A Tale Of Two Outfits

Part 2

It was the best of times.  It was the worst of times.  Well, not really.  It was just fascinating times.  Just like now.

The Cowboy has been fortunate enough to work with a number of interesting outfits over the years.  Some liked complexity while others eschewed it.  Once upon a time, the Cowboy was working on a ranch in London – Bishopsgate in the City, for those who care.

As an aside, there used to be a sandwich shop in Leadenhall Market, just down the street.  It was run by an Italian.

They made one of the Cowboy’s all-time favorite sandwiches:  a bacon and avocado mélange, with cucum- ber, lettuce and tomato, on fabulous focaccia.  Now, this wasn’t the over-flavored, mushy excuse for focaccia that has become so common in many corners of the world.  No, sir, this was a firm, slightly crusty creation – true to its Italian roots – baked with a light covering of herbs.  Mmmmm.  Even the horse is getting hungry.

While anticipating or digesting said lunch, the Cowboy spent many hours in conference rooms at the solicitors, negotiating Enron’s first transaction outside the U.S.

At the time, Enron was a small Texas-based company, that had built a couple of small power plants and owned some natural gas pipelines.  The U.K. power market was being privatized and substantially deregulated (caution: pdf), creating National Grid, National Power, PowerGen, and a host of new, private companies.  The regulatory environment was being newly-created, with a heavy market bias.  Simultaneously, natural gas fields in the North Sea were being developed, with undersea pipelines to carry the stuff to air-breathing users onshore.  Project finance was the rage at the time, and that’s where the Cowboy hung his hat.  Interesting times for sure.

Now the Cowboy wasn’t one of the bosses at the negotiating table – he was just a hand, and a bit of a greenhorn at that – but he was at the table (the number 2 for his outfit).  Enron was seeking to develop, build, and operate the largest private power plant the world had ever seen and to finance said undertaking with the largest project financing ever in the power industry.

Talk about chutzpah.  To this day, I’m not sure how they pulled it off.  The Enron folks managed to convince those very proper English bankers, with their red faces and pin-striped suits, that they could do it.  And so they did.

Later, the Cowboy was again in the midst of the reformation of an industry, trying to anticipate the effects of deregulation of the U.S. natural gas market through the introduction of FERC 636.  Again, Enron was a major player.

enronThe Cowboy worked on several Enron deals over the years, watching as the company’s brains and chutzpah took it to ever higher levels of financial complexity.  The Cowboy never saw anything nefarious, just very smart people who enjoyed coming up with clever structures and solutions.

Another of the Cowboy’s clients was a U.S. company called SBC Communications.  A 1982 Consent Decree had split up the old AT&T, creating 8 new companies, one of which was Southwestern Bell, later SBC.  In the mid-1990’s the U.S. telecommunications market was going through its own wave of deregulation, culminating in the Telecommunications Act of 1996 and the auction of 6 new wireless communications licenses per location.  Once again, the Cowboy was lucky enough to be in the thick of things, trying to determine the effects of a dramatically different regulatory and technological environment on its corporate denizens.

The Cowboy still remembers the boss of that outfit – a real Texan by the name of Ed.  He had lived in El Paso, San Antonio and other such parts.  The Cowboy has always had a fond place in his heart for El Paso, so he was bound to like the man.  The Cowboy met him on a few occasions and even exchanged stories about that border town.

While all of the other offshoots of the old AT&T were battling to see who could be the most technologically advanced, who could expand into other arenas such as media and television, and who could be the cleverest, Ed and his team made an investment in Telmex of Mexico with that famous south-of-the-border ranch boss by the name of Slim.  They did pretty well on that investment – Slim is not a bad investor after all.  Otherwise, Ed’s outfit seemed to be the stodgiest of the so-called “Baby Bells”.  They were biding their time, waiting to see how the cards fell, and planning their long-term strategy.  One by one, they started buyin’ up their brethren.  First, Pacific Telesis, then came Ameritech and finally BellSouth.  They did something similar on the wireless side, and they even added some assets that were not part of the old AT&T, like Southern New England Telecom (SNET).  To cap it all off, they acquired the part of the original AT&T that had kept the name, and that’s the brand they now use.

Even the geography is intertwined.  Ed’s outfit sold AT&T’s long-time HQ in New Jersey to their nemesis, Verizon.  The biggest non-AT&T related telecom company in the U.S. used to be an outfit called GTE, before it joined up with Bell Atlantic to create Verizon.  A couple of years before that merger, GTE moved its HQ from Connecticut to Dallas.  Late last year, SBC announced it was moving its HQ to Dallas.

Well, this has been a long story, and the Cowboy thanks you for indulging him; a nice campfire has a tendency to keep one talkin’ longer than he should.  But what does this all mean?

You are welcome to take away your own moral to the story, but for the Cowboy, Enron and SBC represent a couple of schools of thought.  These archetypes, or stereotypes if you prefer, represent the seemingly opposing poles of complexity versus simplicity.  The Cowboy will write more another time about complexity and simplicity, taking a more philosophical viewpoint, but for today we’ll keep things simple (not complex).

In the Cowboy’s archetypes, Enron represents a fascination with complexity.  The intelligent mind can create convoluted, intricate, and even elegant solutions to the challenges that confront it.  Sometimes, one might even become so enamored of the complex analyses and solutions that one invents problems to solve or solves problems that don’t exist.

SBC (now AT&T), represents the other archetype – plain old horse sense.  Wait and see what happens.  Focus on the long-term.  Don’t get too excited about the flashing lights and fancy whistles.  Act decisively when you act.  Know what you’re doing.  Understand your gut.  Trust your wits, but not too much.  Keep it as simple as you can.

Now the Cowboy’s simplicity-complexity, Enron-SBC archetypes are just a simple man’s way of understanding some of the characters he’s known and the adventures they tell.  You’ll probably get much better mileage from Jung if you want some truly meaningful buckets for analyzing the world.  Still, the Cowboy finds this simplicity-complexity framework helpful.

As a final observation, the Cowboy has found that sometimes wisdom can tilt towards simplicity and youth towards complexity.  That is to say, the wise often have the ability to understand complexity but appreciate the strengths of simplicity, while the inexperienced young buck with a fair bit of smarts can be dazzled by brilliance but miss the elegance of simplicity.  These are Cowboy generalizations, so of course your mileage may vary.

Getting back to the trail, this whole thing started with a discussion of buckets of a different sort:  specifically what kind of bucket will bail out the U.S. banking system.  The Cowboy liked the Enron-like complexity of the Geithner solution, but worried that it might lack the SBC simplicity of the Swedish model.  So where does the Cowboy stand now?

The Cowboy views himself as an experienced optimist.  It’s also true that we tend towards what we believe.  The best solution probably incorporates both of the Cowboy’s archetypes, blending them into an Aristotelian “middle way” – part SBC and part Enron – which the Geithner plan may very well do.  But it doesn’t really matter what the Cowboy thinks because the Geithner plan is in full swing.  That may sound like a cop-out, but the reality is that no one knows what will work.  Economics is called the “dismal science” for a reason.  The Geithner plan is well crafted, timely, large and directed.  These are all good things.  The plan needs to be executed competently.  Anything else is just a Parthian cavil (hat tip to Mr. Safire).

Once the cattle are stampeding, you don’t ask whether they should move, you just help them go where you want them to go.  The Cowboy is an experienced hand, and he’ll do what he can to help those cattle along.  A cattle drive is always exhilarating – the overwhelming primal roar of hooves and muscle and mass beating down on the land, raising up clouds of dust, and making your heart beat like crazy in fear and excitement.  The Cowboy can see that stampede, hear that roar, taste that dust and feel the ground trembling beneath his feet.  Can you?

Well, we’re gonna fix this economy alright.  Git along little doggies, and don’t anyone stand in our way!

(to be continued)

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Published in: on March 29, 2009 at 17:25  Comments Off on A Tale Of Two Outfits  
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