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Business
Liberal Puritanism, by Bryan Caplan
Mar 14th
In the comments, Jason Malloy points out that Jon Haidt recently added a battery of questions to test liberal puritanism. Here’s Haidt’s explanation:
At Yourmorals.org we have always found that scores on the
Purity/sanctity foundation are higher on the political right than on
the left. Conservatives, particularly religious conservatives, live in
a more sacralized world. Liberals, particularly secular
scientifically-minded liberals, live in a more materialist, un-magical
world.Yet there are enough hints of “liberal purity” scattered about that
we at Yourmorals are actively trying to measure it… It can be seen in the liberal tendency to moralize food and
eating, beyond its nutritive/material aspects. (See this fabulous essay
by Mary Eberstadt comparing the way the left moralizes food and the
right moralizes sex). It can be seen in the way the left treats
environmental issues and the natural world as something sacred, to be
cared for above and beyond its consequences for human – or even
animal–welfare.
The punchline is excellent: “Can anyone understand Avatar who lacks all intuitions of purity/sanctity?”
More money makes society miserable, warns report
Mar 14th
Economics experts argue that Britain’s thirst for status symbols harms our well-being
The national belt-tightening expected to follow next month’s budget could prove to be of more benefit to the nation’s sense of well-being than if wealth levels were to soar, according to a new study.
Complex economic formulas developed by two professors of economics, Curtis Eaton and Mukesh Eswaran, and published in the current edition of the Economic Journal, suggest that greater affluence can seriously damage a nation’s health. Based on their mathematical modelling, the economists advance the theory that once a country reaches a reasonable standard of living there is little further benefit to be had from increasing the wealth of its population. Indeed, it could make people feel worse off.
They believe their work shows that, as a nation becomes wealthier, consumption shifts increasingly to buying status symbols with no intrinsic value – such as lavish jewellery, designer clothes and luxury cars. But they warn: “These goods represent a ‘zero-sum game’ for society: they satisfy the owners, making them appear wealthy, but everyone else is left feeling worse off.”
Their work owes much to the economist Thorstein Veblen, who in 1899 coined the term “conspicuous consumption” in his book The Theory of the Leisure Class. Veblen argued that people seek status through conspicuous consumption, which derives its value not from the intrinsic worth of what is consumed but from the fact that it permits people to attempt to set themselves apart from others. As the economy grows, people increasingly choose status symbols or “Veblen goods” over other goods.
“Those with above-average wealth consume Veblen goods with a positive impact on their happiness,” the authors write. “But those with below-average wealth simply cannot afford these goods, so they have a negative impact on their happiness. This is known as ‘Veblen competition’. As average wealth rises, people grow richer but not happier.”
The pair believe their research helps to explain why empirical studies show that levels of happiness and feelings of community in affluent countries have stagnated, despite growth in real incomes.
There is another downside. As people yearn for more status symbols they have less time or inclination for helping others. This, the authors argue, damages “community and trust”, which are vital to an economy because they ensure the smooth running of society. They conclude: “Conspicuous consumption can have an impact not only on people’s well-being but also on the growth prospects of the economy.” The theory may go some way to explaining the public backlash against the louche lifestyles of the UK’s footballers, bankers and politicians.
It fits into a debate within economics about how to measure a nation’s true wealth. Many economists believe they need to focus more on measuring happiness. The belief that a focus on individual wealth creation can be divisive has spread around the worlds of politics, psychology and science. Clinical psychologist Oliver James has argued that there is an epidemic of “affluenza” throughout the developed world, with attempts “to keep up with the Joneses” triggering huge increases in depression and anxiety.
Last year a bestselling book by two epidemiologists, Richard Wilkinson and Kate Pickett, called The Spirit Level: Why More Equal Societies Almost Always Do Better, suggested that Britain and America were the countries with the widest gulfs between rich and poor in the developed world, and as a result had the most health and social problems.
Nevertheless, Eaton and Eswaran, from the universities of Calgary and British Columbia respectively, do not believe the developed world’s obsession with wealth shows any signs of abating. The pair predict that “it is likely that conspicuous consumption will become worse as time progresses”.
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Waitrose launches UK brand expansion and plans more foreign outlets
Mar 14th
Managing director Mark Price aims to keep fast-growing upmarket grocer ahead of rival M&S
Waitrose boss Mark Price is drawing up plans to transform the upmarket food chain into a consumer brand available in thousands of non-Waitrose shops in the UK and overseas. He believes the Waitrose label has the potential to be a big “fmcg” – fast moving consumer goods – name like Heinz or Kellogg’s, which he can sell to other retail businesses, rather than just direct to shoppers.
He has similar ambitions for the Duchy Originals brand, founded in 1990 by the Prince of Wales. Waitrose signed a licensing deal with the struggling royal label last autumn, which gives the John Lewis-owned grocer the right to manufacture, distribute and sell all Duchy goods in the UK. Price said there would be more than 300 Duchy products by the end of the year and there was potential for many more.
He said: “What we are trying to do is give access to the brand and it is not just about owning shops. It is about taking a creative approach and making products available to as many people as possible. We are looking to work with partners.”
The plan to sell Waitrose goods in other stores will be kickstarted this month when Price unveils details of a deal that could eventually see Waitrose food sold in more than 700 Boots outlets. Sections of Boots’ stores will be transformed into mini-Waitroses, with the grocer’s own fixtures, fittings and signage. In return, Waitrose will sell a range of Boots health and beauty goods in its own stores.
Last year Waitrose defied predictions it would be battered by the recession and emerged as the fastest-growing big grocer, chalking up a sales increase of more than 11% to in excess of £4.5bn, trouncing upmarket rival Marks & Spencer. “We expect to be the fastest growing again this year,” Price said.
Sales to overseas supermarkets are also to be ramped up. “Waitrose is seen as a really premium brand outside the UK,” said Price. The grocer has already more than doubled business-to-business overseas sales to more than £100m over the past two year, exporting to 25 countries including Thailand, the Bahamas, India and China. But Price said there was much more potential.
The grocer is also keen to open more franchised outlets overseas, especially in the Middle East. Two stores in Dubai are chalking up 60% annual sales growth and franchises have been awarded for Bahrain, Oman and Abu Dhabi. Price said there would soon be 20-23 Middle East outlets.
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Embarrassment for David Cameron over Tory hopefuls’ lobbying links
Mar 14th
Conservative drive to ‘clean up politics’ faces test over failure by several candidates to fully declare their work for lobby firms, says Nick Mathiason
David Cameron’s drive to clean up politics is facing an embarrassing public test after it emerged that a number of prospective Conservative MPs have failed fully to declare in their campaign literature that they work for lobby firms representing powerful business interests.
The revelation threatens to destabilise Tory hopefuls in the upcoming election as voters in constituencies where alleged “secret lobbyist candidates” are running will be the subject of a targeted online advertising blitz on Google and Facebook orchestrated by 38 Degrees, an innovative online campaign group.
Only last month, Cameron warned that lobbying “was the next big scandal waiting to happen”. But campaigners claim that while secret lobby links extend across all parties, the Conservatives are the worst offenders.
Last night, the Tories hit back saying they “are committed to shining the light of openness onto the lobbying world” and suggested Labour candidates’ links to lobby firms were far more extensive. But several Tory candidates seem to have kept back details of their work for lobbying firms, including:
■ Priti Patel, the Tory candidate for Witham, a new seat in Essex. On her website, Patel says she is a director of a company providing “business and communication strategy” advice but fails to clarify that she works for one of the world’s most powerful lobby firms, Weber Shandwick, personally advising Microsoft and bank lobby group, International Financial Services London.
■ Penny Mordaunt, the Conservative candidate for Labour-held Portsmouth North, who is a 15% shareholder in lobby firm Media Intelligence Partners, which boasts among its clients Sony, Orange, and DHL. Mordaunt is also listed as the firm’s director in Companies House. Mordaunt also worked for 10 months last year at leading public PR firm Hanover.
■ George Eustice, Cameron’s former press secretary, fighting the three-way marginal in Camborne and Redruth, Cornwall, has failed to disclose on his campaign site that he works for powerful Westminster lobby firm Portland, which acts for Google, Tesco and McDonald’s.
■ Prospective Labour MP Emma Reynolds on Friday hurriedly updated her biography on her campaign website to include details of her work for lobby outfit Cogitamus, which advises the biggest names in the construction industry on government relations.
The Observer is aware of a significant number of parliamentary candidates who will be unmasked in coming days as part of a co-ordinated campaign by Spinwatch and 38 Degrees aimed at introducing a statutory register of interests. This would force lobby firms and parliamentary candidates to clarify who they represent and work for.
David Babbs, 38 Degrees executive director, said: “The election is a chance to clean up parliament, which is why it’s time for all PPCs to come clean about their links to lobbying. 38 Degrees members are going to work together to make sure that those people who want to be our MPs promise to put their voters first, not their friends in big business. 38 Degrees is a 100,000-strong, people-powered movement, and during this election we plan to work together to cut through the spin and make sure politicians answer to us. We’ll be challenging PPCs on their lobbying links, and if they refuse to draw a line under their past business interests we’ll be raising money for ads in local papers to make sure local voters hear the facts.”
Tamasin Cave, from the Alliance for Lobbying Transparency, said: “The public is calling for – and deserves – a new type of politics, so it’s vital that prospective MPs are fully transparent about their links to lobbying. If they are helping powerful companies get privileged access to key politicians in the runup to the election, we have a right to know who they are lobbying for and which policies or contracts are being discussed. Covert lobbying harms public trust. Lobbying firms clearly hire these parliamentary hopefuls to both open the door to politics now and to secure a direct line to any future government. If you want to influence politics, it pays to employ political insiders.”
Eustice defended the lack of information about his work for Portland, saying his campaign website was intended to set out his beliefs. The one-time Cameron spin doctor also said there was a welter of publicity when he left Cameron to join Portland. In addition, he had been a tireless campaigner for more transparency in the public relations arena.
Mordaunt said her role at both Media Intelligence Partners and Hanover was centred on communications work rather than public affairs. She explicitly denied she was a lobbyist and said she supported the campaign for a statutory register of lobbying interests.
Patel did not comment on her links with Weber Shandwick. But the firm’s corporate communications and public affairs chairman, Jon McLeod, confirmed that Patel advised Microsoft and the International Financial Services London. He stated: “Weber Shandwick is clearly an agency with a political dimension. We would not be good at our job if we weren’t.” McLeod confirmed he was a vocal supporter of legislation to create a statutory register of lobby firms.
Last night, the Tories said they would introduce new rules to stop central government bodies using public money to hire lobbyists and “push for the lobbying industry to ensure greater transparency of their operations through self-regulation, and we would be prepared to legislate if this fails”.
Cave said: “As David Cameron said just last month, this isn’t a minor issue with minor consequences. It’s not just public policy that’s affected by lobbying – government contracts worth billions are potentially at stake. Cameron has spoken about the urgent need to shine the light of transparency on lobbying. But words alone won’t bring public scrutiny: we need new rules that force lobbyists to come clean about their activities.”
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Recovery yields Alistair Darling a £12bn budget windfall
Mar 14th
Chancellor will cite state investment in jobs as key to lower-than-expected unemployment
Alistair Darling will claim next week that government action to protect jobs has saved around £12bn, as Labour uses the pre-election budget to spell out key economic dividing lines with the Tories.
In what is expected to be the most political budget in decades, the chancellor will cite government investment in jobs programmes as a major reason why unemployment has turned out to be dramatically lower than economists predicted. Last year’s budget anticipated that the level of unemployment, based on National Audit Office assessments of independent forecasts, would be 2.09 million people in the fourth quarter of 2009 and 2.44 million in the fourth quarter of 2010. By December’s pre-budget report (PBR), however, the government had revised the forecasts to 1.72 million for 2009 and 1.91 million for 2010, saying that this would save up to £10bn over five years from lower unemployment benefits alone.
Since then, the Observer has established that Darling’s officials have cut the forecasts still further. The latest projections for unemployment are for it to hit 1.72 million in the final quarter of this year and 1.75 million in the fourth quarter of 2011 – a further 200,000 lower than in the PBR plans, potentially freeing up an extra £1bn-£2bn.
The work and pensions secretary, Yvette Cooper, said: “In the 80s and 90s unemployment continued to rise even after the recession ended, because the government failed to put the necessary support and training in place and keep it there as the economy returned to growth.” She claimed that the Conservatives would cut back investment in jobs programmes and “put the economy at risk, even though the clear evidence shows helping people back to work saves money for the future too”.
This week Cooper is expected to announce that the government will subsidise another 7,000 jobs for young people, bringing the total created under the Future Jobs Fund to 117,000. The funding will pay for work at the national minimum wage, targeted at under-25s and people living in unemployment hotspots.
Last night Treasury sources insisted that most of the windfall savings from lower-than-expected unemployment would be used to cut the deficit, rather than for pre-election giveaways.
Darling believes the budget could spark a sell-off in government markets unless he stands by his pledge to halve the deficit within four years. Ministers believe that they have a credible plan to put the public finances back in order, through targeted investment in the economy, which they say will speed progress towards sustained growth; the introduction of tax rises such as the 50p rate for top earners (from this April) and national insurance rises from next April; and efficiency savings across government. But Darling is not expected to spell out any more details of specific departmental spending cuts so close to polling day.
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Auditors face inquiry call after Lehman revelations
Mar 14th
MPs and financial experts demand regulators reform industry in effort to eliminate risky practices, writes Phillip Inman
Pressure was mounting this weekend for a root-and-branch review of the role played by auditors in the credit crunch, following the revelation that Lehman Brothers was able to hide $50bn (£32bn) of debts from regulators despite checks by accountancy firm Ernst & Young.
MPs and financial experts called on regulators to clean up the audit industry as part of a clampdown on reckless and risky practices in the financial sector.
Liberal Democrat treasury spokesman Lord Oakeshott urged the government to commission a fundamental review, while Tory MP Michael Fallon, who is deputy chairman of the influential treasury select committee, said: “Too much is being concealed. We need a fresh approach that gives a more realistic picture of bank finances and not one that disguises risky practices.”
Oakeshott said the treasury select committee’s investigation of Northern Rock’s collapse had already revealed that accountants should be banned from accepting additional consultancy work for the firms they audit; but, he added, “that is just a starting point to cleaning up the whole profession”.
Prem Sikka, a professor of accounting at Essex University and a leading critic of the accounting profession, warned that without deep-rooted reform the crisis could repeat itself. “The report into the collapse of Lehmans is indicative of a deeper malaise,” he said. “We rely on the discretion of eminent firms of auditors and lawyers that are paid millions of pounds for their efforts, but that discretion is too often abused.”
A damning 2,200-page report commissioned by the US bankruptcy courts into the collapse of Lehman said that Ernst & Young’s failure to act over off-balance sheet accounting practices which allowed the bank to hide $50bn of debts, and failing to investigate the concerns of a whistleblower, amounted to “professional negligence”.
Ernst & Young, which earned fees of $31m from auditing Lehman Brothers in 2007, has insisted that a thorough internal review showed it did nothing wrong.
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Can Katy Perry stop EMI going to America for a song?
Mar 14th
Billions of pounds of debt, the internet and piracy are crippling one of Britain’s most iconic firms
It is a tale of sex, debt and rock’n'roll that is unlikely to have a happy ending. When Guy Hands, a City financier with a penchant for fast food and an insatiable appetite for deal-making, came up with a plan to buy EMI, Britain’s flagship music company, using billions of pounds of borrowed money, many wondered how he could possibly make a decent return on his investment. As it has turned out, he couldn’t.
This weekend EMI’s new chairman Charles Allen, the former ITV chief executive hired by Hands last week to run the music arm of the company, is battling to ensure its independence, assembling a rescue plan for the company that signed the Beatles and became synonymous with the golden age of British pop.
Sources close to the company say Allen, a former accountant whose eclectic musical tastes encompass Lily Allen and Edith Piaf, is “rolling up his sleeves” and working to ensure the company does not breach the terms of its bank loans, but there is no doubt EMI is in peril. “It is a very, very big moment,” according to Claire Enders, founder of media consultancy Enders Analysis. “The next two or three months are critical for the future of EMI.”
Allen’s predecessor, Elio Leoni-Sceti, left suddenly last week just as the final touches were being put on a rescue package, prompting fears over the company’s future. The business is effectively being propped up by its past, surviving on the revenues generated by artists signed during a 30-year period when British music dominated the world.
The list of talent on EMI’s books reads like a roll call of rock royalty: David Bowie, Queen, Lennon and McCartney, the Sex Pistols and Pink Floyd. As an incubator of home-grown musical talent, the company is without equal and its position as one of the “big four” global record labels is a source of national pride; it exists to make money but EMI also safeguards the country’s status as a place where music that matters is made.
If EMI disappears or falls into foreign hands, many music industry figures worry that future generations of British acts may find it more difficult to find a worldwide audience. Jazz Summers, who manages former Verve vocalist Richard Ashcroft, who is signed to EMI, said: “If you look at their track record, they have broken more British acts in America than anyone else, and the same is true in other countries.”
EMI is in crisis because it is burdened with what sources close to the company describe as a “ludicrous” amount of debt, racked up after it was bought in 2007 by Hands’s private equity company Terra Firma. EMI Music currently has three artists in the top 15 of the album chart for the first time this century, including Blur vocalist Damon Albarn’s Gorillaz, and it is on course to make a profit of £200m this year, but a staggering three quarters of that will go on interest payments.
Hands borrowed heavily to fund the deal, using money provided by Terra Firma’s investors, and EMI’s valuable back catalogue, as collateral, but even then some questioned whether he was right to pay the amount he did for a business that was struggling to come to terms with downloads and a dramatic decline in physical music sales. The industry has lost between 30% and 50% of its revenues in the last five years, but the irony is that EMI is currently outperforming its peers, which include Sony BMG and Warner Music.
It had the biggest-selling album of 2008, Coldplay’s Viva La Vida, and reissued the Beatles digitally remastered back catalogue last year. Acts including Lily Allen and Katy Perry are selling well, but the way the company is structured means it cannot trade its way out of trouble.
Before the credit crunch, loans could be refinanced cheaply, but now EMI is struggling to meet its debt repayments in the wake of the severe economic downturn. It has been forced to cut costs dramatically, laying off close to 20% of its workforce. The company is now worth £450m, around a tenth of what Hands paid for it. Some big acts, including Radiohead, have already left, muttering that the money men simply didn’t understand the music business.
Last week one of EMI’s biggest-selling groups, Pink Floyd, won a court action preventing the company from making tracks from their 1970s album Dark Side of the Moon available to download individually. That was widely portrayed as a victory for artistic integrity – the group want their masterpiece to be consumed from start to finish, as they originally intended – but it also illustrates the challenges the music industry faces in an era of huge upheaval, when illegal downloading is costing it dear and making money from talent discovered and developed at huge cost is more difficult than ever.
If Allen cannot persuade Terra Firma’s investors to stump up another £120m, EMI will be in breach of its loan terms, and its main creditor – US bank Citigroup – could seize control of the company. If it does so, Citigroup is likely to sell it to Warner Music, an American rival which was outbid by Hands for EMI three years ago. The situation is complicated by Terra Firma’s decision to sue Citigroup in New York, accusing it of forcing EMI towards administration so it can take possession of the company and make a profit from a quick sale, allegations that the bank denies.
Hands is a larger-than-life tax exile, a hero in the Square Mile whose reputation has been badly tarnished by the EMI debacle. He now concedes he overpaid for EMI, but his miscalculation means he could be about to hand a much-loved cultural institution into the keeping of the Americans.
At the end of last year Cadbury’s city shareholders agreed to sell the nation’s favourite chocolate company to Illinois-based Kraft. The prospect of another household name passing into foreign ownership, particularly a national champion in one of the few industries in which Britain still excels, is an unsettling one.
One senior music industry executive explained: “For British music, the fact that there was a very successful British company to sign for was hugely significant.” However, others say the temptation to indulge in flag-waving should be resisted. Enders said: “Britain is one of the places people come looking for talent and that won’t change. There are a lot of players in the market and advances paid to acts such as Florence and The Machine have gone up.”
If EMI does fall into the hands of an American rival, she added, it might ultimately safeguard its future. “It would be better for EMI to have less indebtedness. It will have much more firepower.”
EMI could survive. It is still lining up the sale of some prized assets. It was reported last month that the Abbey Road studios in London could be sold off. The company later insisted the studios should stay under its ownership and was working with “third parties” about funding a “revitalisation project”.
Raising the possibility that a part of the nation’s cultural heritage could be sold provides a graphic reminder of how the company’s huge debt is forcing it to make unpopular decisions.
It may not matter if British acts are no longer championed by a UK company as long as the country continues to produce talent and A&R men from overseas arrive here in search of the next Lily Allen or Amy Winehouse. “In the end the music business is the same as it ever was,” Enders said. “It’s about hits.”
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Can I buy underwear and be green?
Mar 14th
Say pants to the pesticides used in manufacturing cotton!
You might be doubtful that your choice of briefs can be a catalyst for global change, but consider the statistics. The UK underwear market was valued at £4.1bn in 2009. Most of that money is spent on multinational-produced pants. Some are constructed from a mixture of oil-based synthetics, including nylon (which results in emissions of nitrous oxide, a poisonous greenhouse gas).
Received wisdom tells us that cotton, the main underwear fibre, is the type of natural material we need in these delicate regions. Received wisdom is wrong. Although cotton covers less than 1% of the earth’s landmass, it soaks up 25% of all pesticides and herbicides. A single pair of cotton pants uses 10ml of pesticides.
In the past year a number of NGOs have got their knickers in a twist about cotton pesticide endosulfan, banned in 62 countries. It is linked to reproductive and developmental damage in animals and humans and is manufactured by pharmaceutical brand Bayer. PantsToPoverty.com, a leader in fairtrade cotton underwear, instigated a “pants amnesty” whereby protestors sent their worst pair of pants to Bayer – which quickly pledged to phase out endosulfan by the end of 2010.
Greenknickers.org offers zero-carbon pants from recycled sources. Whomadeyourpants.co.uk is a workers’ co-operative in Southampton employing women who have been granted asylum but find it difficult to get work. They take knickers seriously (like Alan Greenspan, who has said he looks at sales of men’s underwear to indicate the direction of the economy). Ethical smalls can become a big deal.
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When the dotcom bubble burst the ideas didn’t just float away
Mar 14th
The internet boom and bust saw companies come and go, but the seeds of great website businesses were sown, and many of the entrepreneurs are still working
The streets of Silicon Valley are littered with survivors of the dotcom boom and bust – but while many retain vivid memories of the crash, few seem permanently scarred by the experience.
Among the most notorious failures was pets.com, an online pet shop that promised to deliver food and supplies across America at competitive prices. Founded in August 1998 and backed with tens of millions from investors including Amazon, the brand blew up quickly, with a popular ad campaign and a January 2000 Super Bowl spot that cost more than $1m (£660,000).
The company went public with an $83m stock offering a month later – weeks before the crash. Just nine months on, the company had collapsed and the truth about its business became clear: it had spent vast amounts on advertising while selling most of its products at a significant loss.
Founder Julie Wainwright remains unapologetic for the very public burnout, suggesting that “it was a great company, but the timing wasn’t”. She went on to run an online photo service and worked in venture capital, before starting women’s health website SmartNow two years ago. Even the fact that her husband filed for divorce just days after pets.com went under seems to have been part of the process. “I had two major life crises in the same week, one public and one private, that sent me on a journey of self-discovery and healing I couldn’t have anticipated,” she told the New York Times in 2008.
Wainwright’s story is one repeated by veterans all over the internet industry: their companies may have collapsed during the bust, but that failure is worn as a badge of honour.
In fact, despite the estimated $5tn lost when the internet bubble collapsed, it is the websites themselves that have fallen by the wayside – rather than the people behind them. A prime example is the web radio service broadcast.com, which was sold to Yahoo for $5.7bn in 1999 but no longer exists as a website in its own right.
While broadcast.com is dead, former chief executive Mark Cuban has gone on to become more famous than ever before, as the outspoken billionaire owner of the Dallas Mavericks basketball team and Magnolia Pictures, distributor of films such as Food, Inc.
“I was fortunate enough to be part of a great company that got whisked away in the frenzy. I was also fortunate enough to recognise the difference between a company and a stock,” he says. “What was unfortunate was that with the bursting of the bubble came Yahoo basically killing off a company that was doing everything that YouTube does today but years earlier. But they paid me for the right to do whatever they wanted with it.”
Other sites that struggled through the bust have fallen into disrepair, obscurity or simply shut down. GeoCities, an early precursor to social networking sites, was bought by Yahoo for $3.5bn in 1999. It was left to languish after the crash and finally put down last year. Co-founder David Bohnett, who now runs his own foundation, says that although much of the enthusiasm died after the bust, many of the ideas developed have gone on to have a massive impact on millions of people. “GeoCities paved the way for the success of today’s social networking sites like Facebook and MySpace,” he says. “The internet has continued to evolve in wonderful ways in the last 10 years.”
Not every site from the boom has withered, however. One of the biggest success stories, Amazon, bullied its way through the crash – despite not posting its first profit until 2002. Boss Jeff Bezos bet everything on the idea that heavy, long-term investment would corner the online retail market, even if it meant losses in the short term, and it paid off. He is now ranked 43rd richest man on the planet, with a net worth of $12.3bn.
While many entrepreneurs saw their paper fortunes dwindle with the crash, some of the sharpest criticism was aimed at the bankers and investors who had helped fuel the dotcom rollercoaster with soaring valuations.
They too, by and large, recovered quickly from the after-effects of the crash. Mary Meeker, an analyst with Morgan Stanley, was famed for her predictions on internet stocks and crowned in 1998 as the “queen of the net” by Barron’s magazine. Despite the crash, she was an important player in a boardroom coup several years ago and continues to command respect as a managing director of the company’s technology group.
Even one of the villains of the era, equities analyst Henry Blodget, has undergone something of a rehabilitation. Charged with fraud when it emerged that he had advised investors to buy shares in companies that he privately rubbished, Blodget eventually settled without admitting culpability for a total of $4m in fines and other payments. Barred from ever working in the securities industry again, he returned to his previous career as a journalist and now runs a popular industry news blog, Business Insider.
Cuban says that despite the tumult caused, few lessons have been learned in the United States. “Sad thing is that nothing has changed,” he says. “In 2000 it was the internet stocks. A couple of years ago it was real estate and mortgages. In five years it will be something else. We live for bubbles in this country. The internet bubble was just one example of the many that have happened. It’s shocking that so few seem to learn so little from history that they repeat it over and over.”
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Lehman’s advisers were guard dogs that didn’t bark
Mar 14th
Posted by Heather Stewart in Business
No comments
By their silence, the failed bank’s lawyers and accountants gave highly questionable practices a sheen of respectability
It’s good to know we still lead the world in something. “Business services” is often cited as one of Britain’s proudest export industries, and last week’s postmortem on the collapse of Lehman Brothers from the US “examiner” brought some formidable examples of its recent triumphs.
“Magic circle” City law firm Linklaters gave the thumbs-up to “Repo 105″, the complex manoeuvre that allowed the ailing Lehman to book short-term loans from other banks as “sales”, effectively disguising billions of dollars of assets, sometimes conveniently just as the end of a quarter approached. Herbert McDade, the man known inside the bank as its “balance sheet tsar”, described the instruments in an email as “another drug we’re on”.
(And, having opined that “Repo 105″ was legal, at least under UK law, Linklaters is advising PWC on the Lehman administration.)
Auditor Ernst and Young is even more firmly in the examiner’s sights. He says it was “professionally negligent” in passing the Repo 105 arrangements, which will be music to the ears of the many creditors and shareholders itching to take class-action cases against anyone they might be able to blame for the firm’s catastrophic bankruptcy.
The examiner also reports that senior Lehman banker Matthew Lee sounded the alarm about “accounting improprieties” in the summer of 2008, referring specifically to $50bn of repo arrangements, but Ernst and Young “took virtually no action to investigate”.
Of course, Linklaters and Ernst and Young will say they were only following the rules, but auditors and lawyers are professionals and they gave Lehman’s highly questionable practices a sheen of respectability.
Lehman’s chief Dick Fuld could not have spun this web of self-delusion without having a team of advisers on his side. After Enron’s collapse led to the annihilation of its auditor Arthur Andersen, the industry was meant to have been transformed. It’s about time lawyers and accountants were subject to the same searching scrutiny as ratings agencies, regulators and the banks themselves.