Infectious greed

[threadbare]

Some very interesting articles, interviews and critiques about this book on the internet.

 

"TP.com: I guess I want to talk more about the off-balance sheet investments. I think it's important to understand how extensive this behavior is and then ask, is it truly a parallel universe? Where, again, money can be hidden or losses buried to avoid regulation and also to avoid reporting the real face of business activities to both investors and the government.

 

Partnoy: The way that I think about this is it's almost like a fa硤e to a building. There's activity that's going on inside and then there's what you need to show the rest of the world.

 

What you need to show the rest of the world is in two pieces. One is the financial statements and we as investors like to simplify our lives. So we like to think that just the financial statements, or the earnings number of the company, or how much debt it has on its balance sheets, [that] those are the key things to look at. That's the way that a lot of investors were raised. And so that's the fa硤e that companies show. But in reality, that fa硤e is -- and everyone recognizes this within the company -- is completely false and isn't even intended to describe what's happening inside the house.

 

The remarkable thing that's changed in the markets during the last decade is there's been a proliferation of rules that not only entitles companies to move debt off balance sheet or massage their income and losses, but that basically create incentives for them to do so. So you end up with companies like Enron, where the financial statements described one company and that company as it was understood had almost nothing to do with what was really generating profits.

 

The fa硤e that investors saw was an energy firm. And reality behind the scene was this was a derivatives trading firm with huge amounts of off-balance sheet debt. Maybe parallel universe is a nice metaphor, that basically what's been happening over the last decade is managers and Wall Street have been traveling in one universe and investors have been traveling in another one, and we can't even see or understand what it is that is happening in this other universe. But the other universe is what ultimately drives our returns and determines whether we can retire or not, or pay for our children's college or not. So it's really a very troubling state of affairs."

 

http://www.tompaine.com/feature.cfm/ID/7730

 

Has anyone out there read this book? Comments? It looks very interesting. I'm going to check the capitalstool book store and see if it's there. Yobob's post about hedges and derivatives on B-4 the bell got me thinking about this topic. Hedge funds, particularly in an atmosphere of rising interest rates could be in big trouble, which could spell big trouble for all of us, particularly pensioners.