Wednesday, March 15, 2006
Bogus Bonds and the Island of Make Believe
Refco Probes Lead to $525 Million in Phantom BondsRefco Inc. held offshore accounts with as much as $525 million in fake bonds, indicating the futures broker's troubles may be more extensive than previously reported, according to four people with direct knowledge of evidence gathered by U.S. prosecutors investigating Refco's collapse.
The bond accounts were at Refco's Bermuda-based unit, beyond the reach of U.S. regulators.
Why am I not surprised to learn that the bogus bonds were supposedly being held in an Bermuda account? Because that's where AIG created fictitious companies to reinsure it's risks so that it could reduce it's reserve requirements so it could in turn buy more business from insurance broker MMC then ran by Hank's son. It's also where Tyco is headquartered, the home of the Kozlowski story. The only thing surprising about this is that it's taken so long to ferret out the den of thieves operating out on that island. It was common knowledge for many years why any company would want to do business there.
I think eventually we'll also learn that these offshore accounts tie back to our trade deficit due companies not reporting the full extent of their international income and keeping revenues overseas to avoid taxes. They can then use those assets to smooth earnings and continuously beat analysts expectations just slightly. We already know that numerous companies were actively buying illegal profit smoothing products here in the U.S. What don't we know about the international movements of money? A whole heck of a lot I believe.
Bermuda is like the canyon hideouts Wild West thieves and rustlers used to frequent. Various gangs shared primo hideouts such as
Robber's Roost in Utah and the
Hole-in-the-Wall in Wyoming. Butch Cassidy and Sundance Kid's Wild Bunch gang were known to use both locations. Even if the law new the whereabouts of these places there wasn't much they could do about.
Don't even start with the, "See how corrupt American companies are" line of B.S. Companies from all over the world are doing business in Bermuda. It's an old fashioned den of thieves out there. And the whole crux of the problem is the lax rules and regulations outside the U.S. that's attracts U.S. companies. What's that tell you about companies that are headquartered in less regulated environments? That they are less corrupt because we hear less about corruption. Yeah right.
The conclusion does not follow. This is a logical fallacy known as affirming the consequent.
Example:
If Bob is shoveling snow, then Bob is moving.
Bob is moving.
Therefore, Bob is shoveling snow.
Right? No wrong. It's obvious and plain in such a simple example that just because Bob is moving that doesn't mean he is shoveling snow, but if he is shoveling, then he must be moving.
Similarly, one cannot conclude, as many readers have in the comments on this blog, most likely in support of some hidden agenda, that more news of corporate corruption in the U.S. than in other countries implies that U.S. companies are more corrupt.
In the context of the example the fallacy is:
Some U.S. companies are caught, then some U.S. companies are corrupt.
So far so good. That's a true statement.
No foreign companies are caught.
Therefore, U.S. companies are more corrupt.
It's about as dimwitted of a conclusion as: the light bulb in my refrigerator is on when the door is open, therefore it must always be on, or the a falling tree doesn't make any noise if there is no one there to hear it. Just because you can't see corruption overseas doesn't imply or equate to there being less of it. The opposite is the most likely truth.
posted at 3:31 PM
