Livedoor, Con't.

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Just as the “Breaking News” first reported yesterday at dinner time, police arrested Livedoor CEO Horie Takafumi and three other executives on suspicion of financial fraud. For those new to the story, check the excellent coverage on Joi Ito’s blog. This is a gigantic news event with significant economic and cultural ramifications. Although Livedoor’s self-destruction will not cause any huge ripples in the practical workings of the Internet infrastructure, there does seem to be a huge psychological shock. When the stock market crashed last week on news of the well-televised Livedoor office raid, completely unrelated tech stocks like Softbank also lost huge amounts of worth. The whole New Economy is now on the table for criticism and dissection.

Whether Horie is innocent or guilty, framed by massive Statist conspiracy or done in by his own greed, last year’s Livedoor saga certainly has created a new mental framework for thinking about the future of the Japanese economy. On one side of the ring, the Old Cabal, and on the other side, the New Capitalists. After a shock victory in the Fuji TV battle, things looked good for Livedoor. But the bureaucrats and their O.B.s in charge at the ancien medias have now clearly won the war. Not only has Livedoor been taught a lesson, the maverick company’s leader is literally in jail — with only the formality of trial to prove his guilt to an already angry mob public.

Culturally this is a big moment. The horses had been galloping asunder, and now the Old Men have tightened the reigns. Horie was perhaps a terrible representative of the New Economy, but few others have been so bold to standout and give a face to this important new business sector. If Steve Jobs is arrested tomorrow for falsifying data, I’m not sure all of the Siilcon Valley companies would suffer. Japan has caught up somewhat with Korea and the U.S. in terms of internet diffusion, but there seems to be no broad understanding that this IT world is something more than annoying trend.

In an issue of last year’s CanCam, one of the weird photographic “manga” pieces had a fashionable young female character proudly working at Livedoor. The New Economy had a certain cachet, especially with young people. The newest issue of CanCam will probably show Ebihara Yuri working at METI. Power is sexy, and a bureaucratically-run Japan has never looked hotter.

Yes, this scandal is just the fall of one not-particularly great company, but I fear the coming malaise upon realization that Horie’s experiment was a massive failure. The suits will out be drinking Blue Label in Ginza tonight, certain that Japan has been saved from a scandalous horde. Others may be feeling the despair of a symbolic defeat, drinking can after can of happoshu bought at 7/11.

W. David MARX (Marxy)
January 24, 2006

Marxy wrote a lot of essays back on his old site Néomarxisme. This is one of them.

19 Responses

  1. nate Says:

    marxy, you realize he’s in trouble for market manipulation, not for the internet. Unrelated internet stocks are actually up across the board today, as people are glad to wash that sloppy man right out of their hair.

    He happened to be playing very fast and very loose in a market that was rising of it’s own regard. Livedoor grew to be an important and powerful stock based on it’s stock market machinations, not it’s company fundamentals. There was even plenty of enron-esque reporting of profit when there were sizable losses for a quarter.

  2. marxy Says:

    Yes, but he is symbolically linked to the Internet companies, whether he is technically a Net company or not. As the dust clears, I’m sure that the other IT companies will make it out okay, but the intial reaction was telling.

  3. nate Says:

    horie’s got some nerve though. I remember seeing him during one of his talento appearances going on and on about raising the value of his stock at all costs.

    I think the number of people idolizing him shrunk very quickly in the weeks preceeding his downfall owing to his tv appearances. The people who were aspiring to be rich like him were also aspiring to be attractive, well-kempt, and elequent… unlike him. It will likely be very easy to forget him, especially with the desperate lies (probably) he’s been sputtering for last week trying to save his own neck.

    On the bright side, he may well be the iconic failure that reminds the small time trader to invest a bit more wisely.

  4. Chris_B Says:

    Nate: interesting last point there. Individual investors are considered a bother to the market here and given the horribly lax accounting methods and lack of clear laws, my advice (worth what I charge for it) is a wise trader puts his money overseas.

  5. fukumimi Says:

    The influx of individual investors has been created in part by pretty much every media outlet under the sun promoting how easy stock market investing is, with success stories of housewives and “freeter”s making money playing the market.

    This trend seems to have tracked the upward movement of the market pretty well.

    Agreed that the poor regulatory market makes the Japanese market a minefield. However, there seem to be plenty of even bigger $$$ accounting scandals elsewhere as well.

  6. Yago Says:

    Rumor has it that it was FujiTV/Sankei who investigated Livedoor`s accounting and eventually sent it to the 地検. Everybody supported the bold young Horie against Fuji`s old scary Murakami, but well, looks he wasn`t that clever after all. Miyauchi has already pleaded guilty…

  7. matt Says:

    the hardest thing to take about this whole affair was the attitude of the NHK newcaster (moon-faced silver-haired geezer, can’t remember his name) whose interview with horie around the Fuji-TV takeover period was a study in barely disguised hatred (over the “internet will kill TV” comments) His smug visage the other night was in severe need of a strong dose of baseball bat.. he was just so happy to see old & corrupt triumph over young & corrupt.. yay for senility, stagnation & entrenched elites!!! Lets hear it for the status quo!!!

  8. nate Says:

    I just don’t buy the whole “revenge of the old guard” idea. Horie was pretty damned guilty, and was the one of a very small number of people abusing the laws to the extent that he was.
    Anybody who proudly bears the mantra “if it’s not illegal, it’s ok” is not good news. That was just about the only revolutionary idea he brought to the table… an utter lack of interest in the well being of anyone but himself (and by extension his company).

    As far as smugness, everyone is smug about seeing him getting his just deserts. I was joking around with some 14 year olds about him today, and they thought it was just grand.

    chris b, I think the massive upswing in trading coming in from the influx of idividual investors, and the big hairy scandal based on the problematic and unclear laws is gonna make this a year of market reform that could attract an even greater deal of foreign money while the nyse goes nowhere fast.

  9. marxy Says:

    As far as symbolic victories go, I find it hard to think anyone walks away with a trophy besides the Old Guard. This is not a real win for the anti-establishment, anti-Horie folk.

  10. guest Says:

    Isn’t it entirely possible that, this being the worst of all possible worlds, both are correct: Yes, this is the revenge of the Establishment and yes, Horie is guilty as sin? And where timing is concerned, let’s note that this occurred after Horie had served his symbolic purpose in the election the election…

  11. marxy Says:

    No, it will probably turn out to be the scenario you mention: Horie is probably guilty, but the investigation would have not proceeded so quickly if the establishment didn’t have great motive to tear him down. My point is that this is not really a feel-good story for anybody BUT the System. The “good guys” of the New Economy do not move forward.

  12. nate Says:

    I don’t disagree that he’s paying for some of the feathers he ruffled, and that the old economy is glad to see him locked up. There may have been some extra interest in him thanks to the old guard, but his blantant misdeeds that fell just within the law over the last couple of years probably meant he was under permanent investigation. I also doubt that the old economy wants his company to fail so much as him personally. His company, and the new japanese internet bubble have brought the broader market some really big gains.

    I’m not so sure that he represents the new economy in such a big way. Though the company’s stock was marketed as internet related, a relatively small portion of their income is actually from the internet. He was a huckster, and the real “good guys” of the new economy like rakuten and softbank are doing quite fine since his greasy face got put behind bars.

    In general, the TSE and Jasdaq are really disproportionately kind to the little guys. Despite the age, size, and capitalization of livedoor, they stayed in the startup-specialized third section (mothers), where the rules are slightly different (I believe).

  13. Chris_B Says:

    nate: you wanna make a bet on what you said before? I’ll forewarn you I have some inside info tho.

  14. nate Says:

    I am already betting a little money on the japanese market these days.

  15. matt Says:

    nate, you don’t buy the revenge of the old guard theory ?

    sorry to chortle, but were you under the impression the police actually decided to arrest him based on independent investigation ?

    if so, perhaps we are living in different Japans but in the one i live the police wouldnt even reach across the desk for another pork bun unless someone high up told them to do it.. to be fair, they do a great line in vigorously pursuing stolen bicycles, just so long as they dont have to ride up any hills to do so..

  16. nate Says:

    matt, not to offend, since I’m not sure who you are, but how much do you know about this story?

    It sounds like you’re just assuming based strictly on your keystone cops image of the japanese police. And another, separate image (left over from american movies of the 80’s?) of the corporate heads as all knowing with a network of spies.

    The extent to which I don’t buy the old guard theory is that there was plenty of reason to arrest him, and plenty of reason to have been investigating him from the outset. The heads of softbank and rakuten and dozens of other internet companies aren’t in jail right now, regardless of their more legitimate claim on the title “new economy”. Rakuten actually does own a baseball team, something livedoor failed to manage.

    again on the “new economy” title, livedoor has based a lot like worldcom for the last year, strictly as a serial acquirer based on all-stock transactions. If he posed a threat to the old guard, it wasn’t because he was an internet evangelist. It was because mega-companies companies built atop a pile of artificially inflated stocks are doomed to economy disrupting failure. The internet is a red herring in the discussion. (except for internet trading encouraging an explosion in the numbers of individual investors)

  17. nate Says:

    oops… “livedoor has functioned (not based) a lot like worldcom”. man, I should try using the preview button.

  18. Raider Says:

    The media is not particularly good at analyzing any kind of business scandals so they tend to play up what they do understand. Livedoor’s activities had a major impact on corporate governance and securities regulations but the company itself is still not a big player. After this scandal, it will likely never become one under the Livedoor brand. (A brandname that was actually thought up by some gaijin who wanted to introduce a free ISP service to Japan along the lines of Freeserve. The company bumbled along and was eventually picked up by Horie who decided that Livedoor was a better name to use than Livin’ On The Edge)

    The TV and press coverage both in Japan and abroad has wildly overestimated Horie’s importance to the economy. The story is big because he is had a high media profile but he doesn’t represent a generation of mavericks except for the wideshows and a crew of lazy foreign journalists.

    Oddly, world media is much better at understanding a business issue when it affects one of their other major constituencies. In sport, for instance, the EU’s Bosman judgement revolutionized the economics of world football but no-one then concluded that Bosman was suddenly a star player.

    Livedoor has been accused of a number of breaches. Some are likely to be in regulatory grey areas but some appear to be the kind of offences that have increasingly brought punishments for offenders at “Old Japan” and “New Japan” alike companies over the last two years. If Livedoor executives are guilty of these crimes then they should be punished. The victory would be for the prosecutors and regulators. If it is true that Nippon Broadcasting/Fuji TV did uncover incriminating evidence then it wouldn’t be the first time for a business rival to do that.

  19. matt Says:

    hey nate

    hope you didn’t take offence at my comments, it was at least half in jest ( as i hoped was clear from the tone of the post) – sorry if you did.

    I guess i just wanted to hear if you had any compelling evidence for being skeptical of that theory.

    I totally agree that Horie was a terrible poster boy for the new economy. An arrogant jerk, really, whose only redeeming features were that he was trying to shake up the old backroom boys & that he was actually pretty tuned in to the future of the intarwebs..

    So now we know his company was a house of wet & saggy cards held together with some accounting-fu, but what i was getting at was – do you really think that alone is enough to get the police onto him ?

    I’ve worked at another company here that will remain un-named but whose accounting & HR practices should have brought its founders into court many times over.. but it’s growing & doing very well indeed today.

    To reframe my question – do you really think that Horie would have been jailed for the same kind of thing many other companies here are doing if he hadn’t pissed off the wrong people ?

    As Horie said, a lot of the things he was doing were only illegal depending on your views of accounting laws – just like enron, of course – but this being japan, written law seems to count for a lot less than who is interpreting it & who is subject to it (ie article 9 & how the LDP interprets it).

    Believing that the police acted independently to investigate & bring down a favoured son of Koizumi, without any other motives, goes contrary to everything i know about how this country currently operates.

    It’s possible, but just very, very unlikely. Which is why i would really like to hear convincing evidence that it happened that way, because otherwise i’d have a hard time believing it.