Plum Crazy

Q: Will WorldCon's Bernie Ebbers be found guilty?

A: MARTHA STEWART!

While we are on the subject, Is there some statute or constitutional requirement I have never heard about that requires oversite legislation to hav unintended consequences vastly outweighing intended, and often unrealized, intended consequences?

The Hastily designed and passed Sarbanes-Oxley allegedly has as its primary intended positive consequence "restoring confidence in U.S. markets."

Here's a newsflash, "...the number of companies that delisted their common shares from stock exchanges nearly tripled in 2003, in part to avoid some of the regulations required by Sarbanes-Oxley."

The act made it less attractive to be a publicly traded company, more attarctive to remain a privatly held company. And all this as congress and the president are considering private SS accounts, with the intention of investing those monies into the stock and bond markets. Limits on the number of publicly traded companies will bid up share prices/lower PE ratios. It would appear that privatly held companies will turn more to bonds and other loans for financing, increasing the demand there, raising real interest rates across the market.

Justin - I'm not quite following your logic. If share prices go up, the PE ratio will go up, not down. Say a company is trading at $10 with earnings of $1 per share, the PE ratio is 10; if the price goes up to $20, the PE ratio becomes 20. With bonds, if people bid the price of bonds up, bond yields will decline. There is an inverse relationship between bond prices and yields.

Sarbanes Oxley may be poorly designed legislation, but that has nothing to do with Bernie Ebbers. Recording telecom expenses as capital in order to inflate earnings, or really for any reason, was already illegal.

The law (SO) has nothing to do with what Ebbers did, but it was pased because of shenanigans of people like Ebbers. that is why I thought it fit the context.

Sorry Jon about the PE ratio explaination, there is a reason I hire a professional when contemplate an investment decision.

PE ratios were "too high" (S&P above 37 July 2002) prior to Sarbanes-Oxley, they fell because the market functions to cause that to happen (Fell to @27 range in three the following 3 months)

Supporters of SO like to claim SO caused that. But the reason PE ratios fell wasn't a restoration of confidence. The PE fell because earnings were too low to justify the price. (@EPS 13.7c at the end of 2000 -> 3c at the end of 2002) If it were a restoration of confidence that had cause the prices to rise post SO implementation then the PE would have changed because of share prices not earnings. The case was EPS share fell, then prices fell. PE ratios followed earnngs not, as Biden claimed at the time, a loss of confidence because Bush was speaking and SO hadn't been signed yet.

Now that the SO has been passed there are more real expenses that will cause earnings to fall. Here are a few:

1. increased salaries for top level managers to get them to subject themselves to this dumb law

2. higher real insurance premiums for director and officer insurance

3. higher levels of risk aversion (no risk - no reward)

4. more accounting expenses - it wasn't that accounting standards in place that caused the problems, rather a lack of following existing standards - though there is an argument to change our GAAP (rules based) standards from to closer to the EU (principles based) standards.

GUILTY! GUILTY! GUILTY!

WorldCom's Ebbers Found Guilty of Fraud, Conspiracy