Could be? Bullshit. I’m not making assertions. I’m arguing facts. One cannot prove a negative, and anything is possible. “Possible” is not an argument. You need to give us a reason to belieive it is true.
A bit of confusion there, Scylla. It would seem, if I parse Mr. Meyer’s statement correctly…
Yes. You have completely failed to understand. The Harvard fund had more than one commodity investment. They just didn’t have Harken. According to Meyer, the made money on Harken but still lost $200m on this sector in general. We can extrapolate out there total investments in Harken type commodities and ventures at $600mm from the article. Harken was just one piece, and a profitable one, of the puzzle.
What are you smoking? I didn’t. You and Xeno asked. I found a cite that said that harken was profitable for Harvard.
How they did in their other commodity investments has nothing to do with the debate.
Seems he has rather a solid grounding in economic matters, at the very least.
“ignoramus”, “full of shit”. This is courtesy and respect? Heavens, I swoon to imagine what your disdain is like.
Now doubt you are embarrassed by this descent into the very depths of mud-slinging. As I am temperate and kindly by nature, I will make no further mention of it.
It would appear, Scylla that the only expert testimony admissable in your court is (a)your own, and (b)Dewey. In such circumstances of advantage, why do you feel compelled to slander and insult? Shirley you can do better. Can’t you?
Do try, won’t you? Heck, you might even get to like it!
But not, as Scylla points out, in accounting, corporate finance, or securities and law.
My wife is a Big 5/4 CPA (not with Andersen, thank goodness). She’s forgotten more about financial accounting than I’ll ever know (and that’s saying a lot, my undergraduate degree is in accounting). That doesn’t mean she’s specially qualified to speak about the balance of payments in international trade or the impact of interest rates on the world economy.
Same thing with Krugman: he’s a good economist, but that doesn’t mean he’s specially qualified in these areas. What you’re suggesting is the equivelant of saying a pediatrician is specially qualified to discuss heart surgery techniques because he knows a thing or two about medicine.
I trust Krugman more than I trust, say, Maureen Dowd on this issue in the same way I’d prefer the pediatrician over someone with zero medical training to perform my heart surgery. But I’d much rather have a trained heart surgeon for the latter, and someone with financial accounting knowledge for the former (you’ll note neither of us dispute Dr. Balan as an authority here).
I see on preview you’re accusing Scylla of only accepting my and his “testimony” as expert. First of all, that’s false: we recognize Dr. Balan as an authority. Second, it belies your utter failure to grasp the fundamentals at play here that you repeatedly punt to authority. Scylla and I haven’t just said “this transaction is OK because we say it is;” we’ve explained why it was proper. We aren’t relying on our own authority to make our arguments; instead, we are laying out our arguments as clearly as we can so that anyone reading the thread can evaluate them on their own merits.
We’ve asked you for this repeatedly. Here we go again: Please, please construct for us a plausible scenario where this transaction would be improper. Otherwise, go home. I’ve asked you repeatedly to put up or shut up. Since you haven’t put up, would you please kindly now shut up?
Oh, you quite misunderstand. You can’t offend my feelings, you have no standing. I don’t blame you for my ignorance. I blame you for lowering the tone of discourse. Not once, nor twice, but persistently.
If years shall pass, and your children come across this, will you be proud of how you have conducted yourself?
Happily for you, you can interpret his remarks as being, if not favorable to your thesis, at least does it no harm. Or so you testify, on the basis of your own expertise.
Mr. Black infers that the purpose of the “off the books” partnership was to hide a further debt load. Now, you might very well present plausible scenarios wherein such structuring is not intended to conceal, and thereby, deceive. All well and good. But unless you can prove that it is not possible that such was the intent, you are stuck with that as a viable alternative.
If you can prove that it is not possible, do so. You need not retype, merely quote wherein you have done so. You insist, with understandable complacency, that I must prove skullduggery. Might I humbly submit that the opposite is equally true? And subject to the same laws of evidence?
To put it perhaps too simply, you have proved, even to my satisfaction, that skullduggery and corporate chicanery is not the only possible explanation. Where you have failed is in ruling it out.
But, if this story has “legs”, there will be more on this matter to chew and digest. We shall see.
First, a caveat: I have literally no technical knowledge when it comes to “accounting, corporate finance, or securities and law.”
Having said that, I will try to construct a scenario in which the transaction described above might be construed as “improper.” Y’all feel free to tell me where, and how, my scenario is fucked up, but I’d appreciate it if ya didn’t bite my head off in the process, if you don’t mind.
As a layman, the impropriety committed seems to be simple and straightforward. Reading the reports cited above, and having no prior experience/education in the field, it seems to me that Bush, along with some other bigwigs at Harvard Management and Harkan, conspired to utilize an accounting loophole in order to make Harkan appear “healthier” than it really was. The loophole allowed Harvard Mgt. and Harkan to create a partnership that, in its turn, assumed a volume of Harkan’s debt. This was done in such a way that the debt, though still in existence, no longer appeared on Harkan’s books.
The results of this maneuver included the following:[ul][li]Harkan didn’t go belly up, thanks to the timely intervention of Harvard Mgt.[/li]
[li]Harvard Mgt. didn’t loose its original investment in Harkan (which is what would have happened had Harkan gone belly up).[/li]
[li]In the short run, this was good for Harkan’s stockholders. Harkan stock continued at the same level, or increased somewhat, because it appeared that Harkan was more soluble than it really was. [/li]
[li]In the long run, this was bad for Harkan’s stockholders, because it kept them in the dark as to the true state of Harkan’s finances (unless they were accountancy wizards). It was particularly bad for investors who were at that time considering a purchase of Harkan, because it made Harkan appear to be a more attractive investment than it really was.[/ul]Finally, I submit that the sort of shenanigans employed above are the primary reason why Dr. Balan and his associates are critical of the loophole, and argue that it should be closed. While not technically illegal, such practices are in a sense “improper,” because they deform the market and mislead investors.[/li]
Am I completely off base here?
I have explained why his remarks do not mean what you apparently think they mean. My expertise is not the basis for that explanation: the simple facts of what Dr. Bharan said was more than sufficient for that demonstration.**
The sound you hear is me banging my head against a wall. This has been explained to you over and over and you still fail to grasp it. Here we go again:
The Harken-Harvard deal was intended to provide a source of off-balance sheet financing. Harken needed it to be off-balance sheet in order to remain in compliance with its financial covenants to other lenders.
That structuring was not intended to decieve, however. Indeed, according to the Wall Street Journal – the same article you cited earlier – “Harken disclosed its transactions to investors and the Securities and Exchange Commission and complied with accounting rules.” (Emphasis added)
What part of “full disclosure” do you fail to understand?
Harken complied with the relevant accounting rules. Whether those rules represent an ideal solution to financial disclosure for minority-held financial vehicles is a matter of academic debate, but the fact is that Harken complied with them. Furthermore, as noted, they disclosed the transactions to investors – even though the transactions didn’t show up on the balance sheet, investors were informed of the transaction.
Why you continue to allege that somebody, somewhere was somehow misled by these transactions staggers my imagination, particularly since your own source contradicts that suggestion.**
I have done no such thing. I have not asked you to “prove” anything. I have only asked that you provide a plausible hypothesis as to why these transactions were inappropriate. You have utterly failed to do so.
Mr. Svinlesha: the transactions were disclosed to Harken shareholders and to the SEC. Thus, the transactions were public knowledge. Thus, any potential Harken investor “in the dark” about these transactions was only “in the dark” because of his own lack of diligence.
Furthermore, the “loophole” isn’t really a loophole, in the sense of an unintended consequence of an existing rule. The core of the issue is “when is it an accurate reflection of the economic state of a company to consolidate the financials of an independent firm in which the company holds a minority stake?” It would be sloppy to just say “always include everything, in every situation,” because that might lead to a distorted economic picture, too.
Earlier in this thread, I cited to an article by Dr. Bharan about off-balance sheet financing. It goes into the history of it, and explains why the off-balance sheet treatment can be proper (it also goes into how and why these rules can be abused). It does assume some knowledge, but not so much that a reasonably intelligent layman couldn’t follow it (and I’d be happy to help you understand any aspects of it that are unclear, at least insofar as I can). I recommend reading it.
A good point, as far as it goes. But how, exactly, were these investors informed? Clearly, this manuever was not wide public knowledge, or it would have surfaced by now, would it not? If this disclosure was so full and open, why did it take investigation on the part of Harvard Watch to bring it to public attention.
And which investors? Potential investors, persons unknown who might be considering an investment in Harken? Did they get a booklet in the mail So You’re Investing in Harken? If only current, extant investors were advised, it would seem they were well motivated to shut up about it, since, as you point out, this was entirely to thier advantage.
I am sure you know better than I that it is quite possible for “disclosure” to be done in such a way as to render it meaningless, or right next to it. Have you examined this issue to your satisfaction?
(N.B.: this is a genuine question: Did you know about this partnership? Do you know anyone who did? Be assured I will accept your testimony without demur, I have no reason to question your honesty or integrity. Unless, of course, you are a Republican…)
You’ve linked to a pdf file, and I don’t seem to be able to get it downloaded.
On the other hand, I think I understand, approximately, why these accounting procedures might be a matter for disagreement. But as you note, while off-balance sheet financing might be proper in some instances, there are also instances in which it is not. Clearly, the debate here revolves around this question.
You seem to think that the Harkan-Harvard maneuver was strictly above board, fair and square. elucidator suspects the opposite. I do as well, for a simple reason: again, speaking as a layman, I can’t see any reason for such a maneuver beyond “hiding,” as it were, a significant portion of Harkan’s debt from the investing public. After all, even if Harkan informed the SEC and its investors, after doing so, in subsequent financial reports, a significant chunk of Harkan’s debt no longer appeared on the books – thus artificially inflating the value of Harkan stock.
Harvard then unloaded its share of Harkan stock at an inflated price, hence Meyer’s claim that Harvard “made money” off of it’s investment in Harkan. Is this a potential scenario, a possible scenario, or a completely ridiculous scenario ?
Disclosure would almost certainly be comprised of a public SEC filing and notice to the existing shareholders.
This is the way all disclosure is handled in the US for public companies. Once a company has made a public filing with the SEC, it is considered disclosed to the investing public. It is incumbent on a prospective investor to acquire and review those filings. That is his or her responsibility; an investor is responsible for performing his or her own due diligence on a company prior to investing.
In the pre-Internet era, this would be accomplished by requesting the materials from either the SEC or the company’s investor relations office. (Today, you can pull filings directly from the SEC’s webpage thanks to the EDGAR electronic filing system).
If disclosure in this fashion is “meaningless,” then no major company in America gives meaningful disclosure.
And as to your specific question: no, I wasn’t, but I also wasn’t looking at Harken as an investment in 1990 – high school seniors don’t typically have that kind of cash. If I was considering them as an investment, I’d check them out (or at least not complain that I didn’t know of a risk they had actually disclosed).
Well, then, “disclosure” might mean anything from a one minute ad on Superbowl Sunday to a one inch notice in the Peoria Thrifty Shopper, outside of the required SEC filings. Hence, “disclosure” doesn’t seem to mean much of anything at all.
Just as you say, “due diligence” is required of the investor. Is it your experience that this level of due diligence is the norm? It would seem not, if so many people have bought lipstick smeared pigs.
Indeed, if the intent of this transaction meets my darkest suspicions (which remains, at this point, unproven), the perpetrators had little to fear, since nobody much gave a rat’s ass about Harken Energy. I doubt one person in hundred knew anything whatever about George Jr. (though some unlucky souls were quite familiar with the financial acumen of brother Neil).
Hence, it would seem that full disclosure of an arrangement that was not technicly illegal is not much of a risk. Sure, they made full disclosure. Why the hell not? Nobody cared until George became installed as President, and even then nobody went to the trouble of tracking it down until just recently.
Apparently the same crowd that ran around with BCCI was heavily involved with Harken. It’s a good thing for the Bush Administration that there has not been even one exhaustive investigation of this decade old oil deal like there was of Whitewater. The stink factor is getting worse every day. I suspect that the most innocent explanation for all of this is that Harken was a CIA front.
Ah, yes, the Zelig of financial chicanery, A. Robert Aboud. The guy seems to be damned near everywhere. Adviser to Presidents. Respected member of the Council on Foreign Relations. Didn’t want to bring him into this, cause God only knows the soup is thick enough without his murky connections.
“CIA front”? I am sooooo not going there. Its like that silly ass Kevin Bacon game, but six steps to “Grassy Knoll”. This way lies Madness. Here be Monsters.
That "outside of required SEC filings is a very big carveout. The whole reason for the SEC’s existence is basically disclosure to investors. The whole idea behind SEC filings is that investors can get all the relevant information about a company by reviewing their SEC filings. Indeed, taking out ads for most things is not necessary: the SEC filing suffices to make the disclosure public.**
Do most investors review every company filing before investing? No. So what? The point is the information is readily available. If an investor puts up his money without researching a company properly, it’s his own tough luck if he gets burned.
Consider the dot-coms. If you read the prospectuses (which are part of the filings when a company issues securities to the public) for some of these guys, they listed risk factors that would make your hair stand on end. One (and which one escapes me right now) listed as a risk factor something along the lines of the following: “Senior management has never run a company before. They lack any significant business experience. This lack of experience could lead to poor operating results.” I swear I am not making that up.
Now, if someone buys stock in that dot-com and didn’t read the prospectus, am I supposed to feel sorry for him? Good heavens, why? Are you suggesting the company didn’t adequately disclose the risks of investment in the prospectus? An investor that can’t be bothered to make basic inquiries about a company deserves what he gets. It isn’t the company’s job to sit over him, force him to read their filings, and then give him a pop quiz on their content before allowing him to invest. That’s just stupid.
Investors are not babies. Anyone who wanted to invest in Harken could easily obtain the details of this transaction. If they didn’t bother to check that isn’t Harken’s problem.**
Why yes, disclosing a perfectly legal transaction does not pose much of a risk. Thank you Captain Obvious.
(Here’s a question I’d love to hear you answer: if this was such a raw deal for subsequent investors in Harken, where are the shareholder derivative suits? God knows they’re easy to bring, particularly prior to certain securities reforms passed in the mid 90s over Clinton’s veto. Hell, a big part of my job is to be sure we’ve dotted all our “i’s” and crossed all our “t’s” on a transaction so scumbags like Milberg, Weiss can’t bring a shareholder suit.)**
Thank you for finally admitting what this is about. It isn’t about protecting investors. It’s about sticking it to a President you don’t like.
You’re darn right no one cared about this before Bush became president because it was a smart deal that benefited everyone. The only people who would have followed it would be those interested in the business world, and they rightly saw it as a good deal. It only became “controversial” when a bunch of idiots who understand nothing about corporate finance decided to start using their ignorance about financial matters as a weapon against Bush.
The reference was a bit of a joke: that is, if no one is aware of it, it hardly matters as a revelation. Surprised you didn’t pick up on that.
Well, here in your rush to defend fiscal Darwinism, red in tooth and claw, you have neglected to address the point. How many investors, in your opinion, pursue your recommended course of action? I suspect the answer is few, perhaps, very few, people being what we are. Hence, we would assume, would we not, that most non-professional investors would remain ignorant of these dealings. To this lot, the matter of disclosure is somewhat irrelevant.
Let me put it another way: you would, I assume, defend this transaction at the time, given all the facts, it is your professional opinion that the deal is legally kosher. Would you recommend that your Aunt Tilly put her money in Harken, under the conditions as we now know them to be? If not, why not?
You’re quite welcome, Lt. Snide.
I have other questions related to your post, but can’t finish at the moment.