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World Cons - People and Other Peoples' Money

A spate of corporate scandals continues with the revelation of accounting fraud by WorldCom in the US this week. This follows similar events with the much larger Enron late last year and our own One Tel and HIH.

It's a similar pattern to the late 1980's when entrepreneurs garnered public money off the back of hype and deceptive accounting. In 1987 before the 40% crash in the Australian Stock index in October, the Entreprenuer industry group was 30% of the total market cap. CEOs on these companies treated the enterprises as their own personal kingdom's regardless of the fact that they were now financed by public money.

The association of mass circulation media and political shoudler rubbing with the latest entrepreneurial kings, seem to often be associated with stock market bubble stocks. The very first such classic case is the South Sea Company founded in 1711 by Robert Harley. (see story on resources section of this site). At that time the newspaper was a new medium. In 1702 London had one daily newspaper; by 1709 there were 18. On January 1, 1720, the price of a share of South Sea stock stood at 128. On June 24 it hit 1,050. In September came the crash. By December the stock had returned to 128. Even the brilliant Issac Newton was caught buying at the top and losing 20,000. He said "I can calculate the motions of the heavenly bodies, but not the madness of people."

Posted Saturday, 29 June 2002

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