| Sour Milk |
29 December 2003
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Italy's Parmalat is Bankrupt
Squeaky clean is hardly the description of the Italian business world, or any other nation's for that matter. However, the shenanigans at Parmalat, the Italian-based dairy conglomerate, are leading some to call it Europe's Enron. It is not.
Enron went spectacularly bust in a sordid tale of illegal trading, book-cooking and fraud. Parmalat filed for bankruptcy for several reasons, not least of which is a missing $4 billion in the Cayman Islands (not exactly a locale to provide much comfort to shareholders and creditors). But there the differences begin.
Italian law is far less transparent that American securities regulations, and pulling the wool of an auditor's eyes is not that hard when most of the main facts needn't be disclosed. In addition, Parmalat has some actual assets and established retail brands that are actually worth something.
As a result, the Italian government is likely to put it into a form of receivership that usually results in the sale of assets to investors if the government can't find a way to keep it going as a business.
In the case of Enron, there wasn't much to sell off. The money it made came from trades; when the trades ceased, the money was gone. A building in Texas and some baseball style "Enron" caps was about all that was left.
The lesson is that in any economy, at the end of the day, someone has to do or make something that someone else wants to buy. Trading is all well and good, and it makes for a liquid market that improves the flow of goods and services. However, it is merely a means, not an end. An entire nation of financiers and traders is ultimately vulnerable. A nation that feeds itself and makes things that others want to buy is far more secure.
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