Sizing Up Financial Reform To Date*
No, I haven't been commenting on the Lehman Bros. bankruptcy expose, which has been a big deal in the financial blogosphere the last week or so.
Having declined to read the entire 2,000-plus page study, my quick take is that everything people suspected that Lehman did, it actually did -- only worse.
(Make, that people away from Wall Street, where people knew for fact what Lehman was doing, i.e., quarter-end financial engineering, hiding debt, and pervasive Enron-like accounting generally).
Beyond the particulars of Lehman, though, what's my take on financial reform generally, up to and including the (lame) legislation just introduced by lameduck Christopher Dodd?
The newly diagnosed emphysema patient has resumed (chain)smoking.
Except that: a) the patient never really stopped smoking; and b) given all the hacking the last few years, the diagnosis wasn't exactly a surprise.
No, the recovery won't be easy, but an obvious first start would seem to be to switch doctors!!
*That's actually a trick headline; 18 months after the crash, there hasn't been any perceptible financial reform.
Showing posts with label Enron. Show all posts
Showing posts with label Enron. Show all posts
Thursday, March 18, 2010
Sunday, March 29, 2009
(Im)plausible Deniability
Wall Street Who-Dunnit: No One??
Hurricane Katrina was an act of nature. The economy's Wall Street-triggered financial collapse is not. If and when anyone is actually held accountable for that, you can expect to hear variants (combinations?) of the following defenses.
(Im)plausible Deniability, or, "The Enron Defense"
Ken Lay, Enron Chairman, famously argued that he was out of the loop at the company he ran.
If you don't recall, Enron was a financially engineered house of cards -- complete with opaque, off-balance sheet entities -- that spectacularly imploded (sound familiar?). The resulting mess cost investors, creditors, and company employees about $100 billion -- a number that seems positively quaint by today's standards.
At trial, Lay argued that he was above it all, and didn't really understand all the complex transactions that led to the company's undoing.
Unfortunately, that stance was contradicted by multiple pieces of evidence, including the testimony of Lay's own lieutenants, incriminating email's, and Lay's conveniently-timed sale of millions in company stock (even as he was exhorting employees to buy).
Because Lay's claims of ignorance were so roundly refuted, the jury never really got to the far more legally relevant question: whether Lay should have known what was going on at his own company. After all, under corporate law, that's the board chairman's duty. And Lay certainly was paid -- munificently -- to know what was going on.
Knew . . . or Should Have
Fast forward to today.
In an instantly infamous letter run in last week's New York Times, Jake DeSantis, a senior executive at AIG Financial Products ("AIGFP"), argued -- amongst other things -- that he had nothing to do with the toxic credit instruments at the heart of the company's (and financial system's) melt-down.
If Lay's argument was that he was too high in the pecking order to have been in the loop, DeSantis' argument is that he was too low. DeSantis wanted the world to know that he refused to be a scapegoat and a fall guy. Plus, he had other (unspecified) job opportunities -- or did.
So, in a tone reminiscent of Richard Nixon's 1962 valedictory ("you won't have Nixon to kick around anymore"), DeSantis announced that he was resigning -- and donating his $750k after-tax bonus to charity.
Here is Matt Taibbi's take on DeSantis' claim of ignorance (or at least the printable part):
"I was just following orders" (or, The Eichmann Defense). If Wall Street firms were all headed by Ken Lay's, their subordinates are likely to claim that they were all Adolph Eichmann's.
Sometimes referred to as "the architect of the Holocaust" (and the subject of Hannah Arendt's chilling "The Banality of Evil"), Eichmann argued in his defense that he was merely a subordinate following Hitler's orders.
So, too, one might expect that all but the senior-most Wall Street executives will argue that they were merely implementing directives from higher-up's. To prevail, however, they will likely have to disavow thousands of incriminating email's, eyewitnesses' testimony, and their own extravagant compensation -- often in the hundreds of millions. Unlike Eichmann, who plausibly might have feared for his safety had he opted out, Wall Street's various accomplices -- er, underlings -- faced no such coercion.
Postscript: Eichmann's arguments were rejected, and he was hung.
"Everyone Did It." When you can't deny that you did something, or blame it on others, or otherwise excuse the conduct in question, then what? The predicament reminds me of one of my favorite lawyer jokes:
Unfortunately, millions in foreclosed homes, trillions in evaporated wealth, 10% unemployment, etc., are not a laughing matter.
A functioning legal system will manage to parse the foregoing defenses, lay blame, and hold somebody accountable. Recovery depends on it.
Victory has a thousand fathers, but defeat is an orphan.
--John F. Kennedy
Hurricane Katrina was an act of nature. The economy's Wall Street-triggered financial collapse is not. If and when anyone is actually held accountable for that, you can expect to hear variants (combinations?) of the following defenses.
(Im)plausible Deniability, or, "The Enron Defense"
Ken Lay, Enron Chairman, famously argued that he was out of the loop at the company he ran.
If you don't recall, Enron was a financially engineered house of cards -- complete with opaque, off-balance sheet entities -- that spectacularly imploded (sound familiar?). The resulting mess cost investors, creditors, and company employees about $100 billion -- a number that seems positively quaint by today's standards.
At trial, Lay argued that he was above it all, and didn't really understand all the complex transactions that led to the company's undoing.
Unfortunately, that stance was contradicted by multiple pieces of evidence, including the testimony of Lay's own lieutenants, incriminating email's, and Lay's conveniently-timed sale of millions in company stock (even as he was exhorting employees to buy).
Because Lay's claims of ignorance were so roundly refuted, the jury never really got to the far more legally relevant question: whether Lay should have known what was going on at his own company. After all, under corporate law, that's the board chairman's duty. And Lay certainly was paid -- munificently -- to know what was going on.
Knew . . . or Should Have
Fast forward to today.
In an instantly infamous letter run in last week's New York Times, Jake DeSantis, a senior executive at AIG Financial Products ("AIGFP"), argued -- amongst other things -- that he had nothing to do with the toxic credit instruments at the heart of the company's (and financial system's) melt-down.
If Lay's argument was that he was too high in the pecking order to have been in the loop, DeSantis' argument is that he was too low. DeSantis wanted the world to know that he refused to be a scapegoat and a fall guy. Plus, he had other (unspecified) job opportunities -- or did.
So, in a tone reminiscent of Richard Nixon's 1962 valedictory ("you won't have Nixon to kick around anymore"), DeSantis announced that he was resigning -- and donating his $750k after-tax bonus to charity.
Here is Matt Taibbi's take on DeSantis' claim of ignorance (or at least the printable part):
Taibbi goes on to make the point that if, however inexplicably, DeSantis is actually clueless about credit default swaps . . . what expertise does he have that would justify taxpayers paying him millions to unwind them?AIGFP only had 377 employees. Those 400-odd folks received almost $3.5 billion in compensation in the last seven years, a very large part of that money coming from the sale of credit default protection. Doing the math, that averages out to over $9 million of compensation per person. Ask yourself this question: If your company made that much money, and the boss of the unit made almost $280 million in just a few years, exactly how likely is it that you wouldn't know where that money was coming from?
Are we supposed to believe that Jake DeSantis knew nothing about Joe Cassano's CDS deals? If your boss and the top guys in your firm were all making a killing selling anything at all -- whether it was rubber kayaks, generic Levitra or credit default swaps -- you really wouldn't bother to find out what that thing they were selling was? You'd really just mind your own business, sit at your cubicle and put your faith in the guys up top to fill you in if there was something you needed to know?
--Matt Taibbi, The Smoking Chimp
"I was just following orders" (or, The Eichmann Defense). If Wall Street firms were all headed by Ken Lay's, their subordinates are likely to claim that they were all Adolph Eichmann's.
Sometimes referred to as "the architect of the Holocaust" (and the subject of Hannah Arendt's chilling "The Banality of Evil"), Eichmann argued in his defense that he was merely a subordinate following Hitler's orders.
So, too, one might expect that all but the senior-most Wall Street executives will argue that they were merely implementing directives from higher-up's. To prevail, however, they will likely have to disavow thousands of incriminating email's, eyewitnesses' testimony, and their own extravagant compensation -- often in the hundreds of millions. Unlike Eichmann, who plausibly might have feared for his safety had he opted out, Wall Street's various accomplices -- er, underlings -- faced no such coercion.
Postscript: Eichmann's arguments were rejected, and he was hung.
"Everyone Did It." When you can't deny that you did something, or blame it on others, or otherwise excuse the conduct in question, then what? The predicament reminds me of one of my favorite lawyer jokes:
When a neighbor charges that the lawyer's dog bit him, the lawyer first denies it. When he's shown photos of the bite and the emergency room bill for the neighbor's stitches, the lawyer then argues that the dog attacked in self-defense. When numerous witnesses come forward to testify that the attack was unprovoked, the lawyer says . . . it's not his dog.
Unfortunately, millions in foreclosed homes, trillions in evaporated wealth, 10% unemployment, etc., are not a laughing matter.
A functioning legal system will manage to parse the foregoing defenses, lay blame, and hold somebody accountable. Recovery depends on it.
Saturday, March 7, 2009
Enron: Just Ahead of its Time
[Note to Readers: I originally published the following post in mid-December. At that time, the cumulative federal bailout bill was about $2 trillion. Including guarantees of dubious bank assets, that number now is closer to $4 trillion -- $173 billion of which has been pumped into just one company, AIG.
Given these developments, I thought this post was even more topical now. The only other new information is the size of the '08 bonuses Wall Street exec's paid themselves (not known in December). Suffice to say, they didn't go with "the low end of the range."]
Is it Too Late to Bail Out Enron??
"Supreme Court Overturns Bush v. Gore"--Headline; The Onion (12/9/2008)
Watching what's going on in Washington and on Wall Street, the Enron guys must be turning over in their . . jail bunk beds.
Consider the following:
--The audited financial statements of AIG, Citigroup, Bear Stearns, etc. obscured or omitted billions in company liabilities.
--Enron's audited financial statements obscured or omitted billions in company liabilities.
--Senior management at AIG, Citigroup, Bear Stearns, etc. reaped hundreds of millions in compensation and bonuses based on (dubious) asset values they determined.
--Enron senior management reaped hundreds of millions in compensation and bonuses based on (dubious) asset values they determined.
--Senior management at AIG, Citigroup, Bear Stearns, etc. publicly reassured investors, creditors, and employees that all was well, and exhorted them to buy "cheap" company stock, even as they dumped their own holdings.
--Enron senior management publicly reassured investors, creditors, and employees that all was well, and exhorted them to buy "cheap" company stock, even as they dumped their own holdings.
Enron's leadership is in jail (or in CEO Ken Lay's case, dead). Wall Street's senior management is . . . deciding what their 2008 bonuses should be. (My advice: go with the low end of the range, guys.)
Enron wasn't corrupt -- it just had the misfortune of being ahead of its time.
Given these developments, I thought this post was even more topical now. The only other new information is the size of the '08 bonuses Wall Street exec's paid themselves (not known in December). Suffice to say, they didn't go with "the low end of the range."]
Is it Too Late to Bail Out Enron??
"Supreme Court Overturns Bush v. Gore"--Headline; The Onion (12/9/2008)
Watching what's going on in Washington and on Wall Street, the Enron guys must be turning over in their . . jail bunk beds.
Consider the following:
--The audited financial statements of AIG, Citigroup, Bear Stearns, etc. obscured or omitted billions in company liabilities.
--Enron's audited financial statements obscured or omitted billions in company liabilities.
--Senior management at AIG, Citigroup, Bear Stearns, etc. reaped hundreds of millions in compensation and bonuses based on (dubious) asset values they determined.
--Enron senior management reaped hundreds of millions in compensation and bonuses based on (dubious) asset values they determined.
--Senior management at AIG, Citigroup, Bear Stearns, etc. publicly reassured investors, creditors, and employees that all was well, and exhorted them to buy "cheap" company stock, even as they dumped their own holdings.
--Enron senior management publicly reassured investors, creditors, and employees that all was well, and exhorted them to buy "cheap" company stock, even as they dumped their own holdings.
Enron's leadership is in jail (or in CEO Ken Lay's case, dead). Wall Street's senior management is . . . deciding what their 2008 bonuses should be. (My advice: go with the low end of the range, guys.)
Enron wasn't corrupt -- it just had the misfortune of being ahead of its time.
Thursday, December 18, 2008
Enron Just Ahead of Its Time
Is it Too Late to Bail Out Enron??
"Supreme Court Overturns Bush v. Gore"
--Headline; The Onion (12/9/2008)
Watching what's going on in Washington and on Wall Street, the Enron guys must be turning over in their . . jail bunk beds.
Consider the following:
--The audited financial statements of AIG, Citigroup, Bear Stearns, etc. obscured or omitted billions in company liabilities.
--Enron's audited financial statements obscured or omitted billions in company liabilities.
--Senior management at AIG, Citigroup, Bear Stearns, etc. reaped hundreds of millions in compensation and bonuses based on (dubious) asset values they determined.
--Enron senior management reaped hundreds of millions in compensation and bonuses based on (dubious) asset values they determined.
--Senior management at AIG, Citigroup, Bear Stearns, etc. publicly reassured investors, creditors, and employees that all was well, and exhorted them to buy "cheap" company stock, even as they dumped their own holdings.
--Enron senior management publicly reassured investors, creditors, and employees that all was well, and exhorted them to buy "cheap" company stock, even as they dumped their own holdings.
Enron's leadership is in jail (or in CEO Ken Lay's case, dead). Wall Street's senior management is . . . deciding what their 2008 bonuses should be. (My advice: go with the low end of the range, guys.)
Enron wasn't corrupt -- it just had the misfortune of being ahead of its time.
"Supreme Court Overturns Bush v. Gore"
--Headline; The Onion (12/9/2008)
Watching what's going on in Washington and on Wall Street, the Enron guys must be turning over in their . . jail bunk beds.
Consider the following:
--The audited financial statements of AIG, Citigroup, Bear Stearns, etc. obscured or omitted billions in company liabilities.
--Enron's audited financial statements obscured or omitted billions in company liabilities.
--Senior management at AIG, Citigroup, Bear Stearns, etc. reaped hundreds of millions in compensation and bonuses based on (dubious) asset values they determined.
--Enron senior management reaped hundreds of millions in compensation and bonuses based on (dubious) asset values they determined.
--Senior management at AIG, Citigroup, Bear Stearns, etc. publicly reassured investors, creditors, and employees that all was well, and exhorted them to buy "cheap" company stock, even as they dumped their own holdings.
--Enron senior management publicly reassured investors, creditors, and employees that all was well, and exhorted them to buy "cheap" company stock, even as they dumped their own holdings.
Enron's leadership is in jail (or in CEO Ken Lay's case, dead). Wall Street's senior management is . . . deciding what their 2008 bonuses should be. (My advice: go with the low end of the range, guys.)
Enron wasn't corrupt -- it just had the misfortune of being ahead of its time.
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