PS Consultants - ideas & solutions


Sep 2002

WorldCom Oh dear. Where will end? 

Since March of 2000 when the bubble burst, City scribblers everywhere have been trying to work out why just about every telco anywhere on the planet is descending deeper into the financial toilet, and blaming overheated expectations for the growth of internet.  Wrong, the internet is doing just fine, thanks!

The problems are mostly due to City scribblers fuelling the expectations of greedy bankers, and whipping up the sort of financial feeding-frenzy that causes the management of huge companies like Enron, WorldCom, Xerox and others to be terrified of the consequences of “disappointing” the market. In the US, financial results that come below “market expectations” (where expectations are of course generally set by some pretty crude insider information leaks anyway) result in massive stock price falls, followed by class-actions lawsuits that are perversely predicated on the fact that the (illegally?) leaked expectations were wrong.

Management has quite clearly been party to a number of improper disclosures of material facts – and the part played in that process by “advisers” and accountants may well be substantial. However, the fees charged by those advisers and accountants are becoming massive, and if the bean counters insist on telling the bad news, then in the time-honoured fashion of all messengers bearing bad tidings, they will be shot. And then their fees will cease, and the bean counters in turn will have to explain to their own bosses and “stockholders” how that happened. So maybe it seemed expedient at the time to cook the books and not get an arse kicking? Hopefully, the next period would improve, and then some of the exaggeration could be tucked away again?

Does this sound like the inveterate gambler who hopes to recover his losses on the next throw of the dice? Or Nick Leeson playing that massive game or “double or quits” with other people’s money? You bet it does, and perhaps not unconnected with the fact that most of us now live in countries where a lottery promises massive wealth for simply getting lucky, and where the accumulation of wealth the hard and honest way, takes forever.

The embarrassments at the failure of fundamentally bent accounting at operations like WolrdCom, Enron, and even old stalwarts like Xerox – and the “honest” investor disasters lead from the top by AOL-Time Warner, Vodafone and RailTrack – make some of us wonder if interesting opportunities enabled by the internet may exist for investing and trading in much smaller companies, based on ever cheaper, simpler and more transparent access to real-time information.

This notion was discussed at length in the early evangelical days of the internet, but no one has actually tried to do this to any effect.  UK Internet pioneer Peter Dawe's idea of establishing a class of stock certificates as a negotiable currency is definitely worth thinking through.  Paradoxically, as regards the global reach of the internet, I warm to the idea of being able to invest in LOCAL businesses that I can use and help to directly nurture through custom and personal involvement.  I would feel far less exposed to the whim and fortunes of the global mismanagement and bent accountants and bankers if I was able to easily take a share in – for example – a local building firm whose real-time accounts I could access on-line at any time I wanted, and whose management and “modus operandi” I could assess for myself.  Indeed, I might go round and glare at the MD’s new Jag and demand to know what he had done to deserve it using my money.

Such businesses presently have few options for raising capital other than going cap in hand to a bank offering generally usurious terms, and being told to hand over the deeds to any assets as collateral – whilst the very same bank is generally involved in massive exposure (with no viable security) to the likes of Enron, WorldCom etc.

What a nightmare scenario this would pose for those inept and incompetent institutions and the general financial services infrastructure that has effectively got fat by skimming the investors for so long. After all, the City and its institutions appear to many to only exist these days as a façade on rampant insider dealing, where pretty much the only crime is getting caught.

If everyone decided to look after their own interests in this way, there would also be substantial community benefits through much closer involvement in the local economy; although one key issue would be how to spread the risk with some form of local unit trust – but we won’t be asking Arthur Anderson for advice on setting it up.  Wouldn't it be delightful (and ironic) if the internet within a 15 mile radius of people work and live emerges as the means through which globalisation and its obscure accountability is reversed, and honesty and transparency returns?

Take a look at brave Martin Koebler’s ideas at - and bear in mind that the values of shares and investments may occasionally go up, as well as down…