March 15, 2005

Ebbers Goes Down!

I've been called a shill for business (and that's by my Mom!) because I defend corporations from the Jose Bove/Michael Moore/Hollywood crowd. I have had mixed feelings on New York AG Spitzer, I think Martha Stewart got a raw deal.

But I am dancing into the night with this news:

WorldCom's Ebbers Convicted of All Counts

NEW YORK - Bernard Ebbers, who built WorldCom from a humble Mississippi long-distance concern into a telecommunications titan, was convicted Tuesday of engineering the colossal accounting fraud that sank the company.

For business to be defensible, it has to play by the rules; for markets to work their unique magic, the assets must exhibit a high degree of transparency. All these were broken by the firm that James Cramer always calls "WorldCon" and the concept that its CEO didn't know what was up was ludicrous.

Bye Bye Bernie!

Economics and Markets Posted by John Kranz at March 15, 2005 1:33 PM

Bravo indeed, but I am afraid I cannot join you dancing in the streets JK. For business to be defensible it needs to not only play by the rules, but enforce them more effectively, rigorously, and quickly. How many big investors and investment firms made big bucks on WorldCom and Enron? The market forces that should have been knocking these companies upside the head were instead in on the cheat like a referee trying to make a point spread. What will really change now that Bernie is headed to the big house? Did he and Kenny really learn important lessons from Michael Milken's time in jail? Color me skeptical. The currently complexity of business and tax law still serves to aid and hide the cheats. When the folks who should be helping enforce the rules are instead helping themselves to a pile of cash I see little difference from our UN "friends" selling to Saddam.

Posted by: Silence Dogood at March 15, 2005 2:29 PM

I'll dance alone then, Silence.

I am not displeased by the latency of catching and prosecuting the WorldCon crew. If corporations feel that: 1) you will be caught, and 2) you will do time, not pay a small fine, then people will take notice. Ebbers's going to the pokey will do more for corporate governance than a hundred Sarbanes-Oxley bills -- with far fewer side effects.

To answer your rhetorical question: some made money on WorldCom and Enron but many lost and they are now out of the capital markets. The hope is that most of those who profited from malfeasance will be prosecuted or will at least fear prosecution.

Conversely, Microsoft and Cisco and Apple and Wal*Mart remain in the market and are the ones really making the money. Some guys enjoy the money from robbing a liquor store but few young people choose it as a career. But the real trend is for legitimate enterprise in a free society. (Said best in the first Austin Powers movie. When Dr. Evil comes back from cryogenics and has to be convinced that the legitimate businesses yield more revenue than his evil schemes...)

Posted by: jk at March 15, 2005 3:02 PM

But since JK neglected to mention it, I'll point out that Silence has made an excellent analogy between the looting that occured at the UN through the 'Oil for Food' scheme and the looting that occurs in capitalist economies through unnecessary rules, regulations, taxes and tariffs. The cry of progressives should become, "UN out of the U.S. - U.S. government out of the economy!" That's my cry and I consider myself a GENUINE progressive.

Posted by: johngalt at March 15, 2005 3:13 PM

Oh NED! I consider myself a genuine Liberal and Johngalt is a genuine Progressive. The world is doomed!

I HATED his analogy (but let it slide). It is a huge, erroneous leap of moral equivalence to equate those yahoos who would steal money from their shareholders with those who would prop up despots, impoverish an entire nation, and preclude any offer of real relief for filthy lucre. I cannot put those two criminal acts on the same table.

Posted by: jk at March 15, 2005 3:25 PM

JK is right that one of many byproducts of UN perfidity was prolonged tyranny and more dead Iraqis at the hands of the Hussein regime. The irresponsibility of this is indefensible.

On the single issue of looting by regulating bureaucracies, however, the analogy holds.

Posted by: johngalt at March 16, 2005 2:55 PM

Yikes, my analogy has been pretty perversely twisted. Sorry John Galt but I was actually referring to the cozy (and profitable) relationship between investment houses and analysts who should be knocking down the cheats but instead are in on the game. So JK, a CEO who engages in the despotic behavior of skimming money and thereby impoverishing his company, its employees, and its customers, all the while colluding with investment and analysis firms that should be raking him over the coals, that is so different from Saddam and the UN oil for food bunch how? Yes, the torture and violence are light years apart, I am equating the financial aspects only.

Posted by: Silence Dogood at March 17, 2005 12:58 PM

Yes, Silence, wrong is wrong. But I see a difference on scale and severity. Scale based on the incredible numbers: $21 Billion. Severity based he victims' ability to avoid the problem. Enron and MCI were growth stocks. Nobody deserved to be hoodwinked but those shareholders should have had some diversity to cushion the blow. As it stands, they have shareholders' lawsuits and other opportunities for redress,

The Iraqi people could not diversify their despot portfolio. They were forced to live in tyranny and terror while their supposed protectors at the UN profited from the status quo.

Posted by: jk at March 17, 2005 2:06 PM

Fair point.

Posted by: Silence Dogood at March 17, 2005 3:41 PM | What do you think? [8]