Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Satyam: old lies and new truth or new lie?

This is my fourth post on the Satyam fraud, and what I am concerned
about in this post is the willingness of people to believe a
liar’s confession blindly. To my cynical mind, the fact that a
person admits to have been lying for several years is reason to
suspect that what is put forward as the new truth might just be a new
lie.

What makes me more suspicious is that the “confession”
actually paints the most benign picture possible. What the Satyam
Chairman is saying that he never siphoned any money from the
company. While many people suspected that Satyam profits were diverted
to group companies, the former chairman is saying that the profits
were never there. He is also trying to paint the Maytas deal as a last
ditch attempt to save Satyam instead of the other way around.

My question is why should we believe all this. How credible is the
claim that an IT business with a blue chip client list was not
profitable? How credible is the attempt to exonerate everybody else?
Should we consider the possibility that the problems were in other
group companies of the promoters and that Satyam lost everything while
trying to bail them out?

The finance profession is supposed to train one to be skeptical and
cynical about everything. The lack of sufficient skepticism and
cynicism is itself a cause for concern as it suggests that markets are
still too trusting.

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