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La Plus Ça Change….


It wasn’t just the half-assed look at the book business that sent my blood pressure soaring, though. In Sunday’s Times, Frank Rich, not exactly a guy who’s slow on the uptake, echoes some of what I said here last week about Martha Stewart. It’s hanging season out there.
Rich talks about all the big scandals. Big because they were reported in the New York Times, not necessarily big in terms of impact. He correctly notes that Martha’s conviction – a slam dunk on all four counts – has summed up the anger brewing out there about corporate malfeasance. It’s a sentiment that’s bad for the Rigas family, it’s bad for the Tyco execs, it’s bad for MCI/Worldcom CEO Bernie Ebbers. But it’s also bad, very bad, for our friend Frank Quattrone.

New Yorkers like Rich don’t know or care about Quattrone, the Silicon Valley based banker who created or helped create fortune after fortune out here. For New Yorkers, everybody in Silicon Valley is broke now, so who cares what those widget wonkers do, anyway?
Here’s why: Rumors of public stock offerings with multi-billion values – Google,, – are starting to circulate. The insta-fortunes – made off huge opening day pops in stock price, low floats and enormous demand pumped up by gleeful investors — are coming back. Venture capital is getting invested and, sooner rather than later, the guys who back these companies are going to want their paydays. Bankers like Quattrone – and their ability to sell stock – that’s a key part of creating these very lucrative “liquidity events” (known to the rest of us as a “sale”).
This is assuredly not what Quattrone is on trial for; like Stewart the obstruction of justice charges against him appear to be standing in for something else. And certainly, he was more clever than Stewart in how he managed his affairs. And let there be no mistake: none of this is against the law.
But the IPO system that’s in place, even with the few small reforms that have been made, still relies on Wall Street’s “bigger sucker” rule: Taking money from small investors and giving it to insiders all in the name of rewarding entrepreneurs, risk and invention. That’s a caustic way to put it but that’s how the system works. And while they’re resentful of what happens here – you want to hear contempt? Talk to a New York-based editor about a Silicon Valley story — very few people on the outside know how the system makes and keeps its money.
They know Martha and Imclone and insider trading but that’s the public market, it’s not what happens in the valley. They know about the $12,000 shower curtain from Tyco and they know about the Rigas’ personal fiefdom, a town once just known as Couldesport, Pa., but those are public companies. Ask anyone outside the valley about the difference between a pre-IPO option price and the prices of a share of stock sold on the day the lock up expires. You’ll get blank stares. And in some cases, I’m talking about the financial reporters who covered the first Quattrone trail. They simply couldn’t understand that in Silicon Valley the difference between corporate and personal holdings is razor thin, sometimes nonexistent. Too many personal fortunes are made as soon as companies start selling their stock to the public for the beneficiaries to feel otherwise. The close-knit world of private equity that Quattrone helped fine tune and create – a perfectly legal one that made him and so many of his good friends fabulously wealthy – is one where fiduciary responsibility is too often neglected. And it’s showing no signs of changing very dramatically. It doesn’t have to. No one’s noticed what’s going on. They were too busy trying to figure out the price of Martha’s Kelly bag and the name of the guy who did her highlights.
And while not everything is the result of media concentration, it’s worth noting that Martha Stewart was a creation of television. Her face sells books and newspapers because of her television show. That’s why we know so much about here and so little about everyone else. And it’s why columns like the one Rich wrote Sunday are so sadly behind the, er, times: people have been pissed off about corporate greed for a while now. It’s too damn bad no one’s been able or willing to tell them just how bad it got – and how it’s coming back sooner than they think. Media concentration creates a bubble as insulated, as self-reverential but, sad to say, nowhere near as fragile as the explosion Silicon Valley saw in stock prices.

Share  Posted by Chris Nolan at 10:17 AM | Permalink

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