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."

Comments

Meaningless at this point

[Ars-Fartsica]

The stock price already relfects Chapter 11. WorldCom will either re-emerge from Chapter 11 in a year or so, or other telcos will come in and snap up the pieces.

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.

It was the fraud, not the clueless business plan

[Zeinfeld]

So after Bush gets into the Whitehouse by promising to run the country like a business we suddenly discover how many of the businesses are being run.

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.

Re:Bush really dropped the ball

[_Sprocket_]

These execs do things because they don't think they'll get caught, therefore the length of prison sentence is not a factor.

I think its fair to say that these execs either don't think they'll get caught or they manage to convince themselves that what they're doing isn't something they would be prosecuted for. It is almost certain that stiffer penalties would not eliminate future crimes - when has it ever? But that's not the point.

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.

Re:Bush really dropped the ball

[Zeinfeld]

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 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.

Re:(Slightly OT) Bush's role in today's economy

[Zeinfeld]

I can't stand how many people claim that the political blame behind the Enron, WorldCom, and other fradulent companies' downfalls is solely that of President George W. Bush. I find that charge to be along the lines of claiming that Bush's foreign policy failures were the chief reason for last September's terrorist attacks.

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.