Caught Out

Where I used to live, there was little more entertaining than a visit to the local court. An old fashioned justice system, with arbitrary magistrates, colourful defendants opposite the application of justice. This was decidedly NOT a big city court. The transgressions and infractions were typically minor and often bizarre, but always humane in ways not often seen or read about in modernity. Waiting in the foyer, one would overhear the reality of most folks be they family problems, living paycheck to paycheck, and seeing firsthand the effectiveness of political demagogues in shaping attitudes of at least some of The People.

While I believe there is a wonderful book to be written translating the daily march of the people and their cases into vivid anecdotes and weaving them into a heart-warming read of village and humanity, my visits were utilitarian. Exceeding the speed-limit by more than a certain amount requires, without exception, a mandatory court appearance. Waiting on the wooden benches, witnessing a series of "54 in a 35 zone - how do you plead", followed by "Guilty, your honor", and a ruling of "....$250 dollar fine or 30 days inside....", my interest was piqued by a most amusing case.

The prosecutor Mr Marquette, described the course of events. A Mr G. Reece was in the supermarket,  and was caught shoplifting. He had apparently hidden a head of green iceberg lettuce, and a few bags vegetables under his overcoat, and was discovered upon exit, and the police were called to the scene, and the accused was taken to jail. The magistrate, Mr Deutsch, asked how he wanted to plead. "Guilty with an explanation your honor..."  "Go ahead", he said, rolling his eyes.  "I don't want to steal, but I got a family and I don't have any money". Then magistrate Deutsch made his ruling: "That'll be a $200 dollar fine...do you have anything to say....?" Mr Reece, stood up, and and in the most pleading of tones asked "What's the point of fining me $200 if I don't got any money? IF I had any money, I wouldn't have stolen the food in the first place....!!!??!!!" The whole court laughed at this most obvious logic flaw before Magistrate Deutsch banged the gavel and cried "Order, Order, Order in this Court, as the defendant was led away." "Next case your honor; a Mrs I. Tally accused of going 54 in a 35 zone...how do you plead...."

I have fond and vivid memories of this place. So vivid, they could have happened last night...

(editor's note: The above is an absolutely true story - only the names have been changed to protect identities)

Payback M*#*erF$#(R!!

 The Wall Street Urinal attempted to kill two birds with a single stone today in article questioning the privilege granted to certain large investors to delay publication of 13F-HRs and 13D filings with the SEC. They specifically target Warren Buffet's Berkshire Hathaway who of course has to file at the same time as everyone but who, along with a handful of others, have been granted delay in publicly releasing the filings.

I am agnostic on Mr Buffet generally though I have taken shots at him before. And I prefer more transparency, than less. So I shouldn't be bothered by the article. Yet, I AM amused and irritated for I cannot help but wonder what is behind the new-found populist editorial line of the WSJ. I reckon its two-fold: first it is payback for Mr Buffet's Benedict Arnold routine visa-vis the Capitalist Class in regards to his expressed opinions on top-end marginal tax rates in general and the level of estate tax in particular. Payback is indeed a bitch.  Second, I think, like Fox news has found, selective populism pays and sells - particularly the kind that panders to the generalized rage against a rigged system, evidenced first and foremost by, yes, you guessed it WB's Berkshire Hathaway, that renegade anti-pillar of the little guy.

False Labeling ??!!?

I must admit to being on the sidelines with regards to OWS. Although I empathise with their visceral outrage, and admire their willingness to get out on the streets for a cause, I suspect there is lots culpability all around. But my apathy was broken recently when FT Alphaville ran excerpts from a Dennis Gartman speech entitled "God Bless Income Disparity" in which he characterized the non-one-percenters as "failures" for taking the one-percenters to task for their apparent "success(es) and the singularly Randian-Blood-Sweat-&-Tears it apparently took to achieve it. Despite human beings being hard-wired for jealousy, I think this wrongly parses the issue into one of accused envy by the 99%, instead of one that highlights the responsibilities incumbent upon the 1%ers derived from their dumb luck and debts to....ummmm....errrrrr......well, more or less everything not self-attributed. 

Self-attribution bias  and similar psychological flaws have long been contemplated by thoughtful observers with even the most meager amounts of introspection. I also have long wondered what the ingredient formula for my own comparatively fortunate state of affairs might look like. I suspect, being of profoundly self-effacing stock, that it mostly has had to do with luck (some marginally engineered, but mostly of  the "dumb" variety).  Moreover, it was in the main, mightily fostered by all manner of communitarianism, from my fortunate local and state university education, cooperative non-profit healthcare, to the State and NGO-funded munificence of my mentors.  Moreover, I have been legally allowed to keep the lion's share due to the rule of law - unlike the Sea-lion beachmaster or South American Drug Baron, whose property rights and political-economic position within the realm is far more precarious.    

As it happens, my own attribution would also be reasonably benign, with little to be embarrassed about, or lurking in the grey areas or moral compromises that might be required to bag the proverbially bigger game. With that preamble, it might be worth contrasting the hypothetical labeling of Gartman's All-Natural ingredient list for success, to that which resonates more closely with the archetypical one we might publicly (or for these embarrassed, privately) know first-hand, read-about in the less-edited versions of 1%er exploits.

DENNIS GARTMAN RECIPE FOR 1% MEMBERSHIP:

INGREDIENTS: SHEER DINT OF WILL, TENACITY, STREET-SMARTS & THE LIKE, PLUS (following added by The Editor) TRACE AMOUNTS OF HARD WORK, SKILL, FORTITUDE, FAITH & ANNOINTMENT BY DEITY OF CHOICE; COPIOUS BOOTSTRAP PULLS.  (This product  is safe for those allergic to the concept of social responsibility or obligation and was produced in a safe facility containing no traces Luck or Free-Riding. It has been produced or miraculously conceived without  benefits received from public goods, or positive externalities derived therefrom or contributed by any collective or social programs, rent-seeking, rule-breaking, gaming or other transgressions against established laws, morals or regulations).  

A MORE REALISTIC RECIPE FOR 1% MEMBERSHIP, HOWEVER MIGHT LOOK MORE LIKE THIS:

INGREDIENTS:  LUCK, TRAINING , SKILL, WORK, HAPPENSTANCE, NEPOTISM, SOCIOECONOMICALLY-ADVANTAGED EDUCATION; PRIVATELY-FINANCED TUTORING, PUBLICLY-SUBSIDIZED STUDENT LOANS AND/OR GRANTS; PUBLICLY FINANCED UNIVERSITY OR RESEARCH CONTRIBUTIONS TO PRIVATE UNIVERSITY; TAX-DEDUCTIBLE CHARITABLE CONTRIBUTIONS TO PRIVATE UNIVERSITIES AND ENDOWMENTS; GOV'T DEFINED EXCLUSIONARY OR PROTECTIONIST TRADE-ASSOCIATION OR QUALIFICATIONS; GOV'T DEFINED AND ENFORCED PATENT PROTECTION; HISTORICALLY-EASIER ELITE UNIVERSITY ADMISSIONS; HISTORICALLY EASIER COMPETITION FOR ENTRY-LEVEL JOBS;  PAY-PACKAGE APPROVAL BY BACK-SCRATCHING BOARD MEMBERS; LOW HURDLE MGMT BONUS-SCHEMES APPROVED BY MGMT-APPOINTED BOARD-MEMBERS; INSIDER TRADING TIPS FROM GOLFING BUDS; CHANGE-OF-CONTROL CLAUSES;  ENTRY TO HOUSING MARKET DURING ASSET PRICE TROUGH; LEGACY DEFINED-BENEFIT PENSION PLAN;  GOLDEN HANDSHAKES; ADVANTAGEOUS WASHINGTON REGULATORY CONNECTIONS;  LOBBYING BENEFITS FROM QUID-PRO QUO CAMPAIGN CONTRIBUTIONS; RENT-SEEKING; TAX GROSS-UPS AND REIMBURSED LEGAL & TAX-ADVICE; GOLDEN PARACHUTES; GRATIS D&O COVERAGE THAT LIMITS PERSONAL LIABILITY;  NON-PROFIT PROVIDED CHILDHOOD HEALTHCARE; FREE COMMUNITY VACCINATIONS & IMMUNIZATIONS, ADVANTAGEOUS TAX DEFERRALS & DEDUCTIONS; UNDER-SCRUTINZED CURR VITAE INFLATION; GLORY-STEALING OF COLLEAGUES' CONTRIBUTIONS; SECOND-DERIVATIVE PARENTAL ASSISTANCE THEMSELVES BENEFICIARIES OF SOCIAL EXTERNALITIES OF THE STATE'S MUNIFICENCE; SHORT-TERM ASSET-STRIPPING, PENSION HOLIDAYS AND CHANGES IN ACTUARIAL ASSUMPTIONS TO ARTIFICIALLY RAISE EPS AND TRIGGER BONUSES; OUT-SIZED OPTION GRANTS WITH ABSURDLY LOW HURDLES; COLLUSIVE OLIGOPOLISTIC PRICE-FIXING ARRANGEMENTS WITH KEY COMPETITORS; BENEFITS FROM PUBLIC ORDER & RULE OF LAW; WINDFALL BENEFICIARIES OF: GLOBALIZATION, GEOGRAPHICAL FORTUNE, SERENDIPPITY, HISTORICAL ASSET OWNERSHIP,  PRE-EXISTING RENTIER-CLASS INTERESTS; ETC ETC ETC

Rainbow Warrior - Part Deux

Even I had wavered in my conviction following the deluge of character assassination following DSK's arrest. But now, appearing vindicated per my original post (recounted below),  The DSK affair IS looking more definitively like a set-up. Edward Jay Eptstein's account in the NYRB entitled "What Really Happened to Strauss-Kahn" nicely summarizes precisely what we know, and what we don't. To sum it up: Sarko's Boys knew he could never refuse a blow-job, (and they were right!!) in a crude yet effective elimination of political competition.

Original May 15th  Post below....

Sunday, May 15, 2011

A Quarter of a Century Later....

In general, I admire the french civil service. Not everything. Not all the time. But both relatively and absolutely, their performance should give anti-Statists pause for thought about their position (not that such dogmatists will ever do so). Sometimes, however, they do fuck-up. Sometimes quite badly. Such as, for example, twenty-five years ago in New Zealand (youngsters see inset photo to the left).. Ummm errrrrr great plan guys!! A Franco Bay-of-Pigs of sorts.

Time travel back to the present, a quarter-of -a-century later, and after reading today's lead story, one must wonder whetherAgents Prieur and Mafart have been seconded back into service - this time on an even more ignoble plan to sink (no pun intended) the political fortunes of DSK, presently polling several percentage points ahead of Mssr Sarkozy, even after the announcement of the soon-to-emerge mini-Bruni. Ouch! Decisive action appears to have been called for. Some shit that, once thrown, will stick stick stick.

I am not saying he doesn't have a dark side. You don't really know someone until they come an live with you (and even then there is still.....ummm errrr stuff that....). I am not saying he didn't do it. Heck almost everyone has something that might not withstand public scrutiny and microscopic examination. But this one just seems implausible. In all my years, and too numerous hotel stays, I've never been cornered in my hotel room by the J-Lo hot chambermaid (and, then, in the micro instant of having emerged clothes-less from shower, schocked by the instrusion, thought: Wow she's hot! Followed by "Hey babe wanna fuck??!? No? Really, no? Well then I'll just have to force you...." Oh, yea, and we gonna be quick, 'cause I got ze plane to catch". Perhaps that is because that lot are all swarming by the suites upstairs looking for the bigger fish (like DSK?),  rather than the plebeian closets where I hole up. But c'mon. In the run-up to an imminent election? When you are the the front-runner? And about to depart for an important meeting with Chancellor Merkel about some trifling matter about the future of the periphery of Europe? (Frau M can wait.....right?!??).  Forcible detainment?? After having been busted and having apologized for shagging a (rather willing, it would seem) colleague??  It just smacks of a set-up. A rather dirty, dirty-trick, that needn't be true, but merely cause some fence-sitters to come to the conclusion that the devil you know may just be marginally better than an accused rapist.

Any thoughts on this one guys & girls........??!?

Crisis Style Guide

Different folk have distinctive emotional sine waves with different amplitudes, some dramatically so. One can go ecstatic at the thought of a nice pair of shoes on sale. Some will be whipped apoplectically up into a rage by something as hokey as a Glenn Beck diatribe. Some will cry over a slice of Burnt toast. Yet others shrug indifferently at the site of a cute watery-eyed puppy mauled by a pit-bull.  I am not a psychologist so I cannot say what is more normal though I reckon there is a reasonable normal distribution across the population. 

There is also, I put to you, a linguistic sine wave, also with highly differentiated amplitudes.  I have friends who describe everything they do, or buy as The Best. Others I have encountered describe the most pedestrian of experiences as "UNBELIEVEABLE". At the other end of the spectrum are those whose descriptions of momentous events employ emotion and adjectives reserved for cleaning coffee stains from the sink. And then, rarely one encounters the individual whose linguistic description of something approaching an objective reality bears a striking resemblance to it - whether it be the experience at a fine hotel or the virtues of a certain brand of hand-blender.

The economic and financial issues facing much of the world today ARE significant. So much so that one would be challenged to find anyone not harbouring an opinion on "What To Do About Greece", The US Budget Deficit, or Whether the ECB Should Monetize Some Debt to give the Euro users time to evolve more meaningful fiscal integration.   

Books, newspapers, radio television, comedy, politicians, clergy, charlatans all have something to say in various timbres. To my disappointment, possessing as I do a constricted sine-wave amplitude, even sober-minded sources of news and analysis like the BBC have seemingly lost the tether of linguistic sobriety. Panic, rather than tempered is seemingly amplified before being reflected and redirected. Adjectives, each more dramatic and apocalyptically-evocative than the last is wheeled out and attached to what would have been benign under other circumstances, when viewed in context most likely has Phlebastisized into a phrase that has granny throwing rocks at the bank, sharpening her knives, and stocking the cellar full of lentils.

While Auntie Beeb, by historical comparison is worked--up, and the staid FT also seems intent on stoking the fires of circulation, the worst offender is the eponymous blog Zero Hedge. Their style guide constructs phrases beginning with hyperbolic: 

unprecedented, dramatic, deep, deeper, deepest, crushing, urgent, unthinkable, unimaginable, unsustainable, breathtaking, startling, horrific, striking, dangerous, critical, fatal, malignant, serious, shaky, vulnerable, unstable, terrible, severe, cataclysmic, flagrantly, worse, worsening, worst, huge, steepest, insanely, huge, gonzo, grotesque

 combines it with something strongly emotive: 

Contraction, cuts, Greeks, Greece, PIGS, annhilation, austerity, bonuses, whithering. decimation, hardship, deteriorating, reductions, shriveling, degeneration, bankers, Greece, decay, decline, shatter, demolish, disintegration, gravity, busted, harshness, dragged-down, plunged, implode, diseased, death, unleash, misses, freezes, drops, denial, tumbling, weakness, disappointment, massacre, flogging, deluge

as a crown to something dramatically evocative:

Crisis, depression, downgrades, delinquency, hyperinflation, bail-out, give-aways, collapse, budget cuts, rollbacks, unemployment, losses, poverty, unemployment, upheaval, contagion, infection, doomsday, rapture, bankruptcy, insolvency, overhang, trauma, frenzy, apocalypse, meltdown, disaster, trouble, default

This phrasal-scaffolding is then punctuated with superiority and derision:

End-game, sanity-check, nonsense, spin, Hah!!, Sure!, Yeah right!, nonsense, "truth", insane, ridiculuous, Kool-Aid, spin, ramped, Merkozy

before a peppering of popular fantasy

Fraud, manipulation, the Fed, Obama, PPT, Banksters, Cabal, conspiracy, tipped-off, squeeze, scheme, suspicious, unexplainable, dubious, Ponzi, rumoured, complicit, Orwellian, colluded, secret, bamboozled

I am, by now, fatigued. Not as much by the crisis or the challenges that remain in front of us than by the wholesale linguistic thermonuclear carpet-bombing (ironic huh?) that seemingly are employed to gain entry past our now-desensitized bull-shit detectors. The shame of course is that there ARE many things that ZeroHedge has unequivocally nailed. And there is nothing wrong with skepticism as an editorial line, even where it judiciously crosses the threshold towards cynicism. For this is perhaps my own point of departure. However, without a throttle governing  nuance, it quickly becomes an unreliably-rogue and untrusted vector, a parody of what it seeks to out, with a diminished usefulness for those of us trying their best to use the available intersecting vectors of opinion to establish some best-approximation of truth.  

Memo From ICAB

M E M O R A N D U M 

TO:         CITIZENS OF THE WESTERN WORLD

FROM :        ICAB - INTERNATIONAL CITIZENS ADVICE BUREAU

DATE:          AUTUMN OF DISCONTENT 2011

SUBJECT:  A-U-S-T-E-R-I-T-Y

******************************************************************************

Dear Citizen of the Western World, 

Although you've probably noticed, evidenced by the numbers of you have been camped in dirty underwear, without privvies, in various public places, even as winter approaches, we have some bad news for you.

1. Most of us are poorer than we realize. 

Whether personally as an asset owner whose share of The Tab hasn't come fully due, or as an ordinary citizen where the State's claim upon your future cash flows hasn't been fully applied, or as creditors where the haircut (s) have yet to be fully imposed or negotiated, or as retirees or future retirees whose promises of future cash flows (or the age at which you retire) are unlikely to be fulfilled as previously believed in like quantities or relative purchasing power, you are worse off than you currently believe or realize. How much so is anybody's guess,but its probably MORE than you imagine though LESS than the Goldbugs fear. Accordingly, we recommend that everyone include an F-Factor Discount (technically known as a Fudge Factor) when totaling our individual net worth statements and begin adjusting to the idea when imagining one's next holiday in the sun, luxury kitchen refurbishment, or leveraged purchase of the latest Vorsprung durch Technik. 

2. Most of us will continue to get poorer in real terms.

There are more than 7 billion people on the planet, many of whom would gladly do what most of us do for less and for longer. Much less. And they are. And they will continue to want, and do so.  Some of course are unable, due to obvious limitations of geography, nonetheless, the inexorable downward pressure upon wages and (at least over the next few decades) Malthusian upwards pressure upon resource prices will continue to squeeze us. If one is a consumer, and one is accustomed to consuming significantly more than one produces, this will be rather unfortunate. Life, however, is full of choices and undoubtedly all people so pressured, and without a fairy godmother, or a very well-funded trust fund holding good title of hard and/or solvent assets, must face them. Do not believe demagogues who promise that in the absence of producing something of value which others desire or require and can trade for/pay for, that we do not or will not have to make such choices, however big or small. We will, whether the markets force us by austerity and subsequent deflation, or whether they arrive via eventual inflation as a result monetization.  So in preparation, we advise everyone to please start thinking about what is most important to you, and your family. Hints:  Food (the veritable kind); Decent Affordable Healthcare; Public Order: Education; Safe Bicycle Routes, More Efficient transportation, Drinkable Wine, perhaps, but not necessarily in that order.      

3. We are suffering from a variety of maladies. 

Whether or not we realize it, most of us are ill. Many are suffering from a form of Financial Phlebitis (known as Vastly Enlarged Expectations), both in terms of what, and the quantity of which we think the World (The State, Your County, Municipality, Parents, Employer, Union, Children, Deity of Choice, etc.) owes us, and what we think is deserved by virtue of our annointed presence on this planet.  Some of us suffer from behavioural disorders such as Self-Attribution or Hindsight Bias'  that causes one to discount the impact of one's luck (dumb or otherwise) or society's contribution towards one's success, possibly coupled with a tinge of Sociopathic Grinch''s Disease. Still others amongst us (for the avoidance of doubt including but not limited to: Bankers, the Auto Industry, Big Pharma and other rent-seekers) have a form of Financial Munchausen syndrome.  Together, these afflictions threaten everyone's health, not to mention law, order, stability, and welfare.  We recommend everyone take steps to confront their own particular disorders and attempt to self-heal what they can which begins with the arrest of self-delusionary behaviour. For those amongst us who are adept AT helping themselves, but are seemingly unable TO help themselves, we will be offering special group therapy for such financial kleptomaniacs called "Looters' Anonymous".  

Fortunately there is some good news.  For most of us, it will (once Euro systemic adjustments are enacted) likely remain safer, and more pleasant to live where we are (excepting those of us in Blighty or the bowels of certain US Cities) than in most developing cities and countries. For Americans, our land and our corporations are rich, our people innovative resourceful (when the mood strikes) and adaptive (errr when forced). Our higher education system (ex Bob Jones U) is still the envy of the world, and there remains enormous low hanging fruit (from infrastructure, investment in energy efficiency, and wholesale healthcare reorg, education urban renewal, progressively higher marginal tax rates) to help transit from where we are to where we ought to be in order to sustain a reasonably healthy stable civic and economic life should we find the pragmatic will (which we highly recommend) and the leadership. For Europeans, our lands, heritage, and patrimony are rich, our expectations are suitably moderate (except in Blighty), our savings are large across all of our nations (excepting Blighty), our households underleveraged (except in Blighty), our companies technologically fit, our aggregate current and trade accounts are in rough balance, our healthcare systems efficient -enough in cost and outcomes, and our educational systems of good quality, affordable and meritocratic (except in Blighty). The gaps we must respectively bridge, while different, are neither insurmountable nor even a huge distance from where we presently are. But the time for dithering, aversive or avoidance behaviour has passed, and ask all of us please, be one idly rich, merely fortunate, a farmer or worker, shareholder, civil servant, pension beneficiary, manager, teacher or student to act pragmatically, and in the better interests of ALL of our children.  

Yours truly,

International Citizens Advice Bureau

dEaR sanTA

dEaR sanTA

i KNoW iTs eaRlY buT i wOUld bE so hApPy iF fOr Xmas yOu cOuLD mAke soME of mY XmAS wISheS cOMe trUE..... 

1. Some pragmatic compromise between American political parties

2. a Chemistry set with some instructions on transmuting scrap metals into Gold (which I could quietly though parsimoniously hoist upon the goldbugs).

3. a reasonably accurate flashing red "Bullshit Detector" light to be built into all TVs in order to warn The Audience when whatever they are watching is stretching the boundaries of fact or credulity.  

4. A single-payor US health-insurance company with mandatory purchase, an aggressively accurate usual & customary remibursement rate; a  target to pay the average of developed market costs for pharma, and a fair method of sharing the cost of those unable to afford the averaged premium across the risk pool.   

5. A full set of Ahmadinejad, Netanyahu, and Assad Voodoo Dolls, complete with pins and a few awesomely effective incantations

6. A pair of woolly Athletic Socks - the left to stuff into the mouth of George Osbourne (if there's room with his foot); the right one reserved for Glenn Beck or Sean Hannity.

7. A permanent increase in spec margins for commodity traders, as well as a significant increase in FX Bucket Shop margins and some high-touch regulation. 

8. A FTTH connection AND a soapbox to let the world know of the complete, utter and total ineptitude of Virgin Media's installation team.

9. Some proper asphalt for the impoverished Brits for them to begin to resurface their abominable system of so-called roads.

10. Lots of nice fresh snow in the western alps over xmas and new years.

P.S. - and if you have room, we'd love a hamper with some Kalamata olives, a couple of litres of sun-baked Kotsifali or Xinomarvo red, some Feta and Haloumi cheese, Cretan Olive Oil and a 6-month charter of a Suezmax tanker to help our needy Greek friends....

Monkey on Your Back

This is my last word on Olympus. There are more gripping things going on elsewhere. First, the Facta investigative reporters who originally uncovered and drew attention to the suspicious accounts at Olympus should be commended. They should be commended for their perseverance. Without their work, it is possible that the abuse could have escaped notice for who knows how long. They did not however, as far I understand, connect the dots nor understand why.

There is an analogy here. Madoff clients (Fairfield Sentry I believe) were ascribed the return on their statements apparently via OTC split-strike conversion positions. These were long stock with hedged option combinations that however exercised guaranteed a rate of return - like a futures calendar spread implied a rate of return equivalent to the promised return. Of course at the time, few (certainly not me) knew, nor even imagined that the positions and the statements themselves were pure fabrication. We (myself and colleagues) believed that he was doing something else (front-running, impact-trades, something more risky that he wish not to reveal, etc.)which, to satisfy reporting requirements, he booked accordingly. It was sufficiently plausible for the trusting, the auditors (who were bent), and the ignorant, even though there wasn't ever sufficient underlying activity to relate to the OTCs on the statement. The reason, in the end, we now know.

The transactions highlighted by Facta indeed were similar in intent to Madoff's fake bookings which was to hide something with something plausible. And they were similar in that once in the spotlight, both fell to pieces since both were rather implausible. That is, in my opinion, where the similarities end. Madoff was in its entirety, a fraud, excepting a modest broker-dealer. Olympus, from what I understand from  conversations with someone purportedly close to the original repair-bond transactions which the sham advisory fees were seemingly meant to dispose of, had large financial investment losses - large enough when the company had YEN 150 billion market cap, that disclosure would materially impact their balance sheet hence financing, not to mention the embarrassment. The zaitech activities, often made possible by essentially "free financing" from the issuance of bonds with attached warrants, leaving them with cheap funds to invest, but little expertise to properly take advantage of it, resulting in loss-making investment assets, but fixed-obligations to be repaid eventually.  Oooops.

But Olympus today, has a balance sheet 10-times (or some similar multiple) the size of that from 1990. A billion dollar loss in 1990 was HUGE. In 2010, its BIG, but relatively manageable. Altis, Gyrus, Turbochef or whatever these were called, are to a certain extent irrelevant in that they were coincidental. They were transactions costs - some small fraction - in relation to what they were attempting to dispose of. This is not condoning it. This is trying to plausibly explain it. IF they lost 50% of the true value of these operating gnats, it would be rounding error in the Olympus equation. The advisory fees, after all were NOT siphoned, but used settle the outstanding investment losses, presumably with their "Michael-Clayton-like fixers" or repair-bond arrangers.

The fears of investors presently are valid: Is that EVERYTHING? If they did it to repair the balance sheet, might they not have done it to the income statement too? Like Leeson's suicidal cover-up, could one mistake have led to much larger losses in covering it up?? Are there lawsuits and penalties that might arise creating large future liabilities for present Olympus shareholders? Are their financing arrangements threatened? Could they be delisted? Bond covenants and so forth....  All worth asking.

That said, zaitech is dead and buried. When the drugs wore off, it was embarrassing, with the most incompetent long since transferred to the corporate travel office in the cellar. It is highly likely the losses and repair transactions were all the investment losses. And to be fair to Olympus, it wasn't like it was Michael Vick and Dog Fighting: everyone was doing it at the time (ask anyone foreign who structured similar transactions in Tokyo).  Olympus was different, I think, ONLY in that by 2003, they still hadn't come clean (like Yakult Honsha and others) or disposed of them. It is likely that they hadn't accumulated MORE for reasons just stated, but sti had the so-called Monkey on their Back.

Could they have been diddling the income statement? Yes, of course, but...practically it is a different story and more difficult to continue to diddle an income statement. There are just too many people with information. Knowledge of a repair bond on the balance sheet can be limited to a few people - and the foreigners involved were bound to strict confidentiality, before the atmosphere regarding such transactions visibly soured. And for a company with numerous subsidiaries with different year-ends, can be hidden from even well-intentioned auditors for years. And it is likely they didn't need to.  But I cannot say for certainty (and there are perhaps few people that can). BUT, I might turn this around and ask "IF they were systematically diddling the income statement, why would you appoint a gaijin as your CEO?" I do not think they would.

I can discuss the other risks, with even less certainty. Could they be delisted? Yes, but the precedent is that it is unlikely. Could they be sued? There is a cultural aversion to litigiousness, but possibly I suppose. And could bank financing be in jeopardy? This seems highly unlikely. Japanese banks are not so mercenary with corporate kin, and Olympus IS a big customer, and the web of responsibility spreads far and wide, so I cannot see a Japanese bank lender murdering a still-solvent client, however tainted they may be, for everyone has some dirty laundry in their cupboard.          

And so, when I look at it, and ask the questions, I arrive back where I started YEN 300 ago: while not pretty, this endeavor, and the subsequent farcical cover-up was legacy business. If you've reason to believe otherwise, or that it goes deeper and is more pervasive (i.e. the income statement) then please let me know if for no other reason than to be kind to someone who is by nature, loss-averse (over the longer-term).

Olympus: Capitulation

....although  surrender might be more apt, capitulation is more accurate. For Kikukawa remains. This says a few things to me.

First, as I surmised, it says to me that Kikukawa may have been precise in earlier statements. He probably wan't responsible for the transactions. He wasn't cooking the income statement, but trying to get the shit off of his shoe. He was culpable for being a "good" company man and [attempting to] protect his colleagues who arranged and executed the dirty deed, as well perhaps, the honour of the 40,000 employees - even if it didn't work out that way. .

Second, I think the market has it rather wrong in their reaction. The admission should have been very reassuring to investors. This is not Enron. There were (most likley) not fictitious revenues and sham businesses. Repair bonds were a specific utlitarian approach to a very specific cultural problem. The roach theory, I believe, shouldn't be applied here, because using the Occam Principle I applied effectively in nailing the cause in the first instance, one wouldn't go to the lengths that Olympus went to, finally, after two decades, to dispose of hidden zaitech losses without disposing of them in full. I am surprised the market doesn't see it thus.  "Limit down" is likely the wrong reaction to the resolution of the mystery, leading to the wrong price.

In regards to the right price, I might not be much help here. Yen 850 of sales, Yen 650 billion of debt but a trillion Yen of assets, with Yen 85 billion of depressed EBITDA. MDT and EW in the USA with clean balance sheets trade from 7 to 17x EITDA, but are purer plays in Med Eqt, and Olympus has the shitty but large camera division. I would have thought, at the least, this should support a market cap of 400 billion perhaps 500, since the Endoscopic jewel is about a third of turnover, but very profitable.  This is double to two and half times where one could have bought as much as they desired this morning. More than 15% of shares outstanding were traded today.

While I do not condone Kikukawa's actions, I think it does not make sense (from investors' point of view) to group what I would call one-off  shame-based accounting fraud with systematic book-cooking fraud of the likes of Worldcom, Enron, Adelphia, and Parmalat.  I think this affair,  particularly, the public demands of large Japanese portfolio investors themselves for truth, marks another tell-tale enroute (albeit the slow one) to eventual  corporate redemption in Japan, rather than, as investors believe, a more perditious route to ignominy.

Call me an optimist. I feel no shame in this.

Broke, Broker, Brokest

Farewell then

MF Global....

Broker

no more.

You've been 

like chewing-gum

stuck to your

investors'

shoes.

Who would've

thought your

shareholders would 

miss

Phil Bennett?

While

Dumb

Dumber

Dumbest

might've been

a suitable 

catchphrase

"Broke,

Broker,

Brokest" 

would be 

more apt.

But 

"From Ashes 

to Ashes, 

bust 

to bust"

Will be your 

Epitaph.