From: Max More (max@maxmore.com)
Date: Tue Jul 02 2002 - 00:10:25 MDT
At 01:45 PM 7/2/2002 +0930, Emlyn wrote:
>So WorldCom diddled its
>books; it sounds as though it was an awesome approach, given the environment
>it was in (and its expectation that this bull market would continue ad
>infinitum). Sure the behaviour brought it down, and wrecked a lot of other
>entities' plans as well, and contributed to a giant global waste of
>resources. But, it would have looked like a damned good idea at the time.
>
>And you want to nail the government for it. Weird naivety.
It *is* fascinating, amusing, and frustrating that media voices are
treating all these events as one the same level of dreadful depravity. The
Enron case does seem despicable in places, though more a result of an
excessive concentration of a particular personality type than of business
pressures in general.
But what did WorldCom do? I haven't looked into this one in detail. But, as
I understand it, instead of booking some expenses fully in the year they
occurred, WorldCom booked them as capital investments, reducing earnings by
a smaller amount but over more years. Apparently at least some of these
expenses were "line costs" -- fees the company pays to other telecom
companies to use their networks. I don't know exactly how those contracts
were structured, but this doesn't seem like an obviously terrible thing to
do. Further, it doesn't affect overall cash flow (the real test of the
health of a company), just EBITDA (which, unfortunately, is what analysts
typically look at). However, the extremely severe market reaction,
especially today, seems to pretty much guarantee bankruptcy by destroying
the stock price, forcing a formal violation of loan agreements.
As for Martha Stewart, I will confess that she has always rubbed me (at
this considerable distance) the wrong way. It would be relatively easy for
me to give in to schadenfreude. Yet I'm not sure what she really did
(according to current evidence) that was so rotten. Even if she did trade
on "inside" knowledge, I've seen little analysis of whether or how much
that is damaging (if at all, overall) or whether it should be the subject
of criminal law. Put yourself in her situation and ask how wrong you would
feel to sell your ImClone stock.
It occurs to me that Martha Stewart (*if* the accusations are correct)
would be a hypocrite if she also supported the law being used against her.
But perhaps she has long thought it a bad law. Of course, none of *us*
would ever think it okay to break what we saw as a bad law, right?
Before everyone goes overboard with another round of big-bad-business, we
would benefit by examining these principles in each case. We should also
consider the degree of responsibility of depending on an agency such as the
SEC. Can we find better ways of organizing social and legal pressures for
honest numbers, where the latter term means something sensible?
Early in the 20th Century, the USA's political culture was powerfully
dominated by the Progressives, whose views greatly increased the extent and
power of central government. FDR, of course, pushed it much further. In the
shadow of historically disruptive terrorist attacks on "this country", I
fear that many N. Americans are unthinkingly backing these blanket attacks
on companies and high profile individuals. The cures proposed may end up
far worse than the disease. In fact, I think that all too likely.
I'm certainly *not* saying that everything in Corporate America is
wonderful and optimal and that nothing should be done. I am getting a
little worried that "we" are turning on a scapegoat for how we feel in this
time of terrorism and uncertainty. If the economy were truly in the toilet,
I might be getting seriously concerned about parallels between this
situation and the 1930s Germans finding scapegoats for their national feelings.
Max
_______________________________________________________
Max More, Ph.D.
max@maxmore.com or more@extropy.org
http://www.maxmore.com
Strategic Philosopher
President, Extropy Institute. http://www.extropy.org <more@extropy.org>
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Director of Content Solutions, ManyWorlds Inc.: http://www.manyworlds.com
--- Thought leadership in the innovation economy
m.more@manyworlds.com
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