The Five Dumbest Things on Wall Street This Week

1. Don't Bush Your Luck

The grateful thanks of the Five Dumbest Things Research Lab go out this week to President Bush for answering some questions that have been troubling the lab's staff for some time now.

What would happen to the markets, we wondered, if the president were to deliver a speech in which he came out against corporate wrongdoing? You know, taking a position just as controversial and unpopular as, say, those politicians who climb out on a limb to praise the flag or denounce child abuse?

Furthermore, we pondered, what might happen if the president were to deliver that speech in front of wallpaper on which the words "Corporate Responsibility" were printed in a prominent and repetitive fashion? How would that affect the markets once his audience had incontrovertible proof that George Bush is indeed in favor of corporate responsibility?

Well, now we know: Apparently what happens is the S&P and the Dow each drop 5.1% in three days.

Apparently, it takes more than a few stern words and a customized backdrop to restore faith in the financial markets. Surprise, surprise.

Which brings us to our next item...

2. Raiders of the Lost Harken

Tell you what. We at the research lab will go out on our own little limb and guess that maybe the reason that a pep talk from President Bush isn't putting America's mind at ease is that maybe, just maybe, Americans see Bush as part of the problem.

Crazy, huh? Where would they get that idea?

Well, maybe it's from this whole Harken EnergyHEC affair stretching back a few years. So, here are a few factoids we've picked up about Bush from various different press outlets.

First there's the part about how Bush, a director at Harken Energy in the late 1980s and early 1990s, received about $180,000 in low interest rate loans to buy Harken stock options. To us, that sounds vaguely reminiscent of the more than $400 million that WorldComWCOME lent then-CEO Bernie Ebbers so he could hold onto his WorldCom stock, though Bush's loan is a few zeroes short of Borrowin' Bernie's.

Then there's the part about how Bush sold $849,000 in Harken stock in 1990. That was only two months, apparently, before the company's stock tanked on a restatement of earnings -- and Bush was eight months late in reporting the transaction to the Securities and Exchange Commission. Again, this is a few zeroes shy of another familiar story -- in 2001, Enron ENRNQ Chairman Ken Lay sold $70 million worth of shares in the company as it slid toward bankruptcy.

Then, of course, there's the weirdness of the financial transaction at the heart of the Harken matter: The sale of 80% of a Harken subsidiary to a bunch of Harken insiders who completed the transaction with the help of a loan from -- you guessed it -- Harken. The deal took millions of dollars in debt off the company's balance sheet and cut losses by at least $8 million. Until, that is, the SEC made Harken restate the transaction, a process that led to the stock's tanking in 1990. Damned if the whole thing doesn't remind us of Enron again and its penchant for constructing related-party transactions designed to wipe losses off its financials.

Now there are a few candidates for the Dumbest part of this whole affair, most of them stemming from Bush's staunch refusal to admit that he bears a greater resemblance to the alleged robbers than to the alleged cops, corporatewise. Is it Bush's challenge, in Tuesday's corporate responsibility speech, for companies "to put an end to all company loans to corporate officers"? Is it the request by Bush -- a member of Harken's audit committee way back when -- for "board members to check the quality of their company's financial statements, to ask tough questions about accounting methods"?

No, it's Bush's comment at a Monday press conference when a pesky reporter ask him if he had favored, or been involved in, the subsidiary sale of which the SEC had expressed its disapproval. "All I can tell you," replied Bush, "is that in the corporate world sometimes things aren't exactly black and white when it comes to accounting procedures."

That's true, of course. But given Harken's multiple similarities to companies currently in the news, Bush instructing companies about accounting and governance is kind of like Bill Clinton lecturing the youth of America on the value of sexual abstinence.

3. Money Makes the WorldCom Go Around

Our sympathies go out to WorldCom and its employees as they struggle to save the telco's remaining business and stave off bankruptcy.

But despite our concern, we can't help but shake our heads at how desperate the struggle has become.

Yes, in a WorldCom internal email we received Thursday, the company notes that checks payable to WorldCom "are being received at various locations and held because people do not know where to send them."

Effective immediately, advises the email, please send all checks "or other remittances" directly to the company treasurer in Washington, D.C.

Makes you wonder: What was the policy in the years before this urgent email was sent? Have all the people who knew what to do with these checks just been laid off? Or was there so much money rolling around that getting checks to the bank just wasn't an issue?

We assume that the next company email will cover collection policies for loose change that has rolled underneath the vending machines. We'll let you know.

4. We Report. You Decide if We're Idiots.

Speaking of WorldCom, we were shocked to read an article this week indicating that al Qaeda operatives had infiltrated the telco and other U.S. corporate titans in a conspiracy to undermine the U.S. economy.

Yes, in a July 2 dispatch out of Washington, FoxNews.com highlights an "unexpected twist" in the WorldCom saga: a United Press International report, citing emails decoded by the National Security Agency, that al Qaeda claimed its "Operation WorldCon" had demolished WorldCom and "had seriously crippled the entire American military machine that is heavily dependent on the telecom giant."

Furthermore, reported FoxNews.com, UPI was saying that al Qaeda "sleeper cells" had managed to wreak havoc via financial scandals at other recent corporate casualties, including Enron, Arthur Andersen, Global Crossing GBXLQ, Xerox XRX and ImClone IMCL.

Wow, we thought. Someone deserves a Pulitzer for this one. So we tracked down the original UPI wire service report to see who the lucky recipient would be.

Well, in the words of President Bush, all we can tell you is that in the newsgathering world, sometimes things aren't exactly black and white. It turns out that the UPI article was actually a commentary by editor-at-large Arnaud de Borchgrave, one that later ran in The Washington Times.

After de Borchgrave tells his fantastical story -- one that also alleges al Qaeda infiltration of Adelphia Communications ADELQ, Qwest Q and Dynegy DYN -- he confesses that this scenario is "a flight of fancy."

In other words, it appears that someone at Fox News didn't realize that de Borchgrave's scoop was a joke. Didn't read all the way through the UPI bulletin. Didn't figure out how de Borchgrave was making some point about corporate executives being as destructive as violent terrorists. Didn't stop to wonder out why al Qaeda members in the Tora Bora caves would care about Adelphia, or why they ever would have heard of it.

We couldn't reach Fox News in time for comment. Nor WorldCom. Nor al Qaeda.

5. Sorry, Wrong Numbers

As a follow-up to last week's report about a curious correction from mining company Century Laboratories CYLI, we've located another one, this time from wearable-computer company Xybernaut XYBR.

In a July 1 press release, the company reiterated guidance for the second quarter ended one day earlier, and CEO Edward G. Newman proudly announced, "We begin the third quarter with the largest backlog in the company's history."

Two days later, however, the company had a different story. In a press release issued while we at the research lab all were heading out to the beach for a long July Fourth weekend, Xybernaut said in fact that revenue for the second quarter looked to be about 30% below Monday's so-called guidance, because "significant orders outside the U.S. did not occur as anticipated."

Not only that, but Newman had misspoken Monday when talking about Xybernaut's record backlog -- a term usually applied to orders on hand but not fulfilled. It wasn't the backlog that was at record levels, said Xybernaut; it was the company's "current pipeline of potential orders."

Oops. Well, we have a message for all the shareholders who bought after Monday's reiteration -- the stock jumped as high as 53%, to 84 cents -- but before Wednesday's retraction, after which shares fell back to 60 cents. In the world of wearable computers, sometimes things aren't exactly black and white.