the CAMP ENRON Report

... gateway to the next Progressive Era?

Some say it's nothing but a train wreck ... roll in the big cranes, clear the track, see what the crew's been smoking. If I thought so, I'd not be writing this ... and if they thought so, they'd not be drumming so hard.

For a brief orientation, see this
Welcome to Camp Enron

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Camp Enron Archives
01/01/2002 - 02/01/2002 02/01/2002 - 03/01/2002 03/01/2002 - 04/01/2002 04/01/2002 - 05/01/2002 05/01/2002 - 06/01/2002 06/01/2002 - 07/01/2002 07/01/2002 - 08/01/2002 08/01/2002 - 09/01/2002 06/01/2003 - 07/01/2003

(2) All "major" articles of older material have now been imported, some with updates worth perusing. We'll keep it all on the main page for a while, will add a few loose pieces of history, will trim the main page and index the archives for convenience later.


free agent, loose cannon, pointy stick ... taking an imposing analytic toolkit out of the box, over the wall and into the street ... with callous disregard for accepted wisdom and standard English

reading the tea leaves from original angles, we've led with uncannily prescient takes on the federal surplus, the dotcom crash, the "Energy Crisis", the Afghan campaign, the federal deficit.

More where those came from ... stay tuned.

For brief orientation, see this
Welcome to CP

... gateway to the next Progressive Era?

For a brief orientation, see this
Welcome to Camp Enron

Many thanks to Tony Adragna and Will Vehrs, still shouting 'cross the Potomac at QuasiPundit. Early Camp Enron material can be found in QP's Dispatches department.
Tuesday, May 21, 2002

--- Spitzer Settles with Merrill Lynch ---

NY Attorney General Eliot Spitzer has reached a settlement in the matter of corrupt recommendations by Merrill Lynch & Co. security analysts.

The agreement calls for reforms, apologies, and penalties.

Reforms amount to no longer doing business as usual (analysts touted stocks they knew were crap, paid out of the firm's investment banking gains on those same stocks). An expert pretends to offer a service to the buyer, while actually shilling for the seller ... that's blatantly corrupt.

Penalty is $100M, divided among the several states. Chump change for a giant like ML.

Apology and contrition is crafted to avoid admitting guilt in any form that could be used against them in court. If ML explicitly admitted doing what everyone now knows they were doing, they'd become a plaintiff's pincushion and possibly die the Death of a Thousand Suits.

Spitzer could have gone for criminal charges. He could have gone for much harsher penalties. He could have held out for more damaging admissions of guilt. He didn't. Why?

In effect, Merrill got mercy and probation ... a slap on the wrist rather than amputation of the thieving hand. Injured investors got left out in the cold. Too big too fail? Maybe. And too vulnerable. Crushing Merrill "Bullish on BS" Lynch & Co. would have devastating knock-on effects, so this is probably the lesser-of-evils approach. Leave the landmark standing on Wall Street, but usher them into a 12-step recovery program.

I am curious why the penalty was so small -- $1B would be a better attention-getter -- and why the formal compliance monitoring period is only one year.

This is ML's equivalent of Andersen's Waste Management settlement. Andersen helped Waste cook the books, got caught, paid a fine and agreed to safeguards. Then they pushed the marketing envelope, laughed off the safeguards, and a couple years later they got caught in flagrante delicto with Enron. (In truth, they never stopped screwing around, and it wasn't just Enron.) Knowing the next step was no mere slap on the wrist, they hurried to destroy documents in the hours ahead of receiving the formal notice of investigation, and they earned the corporate Death Penalty.

Likewise for Merrill (and other brokerage giants) in years to come. Everybody is now on notice, we know somebody will screw up eventually, and next time we'll have to kill them as an example to the others ... we just hope and pray it's not one of the biggies.

Problem is, nobody has yet figured out how to make markets for security analysis work in their own right (information markets are failure-prone). The need for analysis hasn't gone away. The temptations haven't gone away. Investor mistrust doesn't go away (ML merely agrees to front stronger caveat emptor language) and all this renders the capital markets less efficient, and that invisibly whacks the global economy.

The underlying problem remains open to inventive solution and fundamental reform.