Speaking of Greece -- Could There Ever Be An Enron Country?

MsMorrisine

Could There Ever Be An Enron Country??

A country that lies about it's budget enough to fool everyone for a long time?



The easy joke is -- Yes, America has been doing it for a long time already.



But, seriously. Could a country fool the rest of the world? Some news sources said that Greece faked it's economic results to get entry into the euro.


One way that came to mind was to secretly sell new debt through channels. Simply issue more debt but don't take it to market. Give it to a fake holding institution or an insider institution like a pension fund. That pension fund sells the new debt fraudulently as previously issued debt as passes the proceeds to the Greek Government. Suddenly $500mil of new money could be taken in. ?? ???

RedTiger

Corrupt African countries do it all the time. Government officials or NGOs (non-government organizations) do a song and dance to get loans, use it as private slush funds for the worst possible uses, and then the loans are forgiven because the money was never used for projects or investment. For example one of the biggest yachts in the world was ordered by a mid-level government official from a corrupt African country. That guys government salary was like $80,000 USD per year and the yacht cost $380 million USD (not a typo, more than 1/3 a billion for a yacht). Where do folks think the money came from? A lot came from well-meaning rubes like U2's Bono and other Westerners who think that more aid and more loans are needed. Maybe an argument for more aid can be made, but clearly it isn't going where it needs to be when government guys are buying such huge yachts.

http://blogs.wsj.com/corruption-currents/2011/03/01/african-leaders-son-planned-380-million-yacht/

Then again Massachusetts Senator John Kerry and one-time presidential candidate recently bought a nice 76-foot long $7m yacht and tried to avoid paying taxes on it by parking in another state. Still, it is not in the same ballpark in terms of level of corruption. Kerry got his money the old fashioned way, he inherited some, and then married into a super wealthy family (Heinz ketchup fortune). Maybe Bono can chip off some of his cool $2 billion that he made on the Facebook IPO to help pay for more yachts for everyone.

Many countries have a culture of corruption. Stock investors are often warned about investing in China-based companies because the books are not kept to Western standards, and the Communists still pull all the strings. They could put whatever numbers they want on whatever lines, how can someone do a realistic audit without full access and full inspection? For a large company it would be impossible.

FullCameo

Are you saying Facebook is the newest Ponzi?

MsMorrisine

those guys do wrong things too obviously to qualify for what I'm talking about.

plus, I'm thinking long-term deception. these countries would have roads and bridges because they'd have paid for it either by taxes/revenues, borrowing, or phony and secretive schemes to inflate their value in the world to bring in even more money. Aid? "They don't need aid" (because they are already ripping everyone off secretly).

ricko

There is no doubt in my mind that it has already occurred, and most likely still taking place. Cheers, RickO

RedTiger

<< <i>those guys do wrong things too obviously to qualify for what I'm talking about.

plus, I'm thinking long-term deception. these countries would have roads and bridges because they'd have paid for it either by taxes/revenues, borrowing, or phony and secretive schemes to inflate their value in the world to bring in even more money. Aid? "They don't need aid" (because they are already ripping everyone off secretly). >>



If there is a real economy with real infrastructure, it becomes difficult to separate out the elements of corruption from the real economy. Every country has some corruption, though in some it is more open and much more common. No country is run by angels. How about Russia or Mexico? Corruption in those countries is a way of life. Their stock markets move up and down. How much is real? How much is built on a base of corruption? How about Brazil? Corruption is sure to exist, but there is a real economy as well. Again, how much is real vs. how much is phony? Gold folks might say all of fiat currency is a base of corruption akin to Enron, so virtually all of us are in on a game of long term deception.

The latest thing in ETFs (exchange traded funds) is frontier markets. These are smaller markets. In some cases the corruption may be through the roof and stock investors are investing in little more than made up numbers on made up ledgers. As of 2008, the countries represented in the frontier market Index include: Bahrain, Chile, Columbia, Czech Republic, Egypt, Estonia, Georgia, Kazakhstan, Kuwait, Lebanon, Nigeria, Oman, Pakistan, Peru, Poland, Ukraine and United Arab Emirates. Nigeria? Come on, what American could invest in Nigerian equities with a straight face, given the notoriousness of the Nigerian phishing scams, but millions upon millions are being pumped in. Egypt? How is that going to turn out when the ruling religious party goes hard line radical and bans all Western ownership during the next Israeli blow up?

History has many cases where investors drive up equities to absurd levels, part of that is crowd driven bubble behavior, so the comparison to Enron is not direct. Still, there are cases where the books may be routinely cooked. To bring it closer to forum topic, speculative gold miners would be good candidates for book cooking, because the opinions of a few key individuals about likely reserves and likely extraction costs can drive equity prices to high levels. For whatever reasons, many estimates have turned out to be very optimistic for small gold miners and stock performance has tended to be abysmal. Were the estimates natural optimism or did they perhaps involve pay offs or one-hand washing the other?

As for Facebook, not a scheme. Investors went in with their eyes open. Everyone that put money in got a prospectus. If they bothered to read it, warnings and what ifs, are everywhere. It may turn out to be a sound company if they can monetize their base of registered users. American advertisers love getting access to young people, and Facebook is about as young an audience as there is. If Facebook can't monetize their base of users because users walk, or the young people turn their attention to something else in five years, it may become another chapter in the long history of bubbles.

streeter

A pretty good indicator of the integrity within a country is to look at their Postal System. It's not a perfect indicator but usually on target.

Give a man a fish and he eats tonight, teach him to fish and he never goes hungry.

MsMorrisine

<< <i>If there is a real economy with real infrastructure, it becomes difficult to separate out the elements of corruption from the real economy. >>




that's where the fun begins.


it's not like the case of a cocaine dealer with an $80k job driving a twin turbo lambo (had to throw that in there). There are no audits of tax receipts. plus, everything is rounded to the nearest half billion or billion anyway.


then there is the end game of the ponzi collapse. what are the repercussions? no one is going to ask for title to the new highways and bridges.