Saturday, January 19, 2002


Adam Smith has presciently analyzed the peculiar psychological defects of Limited Inc. in this passage in The Theory of Moral Sentiments, concerning passions that derive from the imagination:

"Even of the passions derived from the imagination, those which take their origin from a peculiar turn or habit it has acquired, though they may be acknowledged to be perfectly natural, are, however, but little sympathized with. The imaginations of mankind, not having acquired that particular turn, cannot enter into them; and such passions, though they may be allowed to be almost unavoidable in some part of life, are always, in some measure, ridiculous. This is the case with that strong attachment which naturally grows up between two persons of different sexes, who have long fixed their thoughts upon one another. Our imagination not having run in the same channel with that of the lover, we cannot enter into the eagerness of his emotions. If our friend has been injured, we readily sympathize with his resentment, and grow angry with the very person with whom he is angry. If he has received a benefit, we readily enter into his gratitude, and have a very high sense of the merit of his benefactor. But if he is in love, though we may think his passion just as reasonable as any of the kind, yet we never think ourselves bound to conceive a passion of the same kind, and for the same person for whom he has conceived it. The passion appears to every body, but the man who feels it, entirely disproportioned to the value of the object; and love, though it is pardoned in a certain age because we know it is natural, is always laughed at, because we cannot enter into it. All serious and strong expressions of it appear ridiculous to a third person; and though a lover may be good company to his mistress, he is so to nobody else."

This must explain Limited Inc.'s obsession with the Enron story, which has engrossed our mind to the detriment of our pocketbook this week. Instead of seeking the easy money of book reviewing -- ah, reader, you can't imagine the veritable Golconda awaiting the lucky reviewer of Blah Blah Blah, the novel -- Limited Inc has been morosely pursuing an article about Enron's business press fan club, and the myth of efficiency. This article, once finished, will be shopped around hopefully to such outlets as Mother Jones, only to be rejected out of hand -- we foresee this already. But, in entire disproportion to the value of our contribution to the national culture (which consists entirely in summarizing forgettable plot lines), we are going to run in the channel of our obsession with with the same grim vigor Ahab once devoted to revenging his lost leg.

In any case, Andersen Accounting is becoming the (hopefully first) collateral casualty in this affair. In much the same way the Taliban fell when the US took action against Al Quaeda, Andersen is being rocked by its long collusion with Kenny Lay's grand scheme to make Enron, in effect, a giant energy derivatives hedge fund. Since Enron was a public corporation, such a scheme is illegal. But illegality, as any respectable contributor to political parties know, is in the eye of the beholder. Or rather, a particular set of eyes -- those belonging to the lowest stratum of our society. Of course, you know who I mean. I mean Congressmen, Senators, and members of the Executive branch. The Times this morning has an article about Anderson's reach in Washington:

Auditing Firms Gaining Muscle in Washington

Here are two grafs:

At the height of the fight between the industry and Mr. Levitt in the second half of 2000, all the Big Five accounting firms sharply increased their political donations and spending on lobbying. Andersen doubled its lobbying budget, to $1.6 million.

The investment paid off.

Among other proposals, Mr. Levitt sought to prohibit an accounting firm from performing both accounting functions and consulting services for the same company. That proposal threatened billions of dollars in revenues at the Big Five firms, and their defeat of the proposals in 2000 illustrated the industry's growing influence in Washington. Had the Levitt proposals been in place, it would not have been possible for
Andersen to bill Enron $27 million for consulting services last year while also billing $25 million for audits

There is also an article about Andersen's largess on the Public I site. This article names names.

"Last year, SEC Chairman Arthur Levitt, Jr. proposed a rule that would have restricted the amount of non-audit-related consulting work that companies like Arthur Andersen and other Big Five accounting firms could do for their audit clients. Andersen opposed the rule, and hired the powerful lobby shop of Clark & Weinstock to argue its case.

Among the Clark & Weinstock lobbyists working Capitol Hill on behalf of Andersen were former congressman Vic Fazio (D-Calif.); Jim Matthews, former chief of staff to Rep. Thomas Manton (D-N.Y.); and Anne Urban, formerly Sen. Robert Kerrey's (D-Neb.) legislative director.

Under pressure from the Big Five, the Commission ultimately adopted a weak version of the rule that favored the accounting industry and left their consulting services virtually untouched. The rule required only the disclosure of how much money the accounting firm earned for consulting services from each company it audited. No limits were placed on the amount of money an audit firm could earn.'

Both Public I and the NYT share the idea that campaign finance reform would cure us of a corrupt legislature; a legislature that was forced to forego bribery would then tackle reforming the regulation of the auditing industry with its eyes righteously peeled for the the public good alone.

Limited Inc grants the argument against legalized bribery. But we have strong doubts about the political reach of campaign finance reform. The reason the big five auditing firms can basically run over the SEC is that there is no political base for reigning in the big five, or for reigning in Enron. Populism has abandoned its war against Wall Street. A feature of the American political scene since the 1870s, it dried up in the 1980s. It is now the common wisdom that Americans don't get 'excited' about such things as regulating auditors. No, Americans supposedly get more excited about the list of Airline hostesses in Gary Condit's little black book.

But this consensus is oddly ahistorical. If the farmers of Nebraska, in 1900, could get passionate about specie and the intricacy of gold-backed, versus silver-backed, currency, are their descendents, in Southern California, really so degenerate as to not understand or care about financial markets? On the contrary, I think they understand very well, when they want to. Certainly they are as affected by the allowance of gross corporate corruption as their great-grandpas were by manipulation of railroad stock. But the stomach for class warfare -- and make no mistake, reader, Wall Street has never been reformed without a strong whiff of gunpowder in the air -- has gone out of both parties. Does anybody seriously see the pitiable Joseph Lieberman, who is currently leading the charge against Enron in the Senate, as a potential Danton? He is the most piddling William Jennings Bryan ever thrown up by the centrist Democrats, making Limited Inc nostalgic for Dukakis, for Christ's sake.

The last sad remnant of populism, in fact, resides in the Republican party's intermittent appeals to Christian fundamentalism. I could imagine an opponent of Billy Tauzin making a good case with the voters that the man is owned by the companies he is supposedly investigating. I could imagine such a case catching on. But the case would have to overcome two formidable obstacles. One, the media is resolutely opposed to class warfare. Except for the tepid admonitions of editorialists to remember the neediest on December 25th, the press and tv aren't simply bribed -- they are literally owned and run by corporations, and the law among them is, do not stir up class warfare. Period. The other obstacle is that facing any group which has suffered a string of defeats. The audience for populism is defeatist. Street realism very wisely counsels cutting your losses -- for pursuing your losses very quickly takes you over the edge. It is that realism that keeps most people from the ballot box. Apathy is a wise choice when there are no real choices.

Friday, January 18, 2002


In a previous post, Limited Inc had speculated about the triangle between point a, the provision of a bill passed in December, 2000, that exempted energy trading from oversite by the commodity futures commission, b., the Gramms (Mr. and Mrs.) support for the bill, and c., Senator Gramm's retirement.

Limited Inc. stands corrected by an article in the Times this morning. Doing the calculus of sleeziness in the Clinton era, one should always include the Clinton variable: that if something looks reactionary, pandering, against the public interest, and connected to big money, Clinton will probably be behind it. And so it turns out on this bill, which set in motion the events that blacked out California while the bandits made out like energy companies... uh, I mean, while the energy companies made out like bandits. Two explicatory grafs:

" the latter months of 2000, both Gramms were frustrating the company's Washington lobbyists. Senator Gramm, for reasons unrelated to Enron, was single- handedly blocking a futures trading bill the company had dearly prized. And Dr. Gramm had complicated the bill's prospects with a scathing critique of some rules being prepared by her former agency.

The issue was eventually resolved in the company's favor; Senator Gramm lifted his objections to the bill after calls from Clinton administration officials and industry executives, including Kenneth L. Lay, Enron's chief executive, according to company officials and people involved in the bill. Once the bill became law the rules that Dr. Gramm opposed became unnecessary and were dropped."

Thursday, January 17, 2002


Go when the going's good department

Perhaps now that Bushypoo has established himself as this generation's FDR, he should resign. That way, he'd not suffer the inevitable debilitating fall in polls and status that happens to all Bushes in office. The reason for that fall is that Bushes can only exist in a rare environment, one in which the air is constantly perfumed by millions of dollars. Usually that is no problem in the White House, where you can secretly confab with Ken Boy and co. on global warming and such, but sometimes a Bush is thrust out into the normal atmosphere -- especially when the Bush has to campaign, or meet with (ugh) environmentalists and those civil rights leaders -- and eventually the Bush starts to wilt and get all cranky.

As a monument to Bush idiocy, the NYT has a profile of SEC chairman Harvey Pitt today.
Here we have a fairly common specimen of the higher idiocy so typical of the nineties, when the word deregulation began to be confused with the word abracadabra. It should be said at the outset: regulation, or rules and norms, are going to emerge in any market situation. The question is who is going to make them, and how are they going to be enforced. If they are made by market makers -- if, for instance, Enron makes the rules about energy derivatives -- other market members are going to have to apply those rules, try to get around those rules, or cease existing in the market. The advantage of being a market maker consists in being able to make the rules. These rules can be formal, as in the rules the NYSE makes, or informal, as in the rules that emerge when banks invest in X company on the premise that X company will copy the rules of some successful Y company.

Now, deregulation as it applies to accounting entails ignoring that the rules are going to be made, and claiming that only the government makes rules. Error one. Error two consists of the ideological claim that government is always bad. This claim has become theological. In spite of the evidence that, for instance, publicly run power companies do a comparable or better job than private power companies (compare LA's public power company to Southern Edison, if you want immediate support for this claim), this is the conservative mantra. It has the same relationship to reality as the doctrine of original sin has to psychology: it magnifies an insight into an untruth. Combine these two errors and you get Harvey Pitt.

Lets say some exciting things about accounting, shall we?

Since accounting on the Ernst and Young level is not heavily competitive, this means that the five market makers basically decide what the rules are. And they obviously suck at it, for the good reason that rules that promote transparency are not necessarily rules that all of their clients want to see followed. Gresham's law, which says that bad money drives out good, applies to rules as well. So hey, guess what? This is where a neutral party, ie the gov, has a role. It establishes the ground rules for all parties. This is elementary Locke, but seems to have escaped the attention of the greedy deregulatory crowd.

Here are three grafs from the NYT article. Reading them, it is easy to see that the Bush years are going to be studded with Enrons. These people have that deadhead Texas wealth mindset, the kind that the Hunt brothers used to embody:

"Since his return to the agency last September, Mr. Pitt has articulated a broadly deregulatory agenda that he says is now more relevant than ever, but which his critics say may now be overshadowed by what is quickly turning into a major accounting and corporate scandal.

If anything, the critics say, in light of more than $60 billion that Enron shareholders lost, it is time not to reduce the liabilities of auditors and corporations, but to increase them.

The S.E.C. for months has been woefully short of staff at its senior level and now has only two commissioners, including Mr. Pitt, because the White House has failed to nominate other replacements. The other commissioner, Laura S. Unger, who is also a Republican, is serving even though her term has expired and she has announced her intention to leave shortly."



Limited Inc imbibed Dostoevsky with our mother's milk, and have contemplated, for years, a sequel to the Underground Man entitled the Upside Down man (autobiographical, of course); Tolstoy was an event in our spiritual life that took two good years (20-22) to get out of the system, two years we will never get back, mind you; we've been a fan of Sologub's Petty Demon forever, The Master and the Margarita is one of the ur-texts in our inner cranial library, we've taken a prose style, down to dashes and parentheses, from Bely, we've read all the Nabokov one mortal could stand, Babel is a hero, Mandelstam and his wife are heroes -- what we are saying is that we are Russian out the ass. Always have been. But Griboyedov is pretty much a new one for us. So we enjoyed this Financial Times review of his biography. Griboyedov is known for one play. Apparently, that play is the Russian equivalent of Moliere's Misanthrope. But the review necessarily can't linger over the joys of a play that all seem to agree is inaccessible in English, so it quickly passes on to Griboyedov's very active life, spent as bon vivant, duelist, revolutionary of a sort, Arabist and Persianist, and diplomat. A full bill, this guy. We especially like knowing that, far from being an aberration, hostage crises at embassies in Teheran are folklore, like spelling bees and recitations of epic poetry. It seems that in 1829, a mob of angry Persians attacked the Russian embassy because, well, they were Russians, the stealth empire -- moving then, as it will always move, discretely in all directions. Our Griboyedov, Minister Plenipotentiary of the delegation there (and who knows what that meant, given the European propensity for scheming) was stabbed to death, his body paraded through the streets, members of the general public invited to do their patriotic duty and spit upon it. Another artist bites the dust.

A pity. Griboyedov is definitely my sort of guy. Here's two grafs from the article, which explain how he ended up in Teheran in the first place:

"Although his work in the theatre was increasingly successful, and he began serious study of Arabic and Persian, he paid a high price for his friendships with those richer and sillier than he. The scandal involving two young toffs from smart regiments, one 18-year-old ballerina and our subject sounds like something from light opera, but its consequences were deadly serious: Griboyedov was forced to take part in a partie carree, or four- sided duel, that left one of the challengers dead in the snow and the other participants exiled in disgrace by the Tsar.

His particular punishment - despite his pleadings that an artist such as he could not exist without "enlightened people, and sympathetic women" - was to be sent as attache to the first permanent Russian mission in Tehran."

Enlightened people and sympathetic women -- boil the bones off civilization, and this is what you have left --the base and bones of it. Griboyedov, mon frere, we salute you, who cry out for a few enlightened people, and a sympathetic woman or two!

Tuesday, January 15, 2002


Why do they hate us department.

Limited Inc means the CEOs of major corporations. And the us in question are the poor sweating masses who labor, pay taxes like suckers, and regularly get shellacked on both ends -- corporations who claim that utter faith in the market should prevent any government interference in spreading their costs to third parties (witness revelations about Monsanto's pollution fiesta in a small Alabaman town in the WP:

In 1966, Monsanto managers discovered that fish submerged in that creek turned belly-up within 10 seconds, spurting blood and shedding skin as if dunked into boiling water. They told no one. In 1969, they found fish in another creek with 7,500 times the legal PCB levels. They decided "there is little object in going to expensive extremes in limiting discharges." In 1975, a company study found that PCBs caused tumors in rats. They ordered its conclusion changed from "slightly tumorigenic" to "does not appear to be carcinogenic.") or going about their financial actions with riotous abandon of pirates on board a ship full of nuns, as in the case of 'Ken Boy''s company; and then, when downside time hits, those same corporations racing for the government tit, in a scramble that makes old Gipper Reagan's legendary welfare queen look like a piker.

Paul Krugman's op ed in the NYT this morning can be summarized in the words of that old Beatles standard: have you seen the little piggies/in their starched white shirts... In the last administration, the donors list revolved through the Lincoln bedroom as though Mr. and Miz Clinton were running a bed and breakfast for cheesy tv producers on federal time; in this administration, forget the bedroom. Give em a cabinet post, give em offices, give em lax or no enforcement of anti-trust regulation, give em the store, the keys, the ear of every policy maker cranked out by some crackpot rightwing thinktank. With so many friends in high places -- like Cheney, who believes an energy crisis means power company equities aren't achieving the cap levels his broker tells him they should be -- this country is being run openly as a country club for the rich, with tax breaks to fatten up the portfolios of the undeserving upper 5% in a public policy version of some Scrooge's wet dream.

Here are one and a half grafs:

"The real questions about Enron's relationship with the administration involve what happened before the energy trader hit the skids. That's when Mr. Lay allegedly told the head of the Federal Energy Regulatory Commission that he should be more cooperative if he wanted to keep his job. (He wasn't, and he didn't.) And it's when Enron helped Dick Cheney devise an energy plan that certainly looks as if it was written by and for the companies that advised his task force. Mr. Cheney, in clear defiance of the law, has refused to release any information about his task force's deliberations; what is he hiding?

"And while Enron has imploded, other energy companies retain the administration's ear. Just days before the latest Enron revelations, the administration signaled its intention to weaken pollution rules on power plants; late last week it announced its decision to proceed with a controversial plan to store radioactive waste in Nevada. Each of these decisions was worth billions to companies with very strong connections to Mr. Bush."

Monday, January 14, 2002


Limited Inc. was temporarily out of our gourds, this morning. Look, once you settle on a term, it sticks -- like a bad tattoo, maybe, but so it goes. So we apologize to our many constant, passionate readers for this aberration, and hope we haven't harmed our brand. We are going to focus group about that, later.

Will Hutton has a very enjoyable time knocking around that old corrupt mushball, Enron, in his Guardian column. Most startling graf in the column is not in the bludgeoning of America's political culture, but in the dissing of American productivity. Could this be true?

"... Enron could not have made the progress it did without the intellectual backdrop that all regulation and taxation is bad - and that the more the US deregulated, the better its economy performed. This was, and is, balderdash. Recent work by economists, notably at investment bank Credit Suisse First Boston, shows that after making the necessary accounting adjustments and including downward revisions, productivity growth in the US has done no more than match that in Europe. Indeed, countries like France and Germany have higher absolute productivity and faster rates of growth than the Americans, despite their approach to regulation and taxation. The deregulation philosophy that enriches Ken Lay and his cronies does not necessarily enrich anybody else. "

Well, we know last year was a spectacular for accounting revisions -- the capitalist version of redoing history, for which the Soviets used to be so reviled by right thinking rightwingers. Where's Trotsky, these rightwingers would cackle at the pap turned out by USSR history hacks that put Stalin in the catbird seat right next to his old buddy Lenin, and quietly whiteinked the more photogenic (and vastly more important) T. Increasingly, though, Soviet historiography looks like a method ahead of its time, especially for the clever accounting firm -- consulting with its right hand, and doing its books with its left hand. Erasing figures from photographs is one thing, but you need real skill to strip and recombine figures until they don't add up to themselves anymore -- yes, millions of dollars like Cheshire cats, appearing one year as four legged, tail twitching profit, and the next year as merely a fading smile.

Still, Europe has never been known for its accounting transparency. Steinherr, in his book on Derivatives (isn't tout le monde reading that adorable tome? right up there with Harry Potter in most homes), gives the example of Daimler Benz, which when it came to the states (had to, since it was swallowing Chrysler), had to comply with the US GAAP requirements, which is how we do numbers in the New World. German numbers showed a moderate profit, but sieved through GAAP, the company showed an immoderate loss.

So I'd love to know where this Credit Suisse study comes from. I'm not doubting Hutton, just wondering how to face this kind of revisionism.

Sunday, January 13, 2002

Acoustic shadows

This is the new name Limited Inc has chosen to head media-linked posts, instead of Remora. It isn't poetry, reader. If you will dig through the Echos newsletters in your closet -- you know, the ones the Acoustic Society of America sends you -- you will find an explanation in the winter, 1999 issue:

"Unusual acoustics due to atmospheric conditions or to terrain are sometimes given the catch-all name "acoustic shadows." The first recorded incidence of the phenomenon occurred during the Four-Day Battle in 1666. The naval battle was fought between the coasts of England and Holland, and sounds of the battle were heard clearly at many points throughout England but not at intervening points. Passengers on a yacht positioned between the battle and England heard nothing. A number of other examples have been recorded since that time. Guns fired at the funeral of Queen Victoria in London in 1901 were heard in Scotland, but not across a wide region in between. The German bombardment of Antwerp in World War I was heard clearly for a 30-mile radius, then beyond 60 miles from the Belgian city, but not in between."

Well, we at Limited Inc are always firing guns at funerals, in a manner of speaking. And we like to think that our absolute lack of effect in the immediate area simply means we are being picked up in Scotland, in a manner of speaking. Actually, a friend from Barcelona called us yesterday and claimed that our posts are being used as fodder for idea starved Catalonian columnists. This is Scotland, indeed.

Meanwhile, we had to borrow some change yesterday because we are down to pennies. As in, for instance, not being able to afford a stick of deodorant. Luckily, we found a lender willing to supply us with the necessary for the next couple days. After that, well, c'est le deluge. Life, for Limited Inc., is gonna be tough.

The synthetic progressive

I have been searching for a term to encompass one of the great features of capitalism – the non-necessary synthesis. I guess I will call it ...