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WorldCom to File for Chapter 11 Protection
Mantour writes: "To everyone's big suprise ;), Worldcom is going for Chapter 11. 'The Chapter 11 filing by WorldCom would follow once high-flying companies like energy trader Enron Corp. and Global Crossing Ltd., which crumbled into bankruptcy amid a crush of accounting investigations by federal regulators.' You can get more info in this Yahoo story" Update: 07/22 12:21 GMT by T : mnordstr points out a CNN report calling this "the largest bankruptcy ever."
Sidgemore has already said he wants WorldCom to resemble his old baby UUNET more in the future, so anything not related to data transmission is likely on the block.
What type of effect will this have on UUNet and Internet service in the United States in general?
Not all companies that file for bankrupcy go broke. Otherwise no-one would file for it.
-- RTFM:Slackware::Beer:Saturday
WorldCom can still "go away". The government doesn't care who owns the network as long as it is operational. Don't confuse the two.
I've been wondering about this a lot lately. I've worked at a number of places, been a fully paid regular type employee at IBM for about 5 years, a medium sized company for 2 years and a startup for about a year now. I've seen how things work at those companies and a number of their partners. I've seen a number of sleezy people in business but I've also seen my fair share of honest people and I can't imagine that there weren't whistle blowers.
All things being equal, and they are usually pretty fair. You have AAnderson cooking books at a number of places. Most of those places get audits by KPNG, Price Waterhouse, and others. Likewise you have AAnderson doing the audits at places those other firms account for. How can other accounting firms compete with a company that cooks the books with out also doing so? They audit their work and they should know because they have clients of their own and should have a good feeling for the state of the economy. I've been really amped on the stock market a long time, I've made some buck in it, lost some, for the most part done really well but I don't know how you can trust anybody now.
I can't believe that it's sleezy business becuase if it was just sleezy business then someone more sleezy would rat them out for blackmail or political reasons. Or someone honest would say something. I can't believe that top notch accounting firms would lie for each other and I don't see how they can compete against one firm that is turning losing companies in to profitable ones. Then I see W's response (twice the stay at the federal country club) plus all the politicians are benefitting from it in the first place.
The only thing that makes any sense to me is that lot's of companies are doing crooked accounting, everybody knows it and that's why there aren't any whistle blowers and that a couple more slow quarters than they are expecting is all it could take to wipe out a 100 year old company because they hide the losses and run out of hiding places.
I'm rambling a little but I look on the smaller scale and there have been a handful of the new small linux companies that have burned out in fireball and then people showed up at work with padlocks on the doors, and people were shocked.. The things that happend at Loki are the same types of things happening at WorldCom or Qwest, just on a smaller scale. The telcos are also pretty much a fail proof business if you're not expecting endless radical growth, you will have endless customers and cash flow, it's not a really risky business to run a long distance high speed network, people need that service. Has business come to this?
While there will be a lot of folk pointing out that WorldCom had massive debts, that is not the primary reason for the chapter 11 filing. The banks would have been happy to go on lending if they could trust the books. The company was actually operating profitably - if the 3.8 billion was the limit of the fraud.
So why does a profitable company cook the books? The timing of the fraud makes it look like it was done to save Bernie Ebbers from going bankrupt personaly. He had taken out a massive loan from the company and used it to buy stock. When the market went south Bernie was left owing a third of a billion he could not repay.
The thing I find personally illuminating about all this business is that it turns out that a lot of high powered accountancy turns out to be incomprehensible for the same reason new age psychobabble is incomprehensible - it is complete bullshit.
The problem we now have is that nobody can trust any accounts, even those not audited by Arthur Andersen. While the accounting tricks were clearly being used to mislead in the Enron/Harken cases there are cases where a company might legitimately use a captive company. Equally it is not necessarily fraud when two companies buy from each other (a related party transaction) but how do you tell the difference between a genuine transaction and a fake one?
The problem that the US now faces is that foreign capital is rushing to get out as fast as it can. That may well cause interest rates to rise as the government is forced to fund the budget deficit with loans at higher and higher rates.
Whichever way you look at it this is the end of the line for corporate deregulation. Regulation is now going to be considered pensioner friendly and stockholder friendly. At the very least we will see the sweatheart deals arranged by Enron and the Gramms to exclude energy derivatives from oversight being swept away. But at the deeper level I think that politicians are not going to be able to score easy votes by dennouncing regulation.
It is very curious the way that the second Bush administration is shaping up so much like the first. Stratospheric popularity after an initially successful war in the middle east, then being mired in financial scandal (savings and loans) and a recession while the budget deficit ballooned.
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Hundreds of families have had their current and future plans destroyed by these few people's actions. Once caught, they "spend more time at home with family" at their several-milllion dollar residence (or out fishing with son on an undoubtedly expensive boat - both are paraphrased from a local Houston newspaper). If these guys do get nabbed, I really don't care much about jail time. But they sure as hell shouldn't have the rest of their financial lives intact after having destroyed so many other's.
Ultimately, the reason people at this level supposedly justify their income is the level of responsibility they command. They are expected to keep track of a large number of issues and make propper decissions based on these factors. Not everyone can do it - fine. But when you screw up at that level, you should pay. Dearly. That's why you make the big bucks.
Obviously we would all prefer that these things never happened, but it's actually GOOD that they happen once in a while. The reason? It's proof that the system works.
What would be worse than the current system is to have corruption take root and never get cured, generation after generation. I'm sure everyone can find innumerable examples of this in the world.
This probably isn't the end of it; I'm sure more scandals will come to light before it's through. But given the fact that corruption WILL take root whenever you have people, it's good to know that these things are self correcting eventually.
Sometimes it's best to just let stupid people be stupid.
Organized fraud leading directly to the impoverishment of tens of thousands and loss of thousands of jobs? Knowing and conspiratorial breach of trust at a public company reaping tens or hundreds or even billions of dollars in illicit profits? These are not serious crimes? Apparently some sadsack loser trying to sell an ounce of dope to some other pathetic nitwit is committing a bigger crime. Sheesh.
You can't blame this on Bush. Or the government. Or the Democrats or the Republicans.Or anybody really but the morons at Worldcom and they're auditing firm who thought this would be a good idea.
The legal system has never been able to stop corruption. Corruption goes back at least to the time of Hammurabi. Probably earlier.
Laws are a deterrent, but not much of one.
My journal has hot
is the requirement for growth. It's easy for a manager to panic over a zero-growth quarter because cash-flow isn't as important as growth. Even small business people are stampeded into making bad decisions because their business isn't growing. Never mind that they have cash-flow, it's the growth they think they need.
In large corporations a new manager will be under the gun to produce more than the last manager. When there is no more growth to be had, then they are forced to invent it. Hence the accounting scandals.
We will see further examples of this problem as companies look to foreign markets for sales growth and to foreign production to reduce expenses. And, when those fail, to accounting tricks to make it look like they've succeeded.
No one ever had to evacuate a city because the solar panels broke!
No, not at all. The pre-bankruptcy price would have to cover any deployment and other initial set up costs. The post-bankruptcy price only has to cover ongoing costs because they will write off almost all of the debt. So right now a $1000/month T1 would have to cover some share of the $30B debt, including the price to build the OC-48 (or OC-192 or whatever it is now) backbone. That might in theory be $600/month of cost, leaving $400 to pay for the circuit charge, tech support, and other stuff. After bankruptcy that $600/month part goes away...or turns into $12 or so.
You can have a company that is losing money pre-bankruptcy, and makes money after without changing it's practices at all! At least in theory, I doubt the bankruptcy courts would let you do it, so they would be some un-needed changes (maybe useful ones though) to mask that.
No, not at all. The pre-bankruptcy price would have to cover any deployment and other initial set up costs. The post-bankruptcy price only has to cover ongoing costs because they will write off almost all of the debt.
.)
.), they ate up so much so fast that now they are about to explode.
.
If somebody had done their calculations right though, deployment costs would not have been a problem in the first place.
Basically you are saying this will shoot their profit level up to where it would have been after all debts had been paid off (or a little higher then where it should have been now if things had been operated properly. . .
Personally, I am against proceeding on so many fronts that I forget what in the world I have still to pay over from my past battles! WorldCom got into this situation, heck, even giving them the benefit of the doubt that each one of their acquisitions was going to be profitable some day in the future (doubtful. . .
. . .
*sighs* Of course I don't see why companies really bother going public, stupid from what I can see. If you don't have the revenue stream coming in already, then you don't need additional funding, you just need a better plan!
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LOL.. this is almost funny. I love the fact that it is THE one guy in the hot seats fault. Not Congress. Not the SEnate. Not the last eight YEARS of ignoring signs and worrying about guys selling sawed off shotguns in the mountains rather than corporate scandal and greed.
There is a cycle here you'se guys arent noticing. (Or arent mentioning, anyway). After *EVERY* huge economic gain in this, our american society, companies tank like this. Its called "spending money you dont have". Hate to be a bible quoter.. but "Neither a borrower nor a lender be."
The issue isnt as much with the government allowing the companies to regulate themselves.. it is with the BANKS looking to turn huge profits on overnight and offshore loans. See, thats where the banks make money. ANd if they would pass anything more than even a cursory glance at a company's books, they might catch the cookage instead of loaning 3B to a company to aquire another company, and find out six months later its all cotton candy.
The president has a certain amount of expectation to speak on this, but he has no REAL control. He cannot magically wave his pen and make longer prison sentences. That requires an act of the full government. ANd as stated, they wont do it. How many of them do you think have taken payoffs from various companies? Or money for their camppaigns? Or thrown huge bones to these companies in pork barrel politics? If anyone, your senators and congressmen should be the ones you are screaming bloody murder to. Not the PResident.
Maeryk
Feminine Protection? What is that? A chartreuse flame thrower?
The WorldCom bankrupcy is the fault of Bernie Ebbers and his crew. It was the insane greed of the CEO that is the root cause of the problem. I mean who honestly needs more than $10 million a year in salary?
The knock on effect on the rest of the markets however is due to Bush. People have no faith in the markets because of a lack of leadership. Bush is not a leader, he is a sock puppet for the corporate interests that paid to elect him.
The reason why the markets fell in real time while Bush prattled about corporate responsibility is because nobody had any faith in either his commitment to make real changes or his ability to do so. Not only was Bush great pals with 'Kenney Boy' Lay and the Enron crooks, he refuses to sack White who personally looted Enron of $50 million while posting $500 million in phony profits for a division that made a huge loss. Bush got rich by precisely the type of Enron style accounting gimmics that are now discredited.
Worldcom may not be Bush's fault, but it highlights Bush's faults. During the election we were told it was OK to have a Boob as President because the real power would be exercised by his appointees. That claim does not look so hot now that Chenney is under SEC investigation for corrupt accounting at Haliburton while the head of the SEC has had to recuse himself from every major investigation that has taken place under his watch.
The political polls are very interesting. When asked 'do you support the President' the results are statospheric, when asked 'do you support George W Bush' his rating is ten to 15 points lower. When the question is 'who would you vote for in 2004' Bush is actually at only 45%. People are not endorsing Bush, they are endorsing the Presidency.
It is not too suprising that advisers like Karl Rove have been pushing to do anything to distract public opinion. What is suprising is that the media failed to report two terrorist alerts that went out last week except in passing. That tactic at least has worn somewhat thin.
The Press essentially gave the Bush administration a free ride for the first six months and after 9/11 became as subservient as Pravda. Now having built him up they will do their favorite trick of breaking him down.
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You are putting up a straw man here. Nobody is saying that the people with most responsibility for the collapse of Enron, Worldcom and the rest were not the people who ran the companies and their accountant, Arthur Andersen.
However you do expect a President to be able to give a good speech. You do expect a President to make sound proposals for fixing problems. You do expect a President to not have been involved in the same type of corrupt accounting himself.
The problem with Bush is that he has failed on every count. His speech was excrutiating, hypocritical and contained only one concrete policy proposal. He failed to convince the audience that he understood the problem, let alone the solution.
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Enron, Worldcom, Tyco, Xerox, all started cooking their books when Clinton was President. They got caught at it when Bush was President.
They may have started to cook the books at Enron while Clinton was President, but there can be little doubt that the largest frauds were carried out during the manipulation of the California energy markets which the Bush administration did nothing to stop, even though the state of California was being defrauded of tens of billions.
So now you want to blame Bush for criminals that started their crimes during the Clinton administration, but were not indicted or prosecuted by the Clinton administration?
I think we can and should blame him for the ones he made VP and secretary of state for the Army,
I think we can and should call him to account for his involvement in an identical scam at Harken Oil.
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LOL.. this is almost funny. I love the fact that it is THE one guy in the hot seats fault. Not Congress. Not the SEnate. Not the last eight YEARS of ignoring signs and worrying about guys selling sawed off shotguns in the mountains rather than corporate scandal and greed.
Bush may not personally be responsible, but he and his father are so much involved in this sort of behaviour, and have been throughout their careers, that it's good to see the chickens coming home to roost.
I personally wouldn't be investing unless I had enough money to be a whale, rather than plankton, so to speak. Otherwise I'd be gambling on other people's honesty and the mechanisms of the State for reparation... and neither prospet fills me with confidence.
Hate to be a bible quoter.. but "Neither a borrower nor a lender be."
Isn't that specific phrasing from Hamlet, and wasn't Polonius being represented as a sanctimonious fool throughout the play?
deus does not exist but if he does
Everyone here keeps saying that WC will do this and that under Ch. 11, get rid of debt, keep only the core good stuff, etc, etc & emerge leaner meaner, etc, etc.
Here's the problem: as most of us know, WC went on a binge for quite a while and bought everything in sight. Yes, their core data services unit still contains lots of bits, but all those employees that didn't get laid off from all those other companies that were absorbed were, over the years, shuffled all over the place, and the original folks that made the smaller units profitable aren't in the original groups they came from. Then, to stay with the company, those employees that remained had to learn and accept and become a part of the dominant corporate culture at WC, or be fired (or go insane).
So here's where the problem lies: the dominant corporate culture at WC is HORRIBLE. Ask anyone who works there, or ask anyone at the other (i.e, customer) end of the company what WC has really turned into. Most of the folks left there are either *ssholes, liars, or just don't give a f*ck anymore (from having to deal with the *ssholes & liars every day) and stay only because their worried they won't be able to get another job.
In other words, the folks runing the company, from the top down, are no longer (if they ever were) qualified to run the company.
Eventually the BR judge, and the creditors are going to figure this out and the judge is going to grant creditors motion to force them into Ch.7 so that at least creditors can get *something* back by selling off the remaining assets.
Good riddence anyway. It's how capitalism works. The sh*t companies go under; the good ones take up the slack -- and after that if there is even more slack to be taken up... well now, that's an opportunity for y'all isn't it?
Or maybe try this? "emerge worldcom"
gentoo rocks
Whichever way you look at it this is the end of the line for corporate deregulation. Regulation is now going to be considered pensioner friendly and stockholder friendly.
Well, at least until the current round of presidential speechifying and toothless legislating subsides Wall Street's fears, and corporate America's hand returns to the cookie jar.
In and of themselves, public scandals tend not to result in meaningful and structural change. To move beyond political grandstanding and weak legislation (and the bills being looked at currently are very weak -- see CitizenWorks for more info) requires a significant, independent-minded citizen's movement. A corporate accountability movement of this type could begin with demanding reforms in governance and accounting practices (like forcing corporations to expense stock options, a measure rejected by congressional Democrats), and move on to demanding serious and structural changes, such as taking corporate money out of politics (which will require public financing of elections, and breaking up the corporate strangehold over the news media.
But expecting a significant trend to reverse deregulation to suddenly spring up amongst politicians who continue to take their orders from major corporate donors is, unfortunately, too optimistic.
At the very least we will see the sweatheart deals arranged by Enron and the Gramms to exclude energy derivatives from oversight being swept away.
Don't count on it. As far as I remember, the current legislation doesn't repeal Gramm's Enron bill.
But at the deeper level I think that politicians are not going to be able to score easy votes by dennouncing regulation.
No, few voters are going to get hot and bothered about changes in corporate accounting regulations. However, most of them know, pretty intuitively, that they're getting screwed by big business. Frankly, most of the world understands that the current economic order doesn't operate for their benefit (particularly folks in the two-thirds world who don't just lose money on Enron stock, but get displaced by Enron-financed dams).
And no, that's not Marxist babbling -- take a look at some polling numbers: 67% think most corporate executives are dishonest, 57% think white collar crime happens very often, and the percentage who name big business as the largest threat to America's future is at an all-time high (38%).
However, the public doesn't trust politicians to solve these (or most) problems, probably a leading cause of why fewer and fewer of them bother to vote. And nobody's going to trust grand-standing Democrats like Lieberman (who spends most of his time on his knees before the insurance industry) to take a firm stance against over-reaching corporate power.
IMHO, the only way we're going to see a viable political movement for corporate accountability is with a strong, progressive, independent third party. At the moment, both in the U.S. and around the world, that's the Green Party. Provided we continue moving beyond feel-good environmentalism, the Greens can be a grassroots and effective voice for change, by bringing up these issues when people are paying some attention to them (during the election season) and offering bold solutions, rather than more of the same focus-grouped bullshit. The Green Party in the U.S. is now organized in almost every state, and has a platform full of creative ways to advance real, grassroots democracy.
In closing (and for the purposes of extending my pomposity a bit further), I'd like to remind folks that corporate abuse of power affects everyone, in millions of ways -- whether you're a white-collar type whose 401(k) is suddenly worthless, a software developer who's forced to deal with ludicrous patents, or a worker whose job just got shipped to Mexico. And it will take all of us to effect the changes so desperately needed.
(P.S. Another great resource on corporate power is the Program on Corporations, Law, and Democracy.)
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