Juggling Dynamite

Surprise, surprise, A New Wave of Insider Trading is sweeping the world.   The recent spike in the volume of take-over bids is encouraging waves of brazen insider action, and the regulators are scampering to catch up.  Some high-profile professionals — lawyers, investment bankers and traders — have admitted or are accused of scheming to grab illegal profits.  In the past three months, the Securities and Exchange Commission has filed more than half a dozen cases that charge professionals at top brokerage houses, hedge funds and even some top accounting firms with insider-trading plots.

Humans are nothing if not predictable.  Many insider's get away safely with tidy profits from this activity every week.  Consider that Michael Milken “the junk bond king” of the 70's and 80's was charged with 98 counts of fraud and racketeering in 1989, pled to 6 violations and served only 2 of a 10 year sentence, keeping the vast majority of his assets completely in tact.  With a net worth estimated at 2.1 billion in 2007, Mr. Milken ranks 458th of the 793 billionaires in the world.

A recent article in the National Geographic showed photos of elephants with their most valuable human commodity-their tusks-cut off and their carcasses left to rot in the sun.  The picutres bring to mind the recent LBO mania.  Greedy packs have been descending on companies all around the world stripping out their cash and leaving only IOU's in the vault.  The effect is to diminish the strength of the enterprise, leaving it more vulnerable to extraneous shocks and a slowing economy. 

“More than half of the junk bonds sold this year were used to pay for leveraged buyouts and mergers and acquisitions, according to Barclays Capital. Money is so easy to come by that for the first time some investors agreed to let borrowers choose to make interest payments in cash or in additional bonds.”  See  Junk Bonds may repeat crash of 2002 on LBO credits.

The last time we saw such manic interest in levered buy-outs was during the early 1980's.  In 1987 the movie Wall Street unveiled to main street the corruption of the inside players, where “greed is good” Gordon Gekko gets hauled off to jail.  Interestingly we note that this month Wall Street producers, now 20 years later, have announed a sequel entitled Money Never Sleeps.   It seems that in the cycle of these things, the characters never die but are only reborn with new names.