely untested) technological milieu — you might have treated the salesmen on CNBC with the same degree of suspicion you reserved for the boys down at Honest Sam’s Quality Used Autos.

But, no, you didn’t because poor old Sam was wearing a Stetson, not suspenders, and cowhide, not Calvin Klein, and, besides, he was only selling you a second hand limo, whereas the Street was peddling the promise of a shiny, new lifestyle.

Punish those proven to be malefactors, by all means — all of them, including the hypocrites in government and those residing at the Fed — but take a little responsibility for your own actions, folks.

That’s part of the concept of Liberty, should any of you remember what that is these days.

Sean Corrigan [send him mail] writes from London on the financial markets, and edits the daily Capital Letter and the Website Capital Insight.

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