Happy May Day
Happy May Day, everyone!
Just for fun, let's take a brief stroll down memory lane to remind us of the
contributions of communism to the twentieth century:
Joseph Stalin, U.S.S.R.
Death toll - 20 million
Mao Zedong, China
Death toll - 40 million
Kim Jong Il, North Korea
Death toll: 2 to 3 million from 1994 - 1998 alone
Wait a second - you thought we were done? Don't forget Castro. I leave you with a charming tidbit about the workers' paradise in Cuba:
On May 27, [1966,] 166 Cubans -- civilians and members of the military -- were
executed and submitted to medical procedures of blood extraction of an average
of seven pints per person. This blood is sold to Communist Vietnam at a rate of
$50 per pint with the dual purpose of obtaining hard currency and contributing
to the Vietcong Communist aggression.
"A pint of blood is
equivalent to half a liter. Extracting this amount of blood from a person
sentenced to death produces cerebral anemia and a state of unconsciousness and
paralysis. Once the blood is extracted, the person is taken by two militiamen on
a stretcher to the location where the execution takes place."
--
InterAmerican Human Rights Commission, April 7, 1967
Thoughts on Enron
After reading
Conspiracy of Fools, a few points which I found interesting:
The true villain of the story is Andy Fastow, the CFO (and his lieutenant, Michael Kopper). He was the architect of all the financial shenanigans, and he purposefully misled his superiors on repeated occasions. His punishment towards those who questioned his methods was harsh and swift - and it wasn'tjust directed at Enron employees. He got an analyst at one of Wall Street's biggest banks fired for not rating Enron stock high enough, for example.
Ken Lay was a hopeless optimist, and largely blameless for what happened. When Fastow decided to turn Enron into an energy-related investment bank, rather than a regular oil and gas company - Lay was simply out of his league. He believed in the company to the bitter end. He borrowed millions and millions of dollars (for personal use) and it was effectively collateralized solely by Enron stock. When the stock price began to slip in the summer of 2001, he sold shares of his stock to meet margin calls of his bankers.
A common misconception is that he dumped his shares to make a bunch of money prior to the meltdown because he knew what was coming. What he was actually doing was ensuring that he could make good on his personal debt. When the bankruptcy occurred, Lay was financially ruined. Much like his employees. If anything, Ken Lay is guilty of naivete, and that's about it.
Jeff Skilling was much less liable for Enron's failures than he has been made out to be in popular mythology - but his hands are far from clean. Unlike Ken Lay, Skilling was told of the details of Fastow's fraudulent transactions, and thought that they were impressive and bold. He loved that Fastow could think outside the box, and he created a culture in which financial losses were not tolerated. He did not manipulate earnings himself, but he made it possible, even probable that it would happen.
Interestingly, Fastow never told Skilling (or anyone else) how much he personally made off of the illegal off-balance sheet transactions. If he had, Enron would have imploded far sooner. During 2001, Skilling melted down emotionally. He was thin-skinned, and took it personally when the stock dropped after Ken Lay stepped down as CEO. In retrospect, it is assumed that he began to self-destruct (culminating in his resignation in the summer of 2001) because he knew that Enron was a sinking ship - but in fact he was having severe emotional problems at the time and was unable to cope with the responsibilities of his job. Be that as it may, Skilling believes he did nothing wrong but he probably should do some jail time. A CEO of a Fortune 50 company has to have the magic eye for these types of things. His epitaph will read: "he should have known better".
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- In retrospect, it really was a conspiracy of fools. After reading a detailed account of the debacle, one begins to realize that the fraudulent ideas, far from being brilliant (in an evil genius kind of way), were really quite stupid. These were not the smartest guys in the room. Every group or individual in a position of power to block the transactions thought that they looked really odd, but assumed that someone else had closely scrutinized the details. If that someone else signed off on it, then it must be okay.
- The company's true implosion began when Skilling resigned, and was replaced by Greg Whalley. He saw the losses the Fastow's fraudulent transactions were causing, and matter of factly decided to disclose them. Accept the loss and move on - after all, all the losses I recognize quickly I can pin on the last guy. As soon as the losses were disclosed to the public, it was all over.
- A common myth is that Enron employees were prevented from selling stock in their 401k plans for an entire month - as Enron imploded and the stock became worthless. In reality, the company had been scheduled to switch 401k plans and the switch happened to occur at a bad time. During the switchover, which only lasted for about a week, Enron employees could not sell their stock. During that week, the price of Enron stock dropped approximately $4. Shirts were not lost during that time. Irony of ironies - when the freeze period ended, Enron employees purchased thousands of shares of Enron stock, figuring that since the price had dropped it was a great time to buy shares at bargain prices.
- Another common myth is that Enron sufficiently manipulated California's energy markets during 2000 to cause rolling blackouts across the state. In reality, Enron did fraudulently manipulate California's markets, but they were simply taking advantage of a terrible law. The state would have had the crisis with or without Enron. It had a lack of supply (due to slow approval of new power plants from environmental regulations), a heat wave, and a system which forced utilities to buy power on the spot market and sell it to customers at fixed rates (which is highly risky).
The demise of Andersen will be discussed in a later post.
The Business World circa 2000
Two book recommendations:
Conspiracy of Fools, by Kurt Eichenwald
dot.bomb: My Days and Nights at an Internet Goliath, by David Kuo
The former is a fascinating, detailed account of the rise and fall of Enron. A must read for anyone interested in corporate America. (more posting on Enron to come)
The latter is an amusing firsthand account of Value America, an internet company which experienced one of the more spectacular flame-outs in recent history when the tech bubble burst in mid-2000.
In certain respects, both books are eerily reminiscent of the recent Jim Carrey movie "Fun With Dick and Jane".
An Analogy
Ned Rice believes we should withdraw from the
War on Cancer. After all, if an endeavour cannot be completed with 100% success - that means we shouldn't undertake it, yes?
Democratic Realism
In this
article, Charles Krauthammer successfully merges the doctrine of realism to the post-9/11 world. Troubles in Iraq notwithstanding, this is the strategy America will pursue if it is to win this Long War.
As things stand today, the Long War has three primary fronts:
- Afghanistan - democratic realism in action
- Iraq - democratic realism in action (notably less successful than Afghanistan because Iraqis have not been exhausted by 30 years of continous civil war)
- Europe - the war is being waged on demographic and cultural fronts and is not going well at all (this will be the subject of future posts)
I am far more concerned with the battle of ideas which is taking place in Europe. The Continent recently discovered that there are those who wish the fate of Theo van Gogh on all of us, and that they cannot be ignored or wished away. Krauthammer's strategy, though brilliant, fails to cover this aspect of the Long War.
Unfortunately, we have failed to confront this problem, or even acknowledge it.
The Helicopter Theory
Amir Taheri believes dictators in the Middle East are trying to
wait Bush out - and he is right. Consider that in the view of a military professor in Tehran:
the entire recent history of the U.S. could be narrated with the help of the
image of "the last helicopter." It was that image in Saigon that concluded the
Vietnam War under Gerald Ford. Jimmy Carter had five helicopters fleeing from
the Iranian desert, leaving behind the charred corpses of eight American
soldiers. Under Ronald Reagan the helicopters carried the corpses of 241 Marines
murdered in their sleep in a Hezbollah suicide attack. Under the first President
Bush, the helicopter flew from Safwan, in southern Iraq, with Gen. Norman
Schwarzkopf aboard, leaving behind Saddam Hussein's generals, who could not
believe why they had been allowed live to fight their domestic foes, and
America, another day. Bill Clinton's helicopter was a Black Hawk, downed in
Mogadishu and delivering 16 American soldiers into the hands of a murderous
crowd.
The only clear fact that all sides agree on is that Bush will not have a helicopter moment. An understanding of the viewpoint in Arab capitals helps put recent developments in context. Mr. Ahmadinejad's defiant rhetoric is based on a strategy known in Middle
Eastern capitals as "waiting Bush out." "We are sure the U.S. will return to
saner policies," says Manuchehr Motakki, Iran's new Foreign Minister.
Mr.
Ahmadinejad believes that the world is heading for a clash of civilizations with
the Middle East as the main battlefield. In that clash Iran will lead the Muslim
world against the "Crusader-Zionist camp" led by America. Mr. Bush might have
led the U.S. into "a brief moment of triumph." But the U.S. is a "sunset"
(ofuli) power while Iran is a sunrise (tolu'ee) one and, once Mr. Bush is gone,
a future president would admit defeat and order a retreat as all of Mr. Bush's
predecessors have done since Jimmy Carter.
The only question is - will it work? The vipers of the Middle East watch and wait.
A Message to Venezuela
The United States Navy is sending a carrier group down to the Caribbean:
http://home.hamptonroads.com/stories/story.cfm?story=102085&ran=181584The fact remains that, despite press reports to the contrary and anti-war hysteria, America remains a fantastically powerful nation. Look for a softening of Venezuela's rhetoric, which characteristically will not be reported on.
