Wednesday, December 06, 2006

Magic moments on Wall St

This was one of my "Speculator" Columns in Investor Relations Magazine earlier this year. I offer it until I catch up with more current events.

Magic Moments

The Wall Street Journal recently noticed that executive stock-options often seemed to dated and priced just before a leap in stock prices or while the they were in an abnormal trough.

Their number-crunchers decided that the odds against this happening on a random basis, for the companies it studied ranged from 800,000 to 1 to 100 million to one.

Then it became clear that at some companies, the options were provably backdated at specific, and for the executives, highly propitious, dates.

How can we explain this or the fact that all these incidents seemed to happen at around the same time? When we exclude all possible but unthinkable explanations for such events, then the impossible becomes feasible.

So let's sing a response to the Loving Spoonful, at least those of us old enough too remember those carefree days, "Do you believe in magic?" Dead right we do. You often hear people talk about the magic of high finance, but it must be real!

It is clear that America's senior executives discovered both time travel and telepathy simultaneously. They traveled back in time to issue themselves options, and mentally communicated the technology to their colleagues in other companies so they too could travel back and do the same thing

Of course this may seem a little far-fetched, but the alternative hypotheses are absolutely untenable. We would have to assume that much of the corporate leadership of the United States was involved in an unprincipled conspiracy to defraud the shareholders, employees and pensioners of their companies, and what is more to make an end run round the SEC while they were doing it. Unthinkable!

Similarly, when faced with reports of executives awarding themselves bonuses for declining earnings and stock prices it would be unthinkable and preposterous to assume any veniality on their part. It is much more reasonable to assume that they are creating real shareholder value, but that our ever-inventive corporate leadership is siphoning it off into another dimension, beyond the reach of the IRS, where it will be available at the appropriate time for the use of trusting and patient shareholders.

Think about the massive thaumaturgic advance made by all those compensation committees and experts who can prove with charts and diagrams that every executive must be paid above average in case they desert. In the American corporate world, everybody is above average, and so is their pay. If it is not math, it's magic.

It may be useful to send an exploration party into the fifth dimension to find out what happened to the below average - since they are clearly not to be found in this universe.

These are special people we are talking about: masters of quantum uncertainty who can argue to annual meetings and compensation committees that they are uniquely indispensable for the companies that they manage, but tell the jury afterwards that they had no clue what was going on in their companies.

I know that there will be some skeptics out there, but clearly a select group of insiders is in the know, doubtless all honor graduates of the Hogwarts School of Business. How else to explain why institutions with large voting blocs and big research departments saw nothing amiss, and did not raise it at the annual meetings, why respected banking operations with astute analysts did not put sell on their holdings? Because they know about the magic of finance.

So why will they not share the news with the rest of the world? Because it would pose a moral hazard, that's why. Imagine the consequences for American public morale, let alone morality, if people learnt that you could get much greater pay for working less efficiently, or that they could go back and retrospectively rewrite their contracts?

Whatever would happen to the American work ethic? As the carefully selected readers of Harry Potter's Guide to Business Success will know, these are secrets that must be kept hermetically sealed form Muggles, or Mugs, as we affectionately call them, who have to work longer and harder for less pay and fewer benefits or smaller dividends each passing week. Doubtless there are dire consequences for anyone foolish enough to revea.................... SPLOTTTT.

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