Four views on -- Dan Gillmor: Quattrone clique disgraced Silicon Valley

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: DV Henkel-Wallace <gumby () henkel-wallace org>
Date: Fri, 07 Mar 2003 12:45:50 -0800
To: dave () farber net
Subject: Re: [IP] Where are all your 'friends' now, Frank

There's a more significantly disturbing element in coverage of the
NASD's actions against Quattrone: it's not actually news.

  - The actions of the IPO bankers, and Quattrone in particular, have
been reported for a _long_ time.  I remember an article about him in
Upside Magazine from 1994 (too bad the web site's gone -- it had some
funny paper cartoons of Quattrone and the C-Cube exec team, who didn't
seem to like him).  This article went into the shenanigans of the IPO
banks (back before Quattrone went to DB, and thence to FB).

  - The "first-day-pop" is, as Wayner's note indicated, obvious to
everyone _in the business_ to be a sign of a poorly-managed IPO, but
there was no press education -- quite the contrary.  Of course it's
poorly managed only from the standpoint of the customer (the
company)...from the bank's point of view, with multiple "rounds" to
play, it's great.

So now we have everyone piling on CSFB after the horse is long
gone...even though the alarm bells were ringing at the time!


I guess at least we can hope that the same will happen someday with the
shredding of our privacy.


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------ Forwarded Message
From: Tom Van Vleck <thvv () multicians org>
Date: Fri, 07 Mar 2003 17:12:55 -0500
To: dave () farber net
Subject: Re: [IP] another view -- Dan Gillmor: Quattrone clique disgraced
Silicon Valley

Jonathan Weber has touched a sore point here, when he writes:

> But how could Frank Quattrone and his friends have disgraced
> Silicon Valley? They *are* Silicon Valley.

Aw, c'mon.  I worked in Silicon Valley for about 20 years at
various kinds of startups.  Nobody offered me any free money.
Terms like "disgrace" are emotional, so let's look at facts:
my 401K is worth about half what it was, and the Friends of Frank
took home a lot of cash.

Jonathan says, "hey, that's capitalism."  Reminds me of
the old joke whose punchline is "you got that when you
bought the car."


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------ Forwarded Message
From: "Joseph C. Pistritto" <jcp () jcphome com>
Date: Fri, 07 Mar 2003 13:47:55 -0800
To: dave () farber net
Cc: pcw () flyzone com
Subject: Re: [IP] "A few of my friends still believe it's good newswhenever
an IPO skyrockets. It's not-- it's the best indication thatpeople are
getting ripped off."

My personal experience with this was as an early investor in Critical Path
(Nasdaq:CPTH).  I can't remember who, but a hollywood celebrity who's name i
*immediately* recognized at the time called the company on the day of the
offering to get some shares "allocated".   It worked too...

Now CPTH's later problems didnt have much to do with the IPO but there too,
the IPO process funnelled a good bit of money away from the company
(although it wasnt as bad as say, Netscape or any of the Linux companies
where the 1st day pop was upwards of a couple hundred percent.  Which is
always portrayed as a huge surprise to the undewriters.  Maybe not so much
of a surprise, no?)
   -jcp-

------ Forwarded Message
From: Einar Stefferud <Steflist () thor nma com>
Date: Fri, 07 Mar 2003 14:46:43 -0800
To: dave () farber net
Subject: Re: [IP] another view -- Dan Gillmor: Quattrone clique disgraced
Silicon Valley

I would like to splash a dash of cold reality on this thread;-)...

I must agree that Jonathan has it right that it is Silicon Valley as a whole
and not just a few bad apples that are in the middle of this bubble mess...
This does not absolve any of the crooked manipulators of the stock market,
but 
instead addresses a pathological meta problem directly.

I generally look for systemsic meta problems before blaming single
individuals.

But I suggest this goes even further, in that it is not and was not
CAPITALISM in the round that caused the bubble to burst.  It is Capitalism
with certain national rules applied, which warp the incentive structures of
the human participants.  These rules may or may not be a good thing, so lets
take a look at one in particular.

For example, the double taxing of dividends makes it stupid for any company
to pay dividends to shareholders, because up to 60% of dividend money goes
to the US Govt as income taxes.  This provides a strong incentive for
companies to not pay dividends.  It hurts their stockholder inventors and it
hurts their stock price too.

But, long term, since stocks do not pay dividends because doing so is
stupid, how can anyone ever get any return on any stock investment. Any per
share money payment is classed as a dividend in any case!  And taxed both
before and after disbursement.

Now, I ask: What is the incentive for buying any stock that does not pay a
dividend?

Right!  You got it!  Buy low, sell high!

You have to sell it to get your return, and to get your capital back!
You just bought a pseudo .com or tulip bulb lottery ticket.
  
This creates the Investment Rule that is called the "Greater Fool Theory"!
"Buy at some price and later sell it to some fool who thinks it is
worth more than you paid for it!  This is the only way anyone can gain any
return on non-dividend stocks.  Some buyer has to buy it later AT A HIGHER
price.

Now, this reminds me of an old basic idea from Economics.
no one (in their right mind) ever pays more for anything than they believe
it is worth at the time of buying.  Buy High, Sell Low is a well known bad
idea.

So, this is now the foundation of our stock market.  Shades of the Tulip
Bubble.
The entire game is just an extension of Las Vegas and Atlantic City or our
state lotteries or our vast array of Indian Casinos.

And this is the capital investment foundation of our economy!
Who would have thought we could collectively be so stupid?

The obvious good national solution is to restore the value of dividends in
place of penalizing them so severely that dividends simply disappear (as is
proven by our current situation), along with the taxes they would have paid
{if they had not been taxed to death) so the government has killed its
golden tax goose.

So now, the bottom line of the double taxation of dividends is that both
dividends and the taxes on them disappear together and the markets also lose
a critical measuring tool for the values of stocks.  All of this is giving
us nothing for nothing and standing in the way of rational investment
thinking and market decisions.  Just imagine investing your retirement funds
in lottery tickets!

Cheers...\Stef


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