The geniuses at WorldCom, Arthur Andersen, Enron (remember them?), Global Crossing, and Qwest have done for top executives at major corporations what Monica Lewinsky did for White House interns.
Once they proudly proclaimed their status. Now they sort of mumble: "i'mtheceoofafortune100corporation but I'M CHAIRMAN OF MY ROTARY CLUB PROGRAM COMMITTEE!"
WorldCom appears to be the balance sheet equivalent of a financial Dirty Bomb: The fallout hasn't stopped yet.
WorldCom's auditor was (surprise) Arthur Andersen. KPMG took over and said, "We want to take a look at the books so we know we're starting clean," and ... Ka-BOOM!
Dirty Bomb.
WorldCom stock was selling, on Monday afternoon, for SIX CENTS per share. It doesn't take a sixth sense to know that the "B" word is showing up in e-mails all over the financial world: Bankrupt.
As WorldCom has at least $35 Billion in debts (bonds and bank debt), a bankruptcy will have far-reaching effects.
Dirty Bomb.
Over the weekend WorldCom announced it wasn't so sure about the accuracy of the bookkeeping during the Clinton/Gore years (1999-2000), so it is going to take a peek behind that curtain and see what skullduggery was occurring. Democrats, who on Friday were giddy with the thought that they finally had something which would stick to Bush, will now be practicing political duck-and-cover drills of their own.
Dirty Bomb.
A remarkable piece in Sunday's New York Times, had Seth Schiesel reporting that people were getting fired from their jobs at startup outfits like AT&T for not being able to match WorldCom's profit margins.
According to Schiesel's piece, "gross profit margins - as much as 62 percent at WorldCom and 70 percent at Qwest" had their competitors scratching their heads, re-organization huge enterprises, and firing senior executives "in an attempt to keep up."
Dirty Bomb.
Here's what we know: Nobody can sustain gross margins of 70 percent. The larger the enterprise, the harder it is to do.
Here's an admittedly simplistic example of gross margins: Your grocery story sells a can of soup for 60 cents which costs the supermarket 40 cents. The gross margin is the gross profit (20 cents), divided by the selling price (60 cents), or 33 percent.
BUT you have to add all the costs of overhead: lights, rent, equipment, personnel, company cars, private jets, corporate apartments in New York City and Aspen, secret loans to executives, and all the rest to get a true picture of what it costs to sell something.
The Long Distance industry has been engaged in a cutthroat price war for at least a decade. There has also been a price war in the computer industry. Every analyst proclaimed that computer manufacturers would suffer grievously at the gross margin level. And they were right.
AT&T is running an ad right now suggesting that if you are an AT&T residential long distance customer and you call another AT&T residential long distance customer, there will be no long distance charges.
Can you, effectively, charge ZERO for your product and make gross margins of 70 percent? Yes. If you have the exclusive franchise for long distance service in Bizzaro World.
If I know that, and you know that, why didn't the market analysts know that? Why didn't ANYONE analyzing the telecoms segment ever say, "Hey, wait a minute! We know there is this price war and there are huge discounts to large users. How does this add up to these extraordinary gross margins?
If the Congress and the Securities and Exchange Commission are serious about stopping this (to use a favorite word of Nero Wolfe) flummery, then the whole market analyst system should be much more closely investigated and (oohhh, how it pains me to write this word) regulated.
Dirty Bomb.
Just in case anyone thought the President was intimidated by the 9th Circuit Court ruling the other day, here's where his event in Milwaukee was held yesterday: Holy Redeemer Institutional Church of God in Christ.
Another action-packed Secret Decoder Ring page today: A closer definition of "Gross Margin," the etymology of "Bankrupt," an explanation of "Bizzaro World," a backgrounder on Nero Wolfe, and the usual things.
If you are working at a lobbying firm, a government affairs office, a coalition, or a PAC you should take a
look at this page to see how advertising in Mullings might serve your organization very well:
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