Chapter 6 - Davos, January 26-February 1, 2000 - Episode 5Listen to podcast
It’s Friday party night at Davos. The parties are put on by individual companies and countries; some require an invitation; some don’t. Some no one even hears about he or she is supposed to be there. The welcome kit is full of invitations and the Congress Hall as well as many of the hotels have room after room devoted to parties open to all WEF attendees. The protestors are still being held at bay just past the Sunset Reising although their numbers have been swelling ominously.
Larry and Louise have been invited to several dinners. They decide to go to one sponsored by a major American accounting firm that gave them Palm Pilots as a welcome gift to Davos.
The dinner is in the banquet room of one of the few luxury hotels in Davos. The banquet room and ancillary rooms are filled with borrowed masterpieces from several art galleries. Most of the pieces are classical, so the buffet line snakes through fawns, nymphs, and satyrs. Hercules — with a big club, a large dick, and his trademark lion skin draped over one shoulder —stands guard over one of the bars. Perseus — with poor Medusa’s head and an even larger dick — watches over the other.
A number of partners from the sponsoring accounting firm are at the table with Larry and Louise. The subject is new rules which prohibit the auditors on an account from having any ownership interest, no matter how remote, in a firm they audit.
“That does seem to make sense,” says Louise conversationally.
“Well, yes, it does SEEM to makes sense,” replies one of the partners. “But the issue is more complex than it seems. We can’t actually figure out what the rules mean. There are some forms to fill out regarding our non-conflict of interest and we can’t figure them out either.”
“What’s so complicated?” asks Larry. “You guys usually charge us an arm and a leg for figuring this stuff out. Either you own a piece of the company you’re auditing or you don’t, and the rules say you can’t, so you don’t and you fill out the form and say you don’t. What’s so complicated?”
“Well, suppose that you own shares in a mutual fund and the mutual fund owns stock in a company you’re auditing. Is that against the rules?”
“I don’t know,” says Larry. “Is it?”
“We don’t know either. The rules seem to say you can’t do that.”
“Okay, so you can’t. Still don’t see what’s so complicated,” says Larry.
“Suppose you don’t know that mutual fund has stock in the company you’re auditing? Then what?”
“So if you don’t know, then you don’t have any conflict so no problem,” says Larry.
“But that’s not what the rules say, so there IS a problem,” complains the bedeviled audit partner. “The rules say you can’t directly or indirectly own shares in a company you’re auditing. And the forms ask if you own shares, not if you KNOW you own shares. So, if you own any mutual funds, how can you fill out the forms?”
“So, you don’t own mutual funds,” says Larry helpfully. “I’m going to have to start charging you guys for advice.”
Louise kicks him under the table.
“Well, that’s not so simple either because your pension plan may own mutual funds and those mutual funds may own stocks in companies that you’re auditing. And it gets worse because a company you own stock in may own or buy part of a company you’re auditing and, whether you know that or not, you still might be in violation.”
“But it wouldn’t make any sense if the regulations mean that you have to avoid a conflict you don’t KNOW you have,” says Louise. “And it wouldn’t be fair, either.”
“I’m afraid we can’t rely on either logic or fairness in interpreting the rules,” adds the accountant condescendingly.
“I’ve never known an accountant to rely on logic or fairness before,” says Larry, suddenly hostile. “It’s usually just your clients who get hurt when you can’t figure out the rules. Now it’s you guys.”
This conversation is over.
On the other side of the Lazards are the CEO of one Internet backbone company and the Chairman and founder of another. They don’t have spouses with them and are deep in conversation. They apparently know each other well.
Louise takes this opportunity to start a new conversation. “Do you both live in Bermuda?” she asks.
“Bermuda?” repeats the CEO, looking puzzled.
“Bermuda?” echoes the Chairman of the rival company.
“Yes,” says Louise. “I looked your companies up and they’re both based in Bermuda. Isn’t that right?”
“Oh,” says the CEO smiling, “we’re both actually American companies but we have a great deal of international income, so it makes much more sense to be headquartered in Bermuda from a tax point-of-view.”
“But,” asks Louise, “if your headquarters are there, don’t YOU have to be there?”
“Just for one board meeting a year,” explains the chairman. “I always take the wife and the golf clubs.”
“Yeah, hackoff.com is a Delaware company and we don’t go there either,” says Larry.
“What business is ... er … what did you say the name of your company is?” It is not clear whether the chairman is too near-sighted to see the company name on Larry’s badge or just doesn’t want to stare.
“Hackoff.com. We provide security service to websites. I’m sure a lot of the same companies that buy Internet access from you guys are customers of ours for security. We protect them from hackers defacing their sites or, worse, stealing credit card information.”
“Oh, yeah, I’ve heard of you guys,” says the CEO. “Don’t you have huge market cap and almost no assets?”
“Our assets are our intellectual property and the shares we own in many of our customers.” Larry is almost growling.
“No harm meant,” says the CEO cheerfully. “I meant that as a compliment. I have heard of your business model including the pyramid … er ownership stake you have in your customers. It’s brilliant. Congratulations. Fighting off hackers isn’t easy, either. Glad someone is doing it before they ruin the Internet.”
“Thanks,” says Larry, apparently mollified.
There is a conversational lull.
“I have another question,” says Louise.
“Fire away,” asks the chairman, looking back up from Louise’s chest to her face.
“What’s a ‘swap’? I read about them in the Wall Street Journal and I couldn’t help overhearing you gentleman talking about them earlier.”
“That’s an easy one,” says the CEO, also looking up. “We swap capacity on each other’s networks. That gives us both a presence in a place where we might not have built out and lets us turn our building expense into income. We both have a lot of extra capacity because of the way we build so we can do a lot of swaps.”
“Why does the way you build give you over-capacity?” asks Larry. “Why don’t you build just what you need for the near future?”
“When you’re laying fiber, most of the expense is in the actual digging or laying of an undersea conduit. There is no significant extra expense in filling that conduit up with fiber, especially if we don’t light it. So that’s what we do. We are probably putting in from twenty to fifty times as much capacity as we need right now. But, with the Internet doubling every three months or whatever it is, that’ll all be a good investment. But, of course, Wall Street is very impatient…”
“I’ve noticed,” says Larry.
“So we need to get some income now from the extra capacity we’re putting in to feed the quarterly earnings and growth monster. Swaps help us do that.”
“When we swap capacity, each of us is actually selling something to the other. We’re selling the right to use capacity forever or at least for twenty years, which is the same thing. So we’re entitled to book a sale at the time we make a deal. The cost of the construction, of course, is written off over twenty years, so there’s a healthy profit for both of us in the quarter the sale is made.”
“Sounds good,” says Larry. “Is that legal? I mean…”
“Our accountants have examined these deals thoroughly and blessed them,” says the chairman. “In fact, don’t you book a sale in the value of the equity you pick up when you sell a license on a non-cash basis?”
“Good point,” says Larry.
On the way out, Larry checks the closing price of hackoff stock. 155 ¼! A new all time high! It has traded as high as 157 during the day.
“So that’s how it works,” says Larry to Louise as they walk back to their hotel. “I always heard of swaps but never really knew what they were.”
“It takes a woman to ask a question,” says Louise.
“Right,” says Larry. “The question about Bermuda was pretty dumb but the question about swaps was a good one.”
“The question about Bermuda was just to start a new conversation quickly after you offended the accountants,” says Louise.
They hug each other.
The protestors have now taken to adding firecrackers to their snowballs. The soldiers are visibly more tense. They continuously reseat the Uzis on their shoulders and shuffle their feet; their gas mask noses shift back-and-forth. Again, the crowd is ordered to disperse but they shuffle towards the line of soldiers and increase the firecracker content of their snowballs.
The water cannon fires. The suddenly cooled mob retreats as it did on other nights. But this time the soldiers pursue. The crowd is stumbling, turning, falling, shouting. Flashes go off as pictures are taken for the world press. The soldiers follow in an orderly and disciplined way. When they overtake a fallen protestor, the protestor is firmly cuffed and passed back to the police for processing.
For the most part, only protestors who resist are treated roughly. Whenever a protestor is treated roughly, a camera flash is sure to follow. The conflict moves down the hill out of sight of Larry and Louise. The protestors will not be allowed back, not allowed anywhere in Davos for the rest of the conference.
“Fucking idiots,” says Larry, once back in the hotel room after the rout of the anti-globalization forces.
“That’s not a bad idea,” says Louise.
“What, protesting?” asks Larry.
“No, fucking,” says Louise.
The narrow twin beds are a problem. Larry wrestles the night table which separates them onto the couch. The headboards are attached to the wall but the beds aren’t attached to the headboards so they can be moved together. As Larry and Louise, now in their underwear, meet in the center of the enlarged playing field, the beds slide apart and they end up on the floor.
“Let’s try across the beds,” says Larry as he pushes them back together.
This arrangement works through oral preliminaries. They are both naked now; Larry’s dick is not quite as large as Hercules’ but almost as hard as the statue and has an anticipatory drop at its tip. Louise has a very dark and furry bush which also has drops of moisture on it.
Larry is on top of Louise now in a missionary position. He hooks his arms behind her knees and rolls her up so he can slide in even further. She responds — unwisely, as it turns out. The beds again separate and Louise’ butt sinks into the new crevasse and away from thrusting Larry.
He pushes the beds further apart and follows her to the floor as they separate completely. Even banging his head on the side of one of the beds doesn’t stop him from reentering her. Nor is Louise, who normally doesn’t like dirty carpets, put off by their new location.
Afterwards, they agree that this is some of the best sex that they’ve had in a long time (not that their sex isn’t usually pretty good). Affectionately, they try lying together in one of the beds, but, eventually are forced to separate to sleep.