Thursday, January 08, 2009

Enron, Satyam, Lehman?

Just finished reading the letter of Ramalinga Raju to the Board.
The first question that strikes me is, How come Satyam was instantly barred by the World Bank for 8 years, while the Lehmans and the Merill Lynchs of the world were given a bailout bounty?

The people who knowingly converted sub prime assets into securities, sold them to semi institutional investors at a scale that they knew was large enough to upset the whole apple cart.. these people deserve no punishment? The Bailout package is handed out, not to the semi institutional or retail investors who suffered on account of this fraud, but to the very perpetrators of that fraud.

Why were there no prosecutions in the US, or at other places, for what was done with very fraudulent financial instruments?

By now, the heads of almost all the I Banks should have written a letter like the one Raju wrote.. to their own boards, to their own governments, and to their investors. Why is no such letter around?


~nm said...

Good question and very valid too.

It just seems that they managed to cover up their asses better than Satyam could do.

Mampi said...

Isnt it a rhetorical question, HDWK?

SJ said...

Well from what I understand the subprime crisis was not caused by illegal activity but by policy that allowed it to happen. Whatever might be the ethical considerations the law did allow them - maybe encourage them - to lend to risky customers. While Enron and Satyam broke the law. Who knows someday what Raju did might be made legal !?!?!?

Anyway my first visit so "hi!" :)

Ajit said...

yeah, I think SJ is right....
if you do things within the law, you are ok ..... :)

(¯`•._.•[Raaji]•._.•´¯) said...

I suppose every country had its corruption. America looks quite perfect from the outside.

The Phosgene Kid said...

The wealthy aren't punished because they run the government or are close friends and contributors to those that do. The French broke the code during their revolution and spent most of it lopping the heads off the upper class. Can't say it helped them much but it probably seemed like the thing to do at the time.

Anonymous said...

I guess, when you value complex securities, financial paper etc., there are a number of issues to be considered so the buyers of these assets had to exercise due diligence. They would've made tons of money if the recession didn't happen you see thereby justifying the price they paid for these assets.

Whereas when you report cash and bank balances in your balancesheet, it is a clear case of 2+2=4. So thats the difference between the two issues.

btw, read my take on what happens when Satyam goes to bollywood :)

Indian Home Maker said...

I have been receiving some delightfully entertaining emails for 'A'satyam :)
We have Satyam cartoons, Satyam nursery rhymes ... soon we'll have Satyam soap bars to miraculously hide (not clean) your dirt :)

oo7 said...

as SJ said..someday it might me legal to do so.

but i did heard..he as offered a bailout package. commitments from the relatives and friends was to the tune of Rs 2,000-3000 crore. But, he refused to take the help. This gives us a feeling that he is not completely broke and the family must be still sitting on a cash pile..

anyways he did it so smartly..but it was wrong.

Anonymous said...

One man's fraud ?
I doubt.

How do we know said...

Hi ~nm: :-)

Hi mampi: :-)

Hi SJ: Hi SJ.. gud to c u here.. and you have made a very valid point!

Hi Ajit: Yes, i will have to agree that it is not punishable under law, but does that make it OK?

Hi Raaji: I so agree.. the US used to look quite perfect from the outside.. not any more though.

Hi Phos: You make the best points in the simplest way. How do u do this?!

Hi Rakesh: The recession did not happen overnight. THe people who created these securities knew exactly what they were doing. This is a question of ethics. One does agree that with Satyam, its a question of 2+2.. but that does not make it any more unethical..

Will read your post and comment there..

Hi IHM: Please pass on some of the jokes. i havent received any!

Hi 007: On the contrary, the poor guy was kind of dumb about it!!

Hi Hobo: Oh, there is no doubt that one man could not have pulled it off!! :-)

Indian Home Maker said...

Here you go,

Raju Raju
Yes baba
Cheating us
No baba
Telling Lies
No baba
Open the balance sheet


அகிலன்(Akilan) said...

Ethics? what is that anyway?
As far as I know it is a three credit paper in final year.

How do we know said...

Hi IHM: Thanks.. this is really nice!

Hi Akilan: LOVED ur comment. At least it gets 3 credits.

priya said...

Nice post.

Adds a whole new perspective to the Satyam fiasco.