Man Without Qualities

Tuesday, August 13, 2002

Isn't That Interesting

Paul Krugman writes that "Enron executives may have deluded and defrauded their shareholders without actually breaking the law."

It is by no means clear what Mr. Krugman meant when he created this mysterious glyph. But whatever else is intended, it is relatively clear that Mr. Krugman wants his readers to believe that Enron executives may not have broken the fraud laws at all. Fancy that. This, after the New York Times and countless other media outlets and liberal blogs long ago convicted the entire Enron management team and its board of directors of obvious and egregious fraud. Perhaps Mr. Krugman now also wants his readers to believe that the Enron people may, under current law, be guilty of at most negligence or gross negligence. Where could he have read that? But we have no Rosetta Stone for his glyph, because even though his discovery appears momentous, Mr. Krugman does not share with us his analysis of the law and economics of the Enron matter that has led him to want to lead his readers into believing that the law may not have been broken after all.

Readers of the Man Without Qualities may consider the remainder of Mr. Krugman's column for themselves, and ponder how it is that a putative economist seems to want his readers to conclude that the big current problem with the American economy is the widespread failure to expense options, even though the expensing of options would disgorge no new information into the markets. For example, Mr. Krugman notes: Byron Wien of Morgan Stanley recently told a group of security analysts that "stock options malevolence" is at the root of corporate scandal, and that "anyone who says that stock options aren't an expense destroys his credibility on all other issues."

I will pass over Mr. Krugman's preposterous suggestion that Cisco's stock performance is somehow attributable to a subtle, unidentified accounting fraud that isn't, but should be, illegal. Cisco's real offense in Mr. Krugman's mind seems to be adding credibility to George Bush's Waco economic forum - which by Mr. Krugman's rules more than warrants a suggestion of fraud. But I did I enjoy the sentence "What Cisco did was definitely legal" brutally inserted onto the end of the accusing paragraph, a sentence stylistically and substantively inconsistent with the rest of the paragraph, as if it had been penned and demanded by some alarmed libel lawyer. And it may be worth noting that by Mr. Krugman's lights, it appears that Salon, the on-line liberal singspiel, must also be the product of some fraud substantially more virulent than whatever it is Mr. Krugman wants his readers to believe ails the still-$100-Billion-Cisco.

It is not an accident that my discussion above does not say that "Mr. Krugman believes" anything at all, only that he appears to want his readers to believe various things: things a serious economist would have serious trouble accepting. In fact, Mr. Krugman's entire column is a fascinating exercise in watching a writer advance proposals to his readers from which the writer simultaneously distances himself. So it is also not an accident that Mr. Krugman quotes the unknown Mr. Wien - who the heck is he, anyway? - rather than reveal Mr. Krugman's own beliefs on this matter.

In the mean time, for example, Intel refuses for the present to expense its options. Nevertheless, my guess is that the genius Andy Grove retains more than a little "credibility" in the business world - regardless of whether Intel eventually expenses its options. Credibility like Mr. Grove's tends to happen and hang around when one makes tens of billions of real dollars for one's investors over a period of many years, even if one doesn't expense one's options. In Silicon Valley they might consider calling that "stickiness," now that the other trendy use for that term is no longer in favor.


UPDATE: Hoystory and MinuteMan and Caruso have interesting things to say about this Krugman effort. However, I don't agree with much of Hoystory's approach (how could anyone think Mr. Krugman’s "real goal" might be "correcting the problem" rather than attacking the President by whatever means available?). Further, if the Justice department were preparing to bring criminal charges, would the SEC be allowing it's civil team to go into high gear in the same area with no mention of coordination with the Justice Department - potentially disrupting the more serious criminal case? The new activity of the SEC in the Enron case that Hoystory notes is more suggestive of despair at Justice, with a corresponding willingness to let the SEC do what it can on the easier civil front. Such Justice Department desperation would also be consistent with the Justice Department convening another, California, grand jury to investigate Enron trading activities many economists say actually increased the efficiency of the energy markets.

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