Editors and Creditors Care Little for a Man Who Owes Nothing

A couple of weeks ago, I was asked my opinion of The New York Times ‘ business section, and what, if anything, I would do to change it. One suggestion came immediately to mind: Get rid of the comprehensive stock tables. My guess is that few people, if any, look at the Times business pages to get a real-time update on their trading or investment interests-what with the Net, the Bloomberg and so on. In The Times , the tables merely use up paper and most days don’t even provide a platform for much Wall Street advertising, the way they do in The Wall Street Journal . My guess is that the Good Gray Lady continues to publish the stock, bond and currency tables because it still deludes itself that it is the medium of record: a role that it has to some extent forfeited, or that has been snatched or nibbled away by other media.

These days, if you are interested in keeping up on the action on a daily basis via print, you are better advised to read either The Journal or the New York Post , both of which understand a large truth that has somehow evaded the brain trust on 43rd Street: If you wish to be the paper the Establishment cannot go a day without reading, then you cannot yourself be (or, even worse, strive to be) a member of that Establishment. You will get a good table, and invitations to dinner parties, but day by day you will cease to matter. You will turn into Mortimer B. Zuckerman.

Another thing The Times could do is to turn its unmatched reporting loose on big, multipart, themed business stories that will keep an interested readership coming back day after day after day for the latest installment. One such theme, suggested by various things I’ve read in different places over the past few weeks, might be liquidity. These stories include The Times ‘ own excellent and riveting account on March 19 of the looting of Fruit of the Loom by William Farley; Business Week ‘s important account of the leveraged stock purchases by the insiders at Conseco Inc., now a couple hundred million dollars under water; spreads in New York and elsewhere depicting the mouthwatering and (presumably) cash-costly life styles of the local dot-com gentry-and so on. What all have in common is the question they raise: Where’s the liquidity coming from?

In finance, no less than in every other form of commerce, liquidity is ultimately what it’s all about. By “liquidity,” I mean the alchemy by which paper is transmuted into real, spendable money. What the Brits call “the ready”-usually money that someone else has placed on deposit or handed to a financial institution for safekeeping. Indeed, “exchanged for” might be closer to the mark than “transmuted.”

Many of the big New Economy fortunes that have been amassed on the back of the 20-years’ Reagan-Clinton boom are relatively illiquid. Markets, for one thing, are thin. The volume numbers sound huge-the New York Stock Exchange routinely has billion-share trading days-but relatively, liquidity remains what it always has been: a business of huge capitalizations balanced on the heads of “last-sale” pins. We may speak of this company or that as “worth $100 billion in the market,” but that figure is extrapolated from what the last 100 or 1,000 shares changed hands at. Imagine the Empire State Building balanced upside-down on the very tip of its spire and you’ll get the picture. A splendid sight and feat, but one that many people would prefer to keep out of the shadow of, lest it fall on them.

Moreover, the insiders, promoters and projectors of most of the hottest, most talked-about New Economy companies are legally limited as to how much stock they can unload into the quotidian market. This doesn’t seem to have put a hitch in their life styles, however. So whence cometh the cash that buys 20,000 square feet in Bridgehampton or three eight-goal Argentines on polo ponies?

A certain amount probably comes from the capital supplied by I.P.O. and later-tier investors. The similarity between dot-com and traditional Ponzi finance-using the balance sheet rather than the operating statement to finance running costs and executive perks-has been widely enough noted to need no further gloss from me. Nowadays, what with security “analysis” having become 99 percent conceptual, or so it would seem from what one reads, there’s no real point to “doing the numbers”-even if the kind of numbers we’re talking about could be “done.” In this sense, the risk factors remind me of those classic closed-door fables: Behind all but one of the closed doors are greater fools, but behind that one may be a bear the size of the planet Jupiter.

Nobody seems to ask the tough questions-again, possibly because the New Economy is so full of built-in stone walls that the toughest questions are those for which there are not only no good answers, but possibly no answers, period. Still, reading Business Week ‘s Conseco story, there were a few gaps that could have been plugged. How does it happen that a group of insiders can get a company to guarantee bank loans to buy company stock? I mean, how is this possible ? Was this some kind of circular deal: The banks lend the insiders the money, the insiders pay the money to Conseco to exercise the options, Conseco uses the money to collateralize its guarantee of the insider bank loans. Which means that, at the end of the day, no money has really changed hands and a bunch of insiders have acquired millions of shares for zero money. That may account for the relative complacency with which a big Conseco stockholder responded to a Business Week query on the situation. And by the by, what’s the accounting look like on something like this?

I think the big story out there is how much credit has been put in play to finance New Economy growth, investment and life style. I suspect this may be what’s really bothering the Great Greenspan. When the money supply grows the way it has, we’re looking at a serious credit bubble. Forget talk of a “stock-market bubble.” Never lose sight of the fact that most equity bubbles are blown up-to the bursting point-by a simultaneous, collusive debt.

The whole business is fascinating. Take Amazon.com Inc.’s recent $60 million investment in Kozmo.com Inc. Despite the dot-com glamour, these are both businesses ultimately dependent on low-paid, non-benefits work forces doing the heavy lifting. I reflect on that, and then ponder other pertinent questions: What in world does a business like Kozmo need $60 million for? In what specie did Amazon make its investment? Cash? Loan guarantees? Amazon shares? A more devious mind than mine might adumbrate a scenario like this: Amazon invests its own shares, which Kozmo uses to collateralize a bank loan, which it then uses at least in part to buy inventory from Amazon (which has had to write down inventories) and thus improve Amazon’s numbers.

And then there’s Michael Saylor and Micro Strategy Inc. And one might well ask where the art world’s liquidity has come from. When the fancy hammer prices go up on Sotheby’s electronic board, is it Sotheby’s own money-through purchase finance-that has put them there?

You can see the kind of questions that demand to be asked. There are different ways of asking. One would be a stockholder suit alleging fraudulent conveyance against Conseco, its insiders and the bank syndicate that financed the stock purchases. That might shake a few answers out of the tree of surmise.

Another would be for The Times to get off its butt and build its financial journalism around big, tough, independent-minded, anticonventional-wisdom questions like these. These only fall into two categories, really. The first is: “Where did the money come from?” The second is: “Where did the money go?” By concentrating on just these two premises-and the collateral question “How could this happen?”- The Times can build the greatest, must-read business section in the world.

All you have to do is keep in mind lines from a now-forgotten Victorian play, The Game of Speculation , by G.H. Lewes (remembered as George Eliot’s boyfriend). I found a copy in a second-hand bookshop while taking an orientation stroll around the wonderful part of the world in which I have come to live. Mr. Hawk, the rogue of the piece, observes to his wife, “… a man who owes nothing, what a solitary, miserably incomplete being! Nobody cares for him; nobody asks about him; nobody knocks at his door. Whilst I am an object of intense and incessant interest to all my creditors …”

To which Mrs. Hawk replies, “Yes, but remember that we owe their money to their confidence in your probity.”

“But the truth is,” says Mr. Hawk, “we owe it more to their avidity than their confidence.”

Mr. Greenspan, meet Mr. Hawk.