Brian Haig - PrivateSector

It was like watching one of those Greek myths and you knew tragedy loomed on the horizon. We got used to the MPs dragging John home drunk, high, zoned out, a menace to public safety and himself. And of course, John came to a predictably bad end. He started an Internet company, cashed out at the height of the boom in 1999, banked a hundred and fifty million, and now lives in a huge punchbowl of a house overlooking some Pacific bay. If he’d only had a better childhood, who knows how he might’ve turned out.

We exchange Christmas cards. He sends me postcards from exotic places he knows I can’t afford to visit, and if I ever get married he’ll be my best man. Other than that our lives have taken their separate paths.

What John has that I lack-setting aside money, a big house, and professional success-is the ability to interpret a spreadsheet. I called him from the carphone, got his answering machine, and warned him a long fax was coming. I then pulled into a Kinko’s, employed a magic marker to darken out the name of Morris Networks, and faxed him the audit summary. Disclosing confidential corporate information to an outsider is a breach of ethics and law, but eradicating the company’s name was a step back in the right direction.

But back to the past: When John and I were kids we had what psychologists would term a virulent sibling rivalry. At young ages, these things are determined by who can pound the crap out of the other. I was stronger and quicker, but he was more cunning and deceitful. He won most of the time, but my victories hurt more. Brotherhood is very primeval and it’s a miracle any of us survive it. When you get older, you outgrow all that; not the rivalry, certainly, but how you measure victory. At this point in our lives, for instance, he was about one hundred and fifty million points ahead.

Anyway, I was seated in my apartment an hour later when my beloved brother called.

We got through the opening banter about Mom, Dad, his new Ferrari, the new waterfall in his swimming pool, and then he said, “Those were interesting spreadsheets you sent me. Morris Networks, right?”

“I can’t tell you.” I assured him, “But no, definitely not Morris Networks.”

He chuckled. “I know the company, Sean. I’ve got money in Morris.”

“Oh.”

He chuckled some more. “Actually, my broker dumped the last share fifteen minutes ago.”

“That bad?”

“Actually, the numbers look great.”

“Then what’s the problem?”

“What you don’t see in the annual report, but you do see in an audit.”

“Meaning?”

“I can’t believe we have the same genes. Do I really need to explain this?” Well, he obviously did, so he continued, “Go to the bottom of the second page… put your right forefinger on the line that says operating profits.” I did, and that line said $42, 630, 323.00. He explained, “That’s what Morris made after expenses, write-offs, and a few other things you don’t even want to understand. Now page eighteen, go down to the twentieth line.”

I did that, too. He said, “Now put that same right forefinger on it. That’s what Morris booked as swaps last quarter. Eighty mil… see the significance?”

“Nope.”

“The swaps are keeping Morris Networks profitable and on target with its growth forecasts. Happened last year, too. Morris would’ve been in the red had it not booked three hundred mil in swaps.”

“I don’t get it.”

He explained, “Swaps are like barter. Morris and whoever they’re swapping with make up some artificial exchange rate for the value of each other’s services, and then they both book it as revenue.” He allowed me a moment to think about that, then said, “But it’s not.”

“And this is legal?”

“Legal…? Yes. Nearly all telecoms do it.”

“So what’s the problem?”

“One, it’s not necessarily real money. Two, it can be abused.”

“How?”

“Take Morris-say it has excess capacity because it’s not meeting its growth targets. Like, it built a highway that handles a million cars a day, but only half a million cars are paying tolls. Got that?”

“Go on.”

“So it says to this other company, ‘Hey, I’ll give you space for a quarter of a million cars in exchange for space for a hundred thousand cars on your roads. The net value to each of us is eighty mil. ’”

“That’s what swapping is?”

“An idiot’s interpretation of it.” He paused, then asked, “Do you think you understand it?”

“Got it.” Prick.

John went on, “They’re purchasing each other’s services but you have no way of knowing if there’s any value.”

“Why?”

“Maybe it’s a paper exchange. Neither company actually ends up sending cars onto the other guy’s network, so they’re trading unused road space for unused road space, and it all stays unused road space.”

“So it’s a chimera?”

“It might be. It’s even worse if they’re round-tripping.”

“Round-tripping?”

“Right. Usually this involves a hidden exchange inside the deal. Since they’re both exchanging services, what happens is one or the other side inflates the value of what it’s exchanging. For example, Morris might only provide twenty million in services but bill it at eighty, and book the other sixty as profit. Or vice versa.” He added, “As an investor, I might be more comfortable if I knew who Morris is swapping with.”

Wrong, wrong, wrong, big brother. I asked him, “Do you know Jason Morris?”

“Yeah, but not well. We met when he was still in an entrepreneurial firm and I was running around looking for investment money for my Internet start-up.”

“What did you think of him?”

“A visionary-lots of smarts, lots of energy, and I’d trade all my riches for his poontang list. The guy only sleeps about three hours a night. The rest of the time he’s making money or fucking.” He paused, then concluded, “Pretty much what the press says he is.”

“Is he honorable?”

He laughed. “There is no honor in business. There’s law and how close you adhere to it.” He paused, then added, “More relevantly… there’s profit.”

“Do you like him?”

“I bought his stock. Why?”

“No particular reason.”

He laughed again. Then he said, “Regarding Morris, listen close.”

“I’m listening.”

“Three kinds of guys get into this biz. One, the techie who loves what he builds and can’t wait for everybody else to love and admire it. Two, the money guy who’s in it to see how much he can make.”

He stopped talking. I reminded John, “You mentioned a third?”

“Jason-guys like him. His whole identity is wrapped up in his company. It’s an extension of him. That company is his ego.”

Left unsaid was that my brother had cashed out at the height of the boom, banked his winnings, and retired at the decrepit age of thirty-six. His company went bankrupt a year later. What did that make him?

Anyway, I asked, “Is it a good company?”

He replied, “Look, someday telephones will be collecting dust in museums. People will point at them and giggle… that people actually only talked to one another, without seeing their faces, they’ll think that’s quaint. Videophones, my boy… that’s the next great big thing.”

“But really, John, is it a good company?”

“You’re not listening.”

“Am too.”

“Jason plans to usher that in. He’s not just fiber optics, he’s developing the compression and decompression systems that will allow moving pictures to work across phone lines. There’s every possibility Morris Networks will be the AT amp;T of the twenty-first century. Jason will buy and sell Bill Gates a dozen times over.”