Retailers Put All Their Grenades in One Basket Full Metal Bonnet by Erik Baard March 4th, 2003 1:00 PM

“A lighthearted and fun gift,” says one merchant.

While Pentagon war planners may be gunning for an attack on Iraq by mid March, heavily armed soldiers have already quietly seized a strategic position: your Easter basket. National retailers like Kmart and Walgreens have stocked their shelves with baskets in which the traditional chocolate rabbit centerpiece has been displaced by plastic military action figures and their make-believe lethal paraphernalia. Tri-state Rite Aid, Genovese, and Wal-Mart stores promise their martial Easter baskets will arrive soon.

At the Astor Place Kmart, the encampment is on display just inside the main entrance. A camouflaged sandy-haired soldier with an American-flag arm patch stands alert in a teal, pink, and yellow basket beneath a pretty green-and-purple bow. Within a doll-arm’s reach are a machine gun, rifle, hand grenade, large knife, pistol, and round of ammunition. In the next basket a buzz-cut blond with a snazzy dress uniform hawks over homeland security, an American eagle shield on his arm, and a machine gun, pistol, Bowie knife, two grenades, truncheon, and handcuffs at the ready.

One must hunt a little harder to find the Easter sniper at Walgreens, but what lies in wait among the bunnies and chicks there is perhaps even more surreal. The Super Wrriors (sic) Battle Set and Placekeepers (sic) Military Men Play Set bristle with toy assault rifles and machine guns, tanks, troop transports, bomber planes, commanded by armored men with shaved heads and sunglasses. The assortment also includes a space-age ray gun and other imaginary hardware for orbital combat. Packets of jellybeans are tossed in as if an afterthought, nestled in the cellophane underbrush like anti-personnel mines.

Not surprisingly, the merger of religious observance and jingoistic lust sparked the ire of Christian leaders. Bishop George Packard, who oversees spiritual care for Episcopalian members of the armed services, worries about practical issues. He’s concerned about creating a backlash against the military, and questions the message sent to Muslims by the melding of a Christian holiday with images of war.

The products themselves, Packard says, are “really, really bizarre. It’s a crass embrace of the far end of a range of options for parents to provide their kids. Easter baskets have been deteriorating for a long time, but they’ve really gone over the edge. I am so disturbed, I am so confounded by this bad taste.”

Other Christian groups agree. Dr. Richard Land, president of the conservative Southern Baptist Convention commission on ethics and religious liberty, says, “Well, of course, it certainly would be a jarring note for the celebration of Easter. I certainly wouldn’t buy one for my children, when my children were small.”

The religious leaders noted that the eggs, bunnies, and chicks so intimately associated with the holiday are also unrelated to the narrative of Jesus. They are instead the trappings of Ostara (also known as Eostra), a Teutonic goddess of spring, fertility, and the dawn, who also lends her name to estrogen and the East.

But guns would seem to be at odds with that convergent pagan and Christian spirit of renewal. The juxtaposition is an affront to some soldiers, too. “I call that, myself, a pretty stupid insult and a slap at a religious observance,” says Bruce Zielsdorf, who served 23 years in the air force and is now a spokesperson for the army in New York City. “First they commercialize one of the holiest days of the Christian calendar, and now this? It sounds like some vendor threw some stuff up on a shelf to see what would sell. I can assure you that we were not consulted on any decision to make any such Easter baskets.”

Retailers went on the defensive. “There was no intention on our part to offer up a violent Easter basket. We’re very conscious of what will and what will not offend our customers. It was meant to be a lighthearted and fun gift,” says Kmart spokesperson Abigail Jacobs. “It’s in my opinion a harmless toy included in an Easter basket.”

The reaction to a Voice query at Walgreens contrasted sharply, with company representatives retreating instead of digging in. “Going forward next year, we don’t plan to have Easter baskets with toy soldiers or a military theme. The thinking on these Easter baskets was more toy-related and we didn’t really think about it otherwise,” says Walgreens spokesperson Carol Hively. “We apologize to anybody who is offended or felt that this was inappropriate.”

That’s not enough for Bishop Packard. “Well, isn’t that nice? What about this season? This is when it really counts,” he says. “Kids are eavesdropping on the talk of war and get enveloped in its trauma.”

The armored baskets are only the latest combat-themed toy to hit the shelves. Hasbro’s G.I. Joe is a perennial favorite that’s surged 46 percent amid the war fever, and new ones like Tora Bora “Ted” are still being rolled out by other companies. In the current climate, the plastic soldiers allow children to “role-play out their feelings about war,” says toy industry analyst Reyne Rice of the NPD Group.

Easter provides a way for makers of generic troops to capitalize on the trend. Unlike superhero dolls, war toys don’t come with costly trademarks attached. That lowers the bar to entry for small manufacturers, today typically Chinese. That industry has followed confectioners to transform Easter into the second-largest selling season, Rice says. “Maybe they are trying to promote products in another way, to draw attention to them. Obviously this isn’t the kind of attention they intended,” she says. Kmart’s basket supplier, Megatoys, didn’t return calls.

Most toy-filled baskets contain items like sandbox goodies and cuddly dolls, and this isn’t the first time the toy soldiers have made an appearance. This year, though, the action figures seem to have more prominent shelf positions at the two downtown Kmart and Walgreens stores. Hively says they were particularly strong sellers. Walgreens’ supplier, Wondertreats, justifies its product as the result of careful market analysis. “We don’t determine the mix [of toys]. It’s determined by what the consumers want. We talk to kids and watch kids in stores,” explains Greg Hall, owner of Wondertreats. “They’re exposed to the violence and blood that sells newspapers. We don’t create that, we’re just responding to what customers want.”

Such toys are, however, a frequent focus of children’s advocacy groups like the Lion & Lamb Project, which during the Christmas season highlighted another toy, the Military Forward Command Post, made by Ever Sparkle Industrial, that seemed to cross culture lines in an unsettling way. The Web site for Kay-Bee Toy Stores describes it as “a lifelike replica of a real battlefield headquarter. . . . Two-tiered and loaded with realistic weapons, accessories, furniture and equipment, this set is ready for action.” This “battle-worn playset,” also carried for the holiday season by Kmart, Toys “R” Us and Amazon.com, looks like a dollhouse but has been gutted, torched, and bullet-pocked. A similar toy offered by Hobbylinc.com features a bombed-out farmhouse.

“Parents say, ‘Oh, kids know it’s fantasy,’ and then they want to tell their kids to believe in Santa and the Easter Bunny,” observes Lion & Lamb director Daphne White. “You can’t have it both ways. To market war as something fun and to play around with is sending them a very dangerous message.”

Maj. Christopher Miller lay awake on a cot in a filthy room, no larger than a prison cell and cluttered with weapons and ammunition. He couldn’t sleep. It was a cold January night at the Special Forces base in Kandahar, and Miller was on the verge of commanding an assault against six Qaeda fighters barricaded inside a nearby Afghan hospital. So many things could go wrong, Miller realized, and it could be disastrous if any of them did. For the first time in his life, Miller would be engaging in C.Q.B. — a military abbreviation for ”close-quarters battle.” After years of training, he would finally become, as he told me recently, a ”manager of violence.” An eight-year veteran of the Special Forces, he had never killed before, had never given an order to kill, had not even seen a dead soldier. All that would change at dawn, because men would surely die in an attack he would initiate with a one-word command: execute.

”That was the first time when I really thought of the human dimension of it,” Miller recalled. ”At first, it’s an intellectual challenge. Then you go, ‘We’re really going to do this.’ All of a sudden it dawned on me, Those bastards are in there right now and they don’t have a clue what’s fixing to come their way. It was the oddest damn thing.”

I first met Miller last December in Kandahar. We had several conversations, but he was under strict orders not to discuss his job. Yet his job — that of a new kind of soldier — interested me. The Special Forces soldiers in Afghanistan looked different, with their thick beards, fleece jackets, wraparound sunglasses and high-tech weaponry. Did they think and feel differently than the traditional foot soldier? Earlier this fall, I caught up with Miller at Fort Campbell, Ky., where the Special Forces Fifth Group is based. Safely back from battle, Miller was allowed to discuss his brand of warfare — and how he was built to carry it out.

Miller’s dawn assault on the Qaeda fighters in Kandahar, I learned, was but one step away from hand-to-hand combat. It involved grenade exchanges from a distance of just a few feet, and it finished with Miller and his men standing amid their dead and bloodied foes. ”They fought to the last minute,” he recalled. ”For these guys, surrender was not an option.” He later added, ”It was amazing to see the carnage.”

The attack was the kind of urban warfare American soldiers will be engaged in should the United States have to shoot its way into Baghdad and other Iraqi cities. When the Cold War ended, many thought that C.Q.B. would become a thing of the past. Conflicts would be fewer, and any interventions undertaken would rely on overwhelming force and precision munitions, not house-to-house fighting. Yet since 9/11 we have begun a war that may draw our soldiers into many battles involving intimate killing. What will that mean for Miller and his men?

The last time this kind of fighting occurred on a grand scale, in Vietnam, 50,000 Americans died, and many survivors had injuries that were not just physical but emotional. The clunky phrase ”post-traumatic stress disorder” entered the national lexicon. Today, the military believes, the United States is fighting an intimate war in the right way, because soldiers have been prepared and equipped in a manner that increases the prospect of their victory and decreases the prospect of their injury — whether physical or psychological. Just as smart bombs are less likely to go astray, 21st-century warriors are more lethal than before, yet less likely to suffer P.T.S.D., according to military instructors and psychologists. Dave Grossman, a former Army Ranger and West Point professor of psychology, refers to this phenomenon as ”the bulletproof mind.”

Such confident assertions may seem surprising, considering what happened this summer at Fort Bragg, N.C. Four soldiers there murdered their wives; three of the soldiers had Special Forces training and had served in Afghanistan. The news media rushed to link the murders to post-combat stress, although there is little proof and investigations continue. Military officers, not surprisingly, doubt the idea that P.T.S.D. played a significant role, and they may have a point. Fatal spouse abuse, sadly, plagues the military even in peacetime. As they see it, the furor over this incident has obscured a broader truth. Today’s Special Forces soldiers, they claim, have been unusually well trained to succeed not only at war — but also after war.

Chris Miller, the son of an Iowa cop, joined the Army Reserve after high school in 1983. He attended George Washington University on an R.O.T.C. scholarship and became, after graduation, an infantry officer. But it wasn’t long before Miller became bored with his life in the Army.

”All you have to be is physically strong,” Miller, who is the size of a linebacker, told me, sitting in his ramshackle Fort Campbell office. ”Infantry’s brain-dead. It has nothing to do with mental agility. I wanted to try the Special Forces because I was driven by the challenge, man.”

The Special Forces are a highly trained elite within the Army, specializing in unconventional warfare, which is anything from operating behind enemy lines to fighting with guerrillas in the jungle. There are about 10,000 soldiers in the Special Forces, who are also known as Green Berets. They are the core of the military’s Special Operations community, which includes what are believed to be hundreds in Delta Force, a secretive unit that performs classified counterterrorism missions, as well as Navy Seals and Special Operations units in the Air Force.

Special Forces soldiers are trained principally in North Carolina, at the U.S. Army John F. Kennedy Special Warfare Center and School at Fort Bragg. Known informally as the Schoolhouse, it’s the nerve center for an arduous two- to three-year training course. Skills taught to Special Forces soldiers include how to survive in jungles and deserts, how to leap from a plane in the jet stream and wait until the last second to open your parachute, how to stage ambushes behind enemy lines, how to escape a P.O.W. camp, how to speak foreign languages and how to kill with rifles, grenade launchers, shoulder-fired rockets and your bare hands.

When I stopped by the Schoolhouse in September, about 200 soldiers were starting their third day of training. In a dirt pit, they were hoisting logs over their heads, then shifting the logs from one shoulder to the other, then crawling through the dirt, then carrying one another on their shoulders, then doing push-ups and cartwheels, then hoisting the logs again — over and over, until some began weeping.

It was boot-camp misery multiplied by 10. Yet there was a twist, because physical misery was not the end point, as it might be in the infantry, but the starting point. I realized this as I talked beside the pit with Captain Smith, who assesses aspiring Special Forces soldiers (and insisted that I not use his first name). Smith wants to find out who can endure pain and sleep deprivation and situational uncertainty — and still make the right choices. ”We never inform them what they’re going to do, how long it’s going to go on,” he said. ”We set the conditions for ambiguity from the start. A lot of these guys are not comfortable not knowing what they’re going to do next. But a lot of times on our operations, there’s no way that you can know exactly what you’ll be doing. Strength must be combined with intelligence.”

Miller recalls his experience at the Schoolhouse vividly. ”It was the most outrageous thing,” he said, laughing loudly. ”You’re smoked, you’re physically and mentally drained, and then, boom, there’s a decision you have to make. Do I go left or right? And there’s only one right answer.”

Because Special Forces work requires nerves of steel, training never really ends. After graduating from the Schoolhouse, active soldiers on operational teams train regularly in urban environments. Every 18 months they must complete a course established at Fort Bragg called Advanced Urban Combat — that is, the storming of buildings. Of course, all Army units train for battle, but the Special Forces say they do it with far greater frequency and under conditions that are a good deal more realistic. They use live ammunition much more often. And instead of being shown once or twice how to, say, clear a room without firing guns, the Special Forces do it again and again and again, firing real bullets, until every move they might need to make in a Baghdad-type scenario becomes a reflex.

”It’s so instantaneous,” explained Master Sgt. Danny Leonard, who joined the Special Forces in 1989 and engaged in urban warfare in the Gulf War and in Afghanistan. ”You don’t even realize you did it.”

American soldiers have not always pulled the trigger with such reliability. During World War II, according to the military historian S.L.A. Marshall, as many as 80 percent of the American infantrymen he interviewed failed to fire their weapons in combat. Marshall attributed the low ”fire ratio” to a mixture of poor training and a natural reluctance to kill. Even though his methodology has come under attack — critics say his numbers are exaggerated — his premise is generally accepted, and his book, ”Men Against Fire,” is read throughout the military establishment. After it was published in 1947, the military revamped its training to make G.I.’s more comfortable firing at humans; soldiers shot at targets shaped like people rather than at bull’s-eyes, for example. Today, Special Forces units make their training as realistic as possible, using pop-up targets with human faces, and setting off smoke bombs and small explosions to simulate the battlefield experience.

Dave Grossman, who spoke to me about ”the bulletproof mind,” has written about the hidden logic behind military training. In his controversial book ”On Killing: The Psychological Cost of Learning to Kill in War and Society,” he writes: ”It is entirely possible that no one intentionally sat down to use operant conditioning or behavior modification techniques to train soldiers in this area. But from the standpoint of a psychologist who is also a historian and a career soldier, it has become increasingly obvious to me that this is exactly what has been achieved.” Grossman interprets the process of a target popping up, a soldier’s shooting the target and the soldier being praised or criticized for accuracy, as a classic conditioning model. ”What makes this training process work is the same thing that made Pavlov’s dogs salivate and B. F. Skinner’s rats push their bars,” he writes. ”What makes it work is the single most powerful and reliable behavior modification process yet discovered by the field of psychology, and now applied to the field of warfare: operant conditioning.”

Indeed, Special Forces officers openly discuss the use of ”stress inoculation” — in which they are exposed to heartbeat-racing drills that raise their threshold for staying calm. It doesn’t mean Special Forces soldiers are immune to stress or the mistakes that stress causes, but it takes a lot more to rattle one of them than an old-time draftee.

An important dose of stress inoculation occurs during a three-week training nightmare that comes at the end of the Schoolhouse course. It goes by the acronym SERE, which stands for survival, evasion, resistance and escape. SERE teaches Special Forces soldiers how to avoid and endure capture by the enemy. The exercise places them in a ”resistance-training laboratory” that is, essentially, a prisoner-of-war camp, with guard towers, barbed-wire fences, blindfolds, putrid food, irregular sleep intervals, abusive guards and brutal interrogations. Details about SERE, such as the types of punishment inflicted on the ”prisoners,” are classified; Special Forces officers told me that torture is not practiced, though they did not deny that physical pressure is applied. The unpleasantness apparently includes being buried in wood barrels. When I asked Miller about SERE, he shook his head and said, ”It is imprinted on my brain.”

Making a soldier stronger and better through stress inoculation and operant conditioning seems a bit Kubrickian — and unsettling. I wasn’t sure what to think when Col. Charles King, who commands the First Special Warfare Training Group at Fort Bragg, told me that he trains his soldiers in negotiation and combat — and that they can turn from one to the other in a split second. ”These guys have got to be able not only to work with you but to shoot you, if necessary,” he said. We laughed awkwardly, and he quickly added that Special Forces soldiers would never shoot a journalist. We laughed again, awkwardly, and I chose not to mention that a U.S. military commander had threatened to shoot a Washington Post journalist who was trying to visit a site in Afghanistan where an American airstrike appeared to have killed civilians.

Of course, the commander hadn’t actually fired his weapon. Special Forces soldiers may develop cold-blooded reflexes, but they are also trained to know when not to kill. Targets that pop up during shooting drills include women and children who are not supposed to be shot. Being able to remain steady in combat doesn’t just mean you will be a quick draw; it also means that you will do a better job of deciding when to hold your fire. As Grossman writes of the calibration of aggression: ”This is a delicate and dangerous process. Too much, and you end up with a My Lai. . . . Too little, and your soldiers will be defeated and killed by someone who is more aggressively disposed.” Colonel King put it like this: ”Our guys have got to be confident in their ability to use lethal force. But they’ve got to be principled enough to know when not to use it. We’re not training pirates.”

In Kandahar last January, the Special Forces tried to avoid a head-on clash with the Qaeda holdouts at Mirwais Hospital. A small group of Qaeda soldiers, wounded before the city fell to American-backed forces, were left behind when their fellow fighters headed for the hills. The men barricaded themselves inside a wing of the hospital and vowed a fight to the death if challenged. For more than a month, the Special Forces detachment, of which Miller was third in command, patiently waited for them to surrender.

Then one night in mid-January, one of the Qaeda fighters slipped out of the hospital, only to be surrounded by Afghan guards. He blew himself up with a grenade. Soon after, senior officers decided that any members of Al Qaeda who were in Kandahar should be in custody or dead. The Special Forces contingent was ordered to attack the six men who remained.

The Americans didn’t consider an airstrike on the building or using rocket-propelled grenades; those would have been loud and messy solutions, which the Special Forces, who refer to themselves as ”the quiet professionals,” disdain. Miller, who has a master’s degree in national security studies from the Naval War College, relishes devising fresh solutions.

During a meeting at their base in Kandahar, the Special Forces brain trust, which was led by Lt. Col. Dave Fox and included Miller and several other officers, didn’t consider a brute American assault on an Afghan hospital. Instead, the decision was made to train a squad of local Afghan soldiers to do the job, backed by the Special Forces. Miller would be the ”ground tactical commander” — that is, the manager of violence.

On the outskirts of Kandahar, at the former residence of Mullah Muhammad Omar, the Taliban leader, an ”A team” — a 12-man group that is the core fighting unit of the Special Forces — began training 25 Afghan soldiers in the finer points of storming a hostile building. A mock-up of the hospital wing was built, and the Afghans were taught to rush through the hole — the fatal funnel” — that would be blasted through a wall. They were taught to stay away from doors and windows, to clear rooms one by one before moving down a corridor and so on. Language was a problem, but translators were used and the Americans picked up essential Pashto words, such as ”shoot,” ”stop shooting” and ”grenade.”

Just before dawn on Jan. 28, everything was set. Capt. Matthew Peaks, leader of the A team that trained the Afghans, was ready. Using his code name, Python 33, he got on the radio to Miller, code-named Rambo 70, who was at a command post 150 feet away. Miller gave the order to execute the assault. The explosives blasted a hole in the wall, and a wave of Afghan soldiers rushed inside, tossing grenades down a corridor leading to the Qaeda room. The Afghans were promptly halted by an explosion, most likely of their own doing; in their eagerness to attack, they had run over their own grenades. The injured men were dragged out.

”We’ve got a bit of a problem,” Peaks radioed to Miller. ”We’ve got six guys down. The assault has stalled.”

One of Miller’s favorite words is ”knucklehead,” which he applies to most anyone he is talking about — the Taliban, his commanders, himself. When the assault stalled, Miller said he felt like the knucklehead of the moment.

A military axiom says a plan of attack rarely survives its first contact with the enemy, and it is particularly true for unconventional warfare. This is what the Special Forces are taught to expect, as I learned from Colonel King. ”You can sit people down and teach them that in situation A you do B, but what do you do when you get into a situation you never anticipated?” he said. That pretty much describes the predicament Miller was in. The first assault had failed. The Qaeda soldiers were riled up. Moreover, the grenade explosions had inadvertently started a fire inside the building. This was a problem because a building that was torched courtesy of the Special Forces would not look good on CNN.

Then something unexpected happened. Smoke prompted two Qaeda fighters to stand next to a window for fresh air. Miller had placed snipers at nearby vantage points, and one of them, just a few feet away from him, leaned over and said, ”Sir, I’ve got a guy who keeps poking his head up.”

Miller immediately told him to fire. He got on the radio and told the other sniper to shoot. One Qaeda soldier was dropped, then another. Miller gave the order for smoke grenades to be thrown inside the building, to encourage window visits by the others. But the remaining Qaeda men realized the cost of fresh air and stayed put.

They were given a final warning. ”We can end this right now!” a Special Forces soldier shouted to them in Arabic. ”We promise you won’t be mistreated.” Arabic curses were shouted back.

Miller ordered another Afghan assault. A squad of Afghans rushed inside the building but rushed out after a small explosion was heard. Peaks, who enjoys an absurd moment as much as Miller, told me, with a good laugh, what happened: ”These Afghan guys come running back to us with big wide eyes going, ‘They got grenades!’ We said, ‘Well, yes.’ ”

That’s when the decision was made for the Special Forces to go inside. This would be the real thing, C.Q.B., against an enemy eager to kill Americans. Three Special Forces fighters moved down the main corridor with three Afghans, closing in on the room where the Qaeda fighters were barricaded. The Special Forces tossed several grenades into the room, but the Qaeda men scooped them up and tossed them back. It was a lethal game of hot potato. The American team dove for cover. Staff Sgt. Joe Haralson was one of the grenade dodgers. I met him at Fort Campbell, and we talked under a gazebo as he calmly cleaned an M-4 assault rifle. He explained that before throwing the next grenade, he held onto it after releasing the pin, so that the enemy wouldn’t have time to toss it back.

”We started cookin’ them off,” Haralson said. ”Pop the pin, wait a second or two, then throw them in.”

I asked, ”The delay is how long on the grenade?”

”About three or four seconds.”

”Not much margin for error.”

”Yeah,” he replied.

Haralson’s training — or, as Grossman might describe it, his operant conditioning — helps explain why he had the presence of mind to instantly fling himself to the ground when his grenades were thrown back at him. Ordinary soldiers might freeze for a split second, and this could cost them their lives. Then Haralson, amid the violence, was able to calmly figure out, as though fine-tuning a tennis stroke, that he needed to hold a live grenade in his hand for a couple of seconds before throwing it, and then do just that.

The battle was won and months later I asked Haralson how he felt about the mission. ”Nobody is acting out of anger,” he said. ”He’s the bad guy, we’re the good guy. It’s just the way it is.”

As Sergeant Leonard told me, ”We understand the importance of what we’re doing, so if we’ve got to cap a guy, we’ll do it.” He continued: ”You’re in a zone. You’re trying to keep your people safe. So there’s a sense of elation: ‘I got him before he got me.’ I never felt sad for any of those guys. It doesn’t bother me a bit.”

It’s possible that these men were more disturbed by the killing than they let on; then again, if they were haunted by what they did, they probably would not have talked so openly about the violence they engaged in. And in general, the soldiers did not hide the after-effects of spending time in combat zones. Leonard told me that upon returning from the Gulf War, he woke up one night and noticed a red beam; thinking it was a laser, he rolled out of bed and reached for a weapon. The beam was his stereo’s power light.

The issue of post-combat stress was widely discussed after the three Special Operations soldiers returned from Afghanistan to Fort Bragg and killed their wives last summer. Those killings, and our military’s latest involvement in C.Q.B., have resurrected an old debate: is it possible to be an efficient killer one day and a good citizen the next?

”The theory that interspecies homicide is unnatural — go watch ‘Animal Planet’ for a while,” said Maj. Gary Hazlett, a psychologist at Fort Bragg. ”It’s common. We sent millions of people into combat situations in World War II and we didn’t have busloads of Charlie Mansons coming back. We had people who had gone out and done this grisly job, done it extremely well and then came back and now we’re calling them the greatest generation.” That may be true, but Vietnam veterans are a different story. It was a nastier conflict than World War II or Afghanistan: G.I.’s were killed in grisly ways by men, women and even children who did not wear uniforms, and at the same time, many Vietnamese who didn’t wear uniforms were killed. Psychologists believe that the likelihood of being haunted by killing is greatly increased when the carnage a soldier sees or engages in is hard to justify.

A recent article in Military Review, a magazine published every other month by the Army, warned that reflex-quick killing can be a psychological time bomb. ”Training soldiers to kill efficiently is good for them because it helps them survive on the battlefield,” wrote Maj. Peter Kilner, who teaches philosophy at West Point. ”However, training soldiers to kill without explaining to them why it is morally permissible to kill in combat is harmful. . . . When soldiers kill reflexively — when military training has effectively undermined their moral autonomy — they morally deliberate their actions only after the fact. If they are unable to justify what they have done, they often suffer guilt and psychological trauma.”

Miller says his sleepless night before the assault in Kandahar was his way of confronting the ethics of his actions. He zeroed in on two things — the targets were terrorists, and they had been given ample opportunity to surrender. Killing them, if it came to that, was justified. ”I needed to go through the moral calculus,” he told me. ”Once I did, I was steeled for combat. But I felt I owed it to myself to consider the implications of what was about to happen.”

Miller let out a knucklehead laugh as he said this; for him, it was a foolishly obvious point. Indeed, when the Kandahar assault was completed and he left his command post to survey the carnage he had managed, he said he did not feel horror or regret — just a grim awareness that there will be a lot more C.Q.B. for American soldiers in coming years. ”We’re going to have to hunt ’em down,” Miller said.

Miller remained in Afghanistan for almost four months and did everything he trained for: combat, patrols, surveillance, negotiations. For several crucial days, he was even in charge of security for the new leader of Afghanistan, Hamid Karzai. He completed his duties and returned home in March to his wife and three children.

That said, the experience has left its marks on Miller. North of Kandahar, before the Taliban fled, a Special Forces team was hit accidentally by a misguided smart bomb. Three men were killed, and two of them were good friends of his. ”If I could have those guys back, I would gladly give it all up,” Miller said as we sat in a planning room at his battalion headquarters, which is a surprisingly unimpressive place, with leaking pipes and mold growing on the ceiling tiles. The United States military is a $355-billion-a-year outfit, but few of those dollars are lavished on the aged cinder block buildings housing the Fifth Group. Miller continued: ”There’s probably a little guilt, like, Jesus, I wanted to see action so bad. . . . ”

Suddenly he stopped talking. He took several deep breaths, looking down at the floor. Then he hurriedly got up and headed for the bathroom. Through tears, he said, ”I promised I wasn’t going to do this.”

Several minutes elapsed. I poured myself some coffee as I waited for him to return. I was not terribly surprised by his lapse into sadness. I spent three days with him at Fort Campbell, grabbing meals with him and his Special Forces colleagues, going on a five-mile run with him in the Kentucky backwoods. I heard him laugh at himself and his commanders and the absurdity of the world around him. But I also heard him turn cold serious when the phone rang in his office and he answered with his usual greeting, ”Hello, this is not a secure line.” His temperament was adaptive, exquisitely calibrated to the moment. And here was a moment where Miller was allowing himself to be reflective.

In Special Forces training, flexibility is sought out and reinforced in recruits. Respond to the situation, they are taught; don’t be rigid, stay aware of your environment. In the model Special Forces soldier — and not all of them are, not by a long shot — those maxims apply to emotions too. Block them out in combat, but don’t ignore them afterward.

Miller emerged from the bathroom and said: ”I don’t feel guilty for wanting to do something. We wanted to go, hell, yeah. Everybody wanted to. The big lesson I took was, Be careful what you ask for, because it’s a horribly costly business. I don’t have any doubt about the value of the sacrifice. I’m not sitting here gnashing my teeth like Vietnam or something, going, ‘God, it’s such a waste, the flower of our youth.’ I mean, it was necessary. A friendly-fire accident — that happens. It’s the nature of war.” Miller had a logical argument, but emotions don’t always respond to logic.

Miller talked about other difficulties he had faced in Afghanistan. In January, Special Forces soldiers discovered a series of Taliban ammunition depots. The decision was made to blow up the dumps so that fugitive Taliban or Qaeda fighters could not sneak back and re-arm. Two ordnance experts and a medic were assigned to the job. They were all blown up doing it; either they mishandled the explosives or were killed by a booby trap.

”The most wonderful guys in the world,” Miller told me. ”We could have waited and handed it off to an engineer unit and said, ‘It’s your problem.’ We made the decision to do it ourselves right away. It was the wrong thing to do. We should have just left it. Two guys I knew really well. It shows the seriousness of the business, which I had never fully internalized. I would just laugh when my bosses would say, ‘This is a serious business.’ Well, guess what? Now I’m the moron going, ‘This is serious business.’ ”

The Special Forces are well trained, but that does not mean they will come back alive or sound, especially if they fight a war that should not be fought or embark on missions that are poorly planned. Their bodies are not bulletproof, nor are their minds. The discipline that is driven into them in training and at their bases can wear down if a war is long enough or murky enough or if they see too many of their comrades killed or injured. The ousting of the Taliban (though not what followed it) had the merit of being well executed and mercifully brief, yet still there was a price to pay.

I stayed in touch with Miller after my visit to Fort Campbell. We had developed a running joke, because he couldn’t talk to me about his next mission, which I knew was Iraq, and which he knew I knew was Iraq. The soldiers of the Fifth Group specialize in the Middle East, and they wear desert fatigues even at Fort Campbell, with their names printed above their breast pockets in Arabic. I would ask, when I called Miller, how things were going, and as September became October and Congress passed a resolution authorizing war, his responses went from ”not doing much” to ”it’s getting busier” to ”real busy.”

”If there’s going to be a fight, we want to be in it,” he said last month. ”But it’s more deliberate this time. Last time, it really was naivete.” He mentioned that the widows and children of his fallen friends still live in his close community; he is reminded of their sacrifice every day. ”The cost is huge and it requires serious deliberation. I’m privileged and truly want to be a part of it, but it’s not cheap. It’s not a big laugh.”

Peter Maass is the author of ”Love Thy Neighbor: A Story of War,” his memoir of the conflict in Bosnia. He is a contributing writer for the magazine.

http://www.nytimes.com/2002/11/10/magazine/ 10SPECIAL.html?ex37967029&ei=1&enb40f3dd2e6d3e11 .

Copyright 2002 The New York Times Company

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Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety. – Ben Franklin (1706-1790) Historical Review of Constitution and Government of Pennsylvania.

On 27 October 2002

The Observer, London

The ENEMY WITHIN by Gore Vidal

On 24 August, 1814, things looked very dark for freedom1s land. That was the day the British captured Washington DC and set fire to the Capitol and the White House. President Madison took refuge in the nearby Virginia woods where he waited patiently for the notoriously short attention span of the Brits to kick in, which it did. They moved on and what might have been a Day of Utter Darkness turned out to be something of a bonanza for the DC building trades and up-market realtors.

One year after 9/11, we still don’t know by whom we were struck that infamous Tuesday, or for what true purpose. But it is fairly plain to many civil libertarians that 9/11 put paid not only to much of our fragile Bill of Rights but also to our once-envied system of government which had taken a mortal blow the previous year when the Supreme Court did a little dance in 5/4 time and replaced a popularly elected president with the oil and gas Cheney-Bush junta.

Meanwhile, our more and more unaccountable government is pursuing all sorts of games around the world that we the spear- carriers (formerly the people) will never learn of. Even so, we have been getting some answers to the question: why weren1t we warned in advance of 9/11? Apparently, we were, repeatedly; for the better part of a year, we were told there would be unfriendly visitors to our skies some time in September 2001, but the government neither informed nor protected us despite Mayday warnings from Presidents Putin and Mubarak, from Mossad and even from elements of our own FBI. A joint panel of congressional intelligence committees reported (19 September 2002, New York Times) that as early as 1996, Pakistani terrorist Abdul Hakim Murad confessed to federal agents that he was learning to fly in order to crash a plane into CIA HQ.

Only CIA director George Tenet seemed to take the various threats seriously. In December 1998, he wrote to his deputies that “we are at war” with Osama bin Laden. So impressed was the FBI by his warnings that by 20 September 2001, “the FBI still had only one analyst assigned full time to al-Qaeda”.

From a briefing prepared for Bush at the beginning of July 2001: “We believe that OBL (Osama bin Laden) will launch a significant terrorist attack against US and/or Israeli interests in the coming weeks. The attack will be spectacular and designed to inflict mass casualties against US facilities or interests. Attack preparations have been made. Attack will occur with little or no warning.” And so it came to pass; yet Condoleezza Rice, the National Security Advisor, says she never suspected that this meant anything more than the kidnapping of planes.

Happily, somewhere over the Beltway, there is Europe-recently declared anti-semitic by the US media because most of Europe wants no war with Iraq and the junta does, for reasons we may now begin to understand thanks to European and Asian investigators with their relatively free media.

On the subject, “how and why America was attacked on 11 September 2001”, the best, most balanced report, thus far is by Nafeez Mossadeq Ahmed… Yes, yes, I know he is one of Them. But they often know things that we don1t-particularly about what we are up to. A political scientist, Ahmed is executive director of the Institute for Policy Research and Development “a think-tank dedicated to the protection of human rights, justice and peace” in Brighton. His book, The War on Freedom, has just been published in the US by a small, but reputable publisher.

Ahmed provides a background for our ongoing war against Afghanistan, a view that in no way coincides with what the administration has told us. He has drawn on many sources, most tellingly on American whistle-blowers who are beginning to come forth and bear witness ? like those FBI agents who warned their superiors that al-Qaeda was planning a kamikaze strike against New York and Washington only to be told that if they went public with these warnings under the National Security Act. Several of these agents have engaged David P. Schippers, chief investigative counsel for the US House Judiciary Committee, to represent them in court. That majestic Schippers managed the successful impeachment of President Clinton in the House of Representatives. He may, if the Iraqi war should go wrong, be obliged to perform the same high service for Bush, who allowed the American people to go unwarned about an imminent attack upon two of our cities as preemption of a planned military strike by the US against the Taliban.

The Guardian (26 September 2001) reported that in July 2001, a group of interested parties met in a Berlin hotel to listen to a former State Department official, Lee Coldren, as he passed on a message from the Bush administration that “the United States was so disgusted with the Taliban that they might be considering some military action the chilling quality of this private warning was that it came-according to one of those present, the Pakistani diplomat Niaz Naik-accompanied by specific details of how Bush would succeed…” Four days earlier, the guardian had reported that “Osama bin Laden and the Taliban received threats of possible American military action against them two months before the terrorist assaults on New York and Washington… (which) raises the possibility that bin Laden was launching a pre-emptive strike in response to what he saw as US threats.” A replay of the ‘day of infamy’ in the Pacific 62 years earlier?

Why the US needed a Eurasian adventure

On 9 September 2001, Bush was presented with a draft of a national security presidential directive outlining a global campaign of military, diplomatic and intelligence action targeting al-Qaeda, buttressed by the threat of war. According to NBC News: ‘President Bush’ was expected to sign detailed plans for a worldwide war against al-Qaeda but did not have a chance before the terrorist attacks… The directive, as described to NBC News, was essentially the same war plan as the one put into action after 11 September. The administration most likely was able to respond so quickly… because it simply had to pull the plans “off the shelf”.”

Finally, BBC News, 18 September 2001: “Niaz Naik, a former Pakistani foreign secretary, “was told by senior American officials in mid-July that military action against Afghanistan would go ahead by the middle of October. It was Naik1s view that Washington would not drop its war for Afghanistan even if bin Laden were to be surrendered immediately by the Taliban.”

Was Afghanistan then turned to rubble in order to avenge the 3,000 Americans slaughtered by Osama? Hardly. The administration is convinced that Americans are so simple minded that they can deal with no scenario more complex than the venerable lone, crazed killer (this time with zombie helpers) who does evil just for the fun of it ’cause he hates us, ’cause we’re rich ‘n and free ‘n he’s not, Osama was chosen on aesthetic grounds to be the frightening logo for our long-contemplated invasion and conquest of Afghanistan, planning for which had been “contingency” some years before 9/11 and, again, from 20 December 2000, when Clinton1s outgoing team devised a plan to strike at al-Qaeda in retaliation for the assault on the warship Cole. Clinton1s National Security Adviser, Sandy Berger, personally briefed his successor on the plan but Rice, still very much in her role as a director of Chevron-Texaco, with special duties regarding Pakistan and Uzbekistan, now denies any such briefing. A year and a half later (12 August 2002), fearless Time magazine reported this odd memory lapse.

Osama, if it was he and not a nation, simply provided the necessary shock to put in train a war of conquest. But conquest of what? What is there in dismal in dry sandy Afghanistan worth conquering? Zbigniew Brzezinski tells us exactly what in a 1997 Council on Foreign Relations study called The Grand Chessboard: American Primacy and its Geostrategic Imperitives.

The Polish-born Brzezinski was the hawkish National Security Adviser to President Carter. In The Grand Chessboard, Brzezinski gives a little history lesson. “Ever sense the continents started interacting politically, some 500 years ago, Eurasia has been the centre of world power.” Eurasia is all the territory east of Germany. This means Russia, the Middle East, China, and parts of India. Brzezinski acknowledges that Russia and China, bordering oil rich central Asia, are the two main powers threatening US hegemony in that area.

He takes it for granted that the US must exert control over the former Soviet Republics of Central Asia, know to those who love them as “the Stans”: Turkmenistan, Uzbekistan, Tajikstan and Kyrgyzstan all ‘of importance from the standpoint of security and historical ambitions to at least three of their most immediate and most powerful neighbors-Russia, Turkey and Iran, with China signaling’. Brzezinski notes how the world’s energy consumption keeps increasing; hence, who controls Caspian oil/gas will control the world economy. Brzezinski then, reflexively, goes into the standard American rationalization for empire. We want nothing, ever, for ourselves, only to keep bad people from getting good things with which to hurt good people. It follows that Americas primary interest is to help ensure that no single (other) power comes to control the geopolitical space and that the global community has unhindered financial and economic access to it.”

Brzezinski is quite aware that American leaders are wonderfully ignorant of history and geography so he really lays it on, stopping just short of invoking politically incorrect manifest destiny. He reminds the Council just how big Eurasia is. Seventy-five percent of the worlds population is Eurasian. If I have done the sums right, that means weve only got control, to date, of a mere 25 percent of the world1s folks. More! Eurasia accounts for 60% of the worlds GNP and three-fourths of the world1s known energy resources.”

Brzezinskis master plan for our globe has obviously been accepted by the Cheney-Bush junta. Corporate America, long over-excited by Eurasian mineral wealth, has been aboard from the beginning.

Ahmed sums up: Brzezinski clearly envisaged that the establishment, consolidation and expansion of US military hegemony over Eurasia through Central Asia would require the unprecedented open-ended militarisation of foreign policy, coupled with an unprecedented manufacture of domestic support and consensus on this militarisation campaign.

Afghanistan is the gateway of all these riches. Will we fight to seize them? It should never be forgotten that the American people in either of the twentieth century1s world wars but President Wilson maneuvered us into the first while Roosevelt maneuvered the Japanese into striking the first blow at Pearl Harbor, causing us to enter the second as the result of a massive external attack. Brzezinski understands all this and, in 1997, he is thinking ahead-as well as backward. “Moreover, as America becomes an increasingly multicultural society, it may find it more difficult to fashion a consensus on foreign policy issues, except in the circumstance of a truly massive and widely perceived direct external threat.” Thus was the symbolic gun produced that belched black smoke over Manhattan and the Pentagon.

Since the Iran-Iraq wars, Islam has been demonised as a Satanic terrorist cult that encourages suicide attacks – contrary, it should be noted, to the Islamic religion. Osama has been portrayed, accurately, it would seem, as an Islamic zealot. In order to bring this evil-doer to justice (“dead or alive”), Afghanistan, the object of the exercise, was made safe not only for democracy but for Union oil of California whose proposed pipeline from Turkmenistan to Afghanistan to Pakistan and the Indian Ocean port of Karachi, had been abandoned under the Taliban1s chaotic regime. Currently, the pipeline is a go-project thanks to the junta’s installation of a Unocal employee (John J. Maresca) as US envoy to the newly born democracy whose president, Hamid Karzai, is also, according to Le Monde, a former employee of a Unocal subsidiary. Conspiracy? Coincidence!

Once Afghanistan looked to be within the fold, the junta, which had managed to pull off a complex diplomatic-military caper, abruptly replaced Osama, the personification of evil, with Saddam. This has been hard to explain since there is nothing to connect Iraq with 9/11. Happily, “evidence” is now being invented, but it is uphill work, not helped by stories in the press about the vast oil wealth of Iraq which must ? for the sake of the free world- be reassigned to us and European Consortiums.

As Brzezinski foretold, “a truly and massive and widely perceived direct external threat made it possible for the president to do a war dance before congress. “A long war!” he shouted with glee. Then he named and incoherent axis of evil to be fought. Although Congress did not give him the FDR Special-a declaration of war-he did get permission to go after Osama who may now be skulking in Iraq.

Bush and the dog that did not bark

Post – 9/11, the American media were filled with pre-emptory denunciations of unpatriotic conspiracy theorists, who not only are always with us but are usually easy for the media to discredit since it is an article of faith that there are no conspiracies in American life. Yet, a year or so ago, who would have thought that the most corporate America had been conspiring with accountants to cook their books since ? well, at least the bright dawn of the age of Reagen and deregulation. Ironically, less that a year after the massive danger from without, we were confronted with an even greater enemy from within: Golden Calf Capitalism. Transparency? One fears that greater transparency will only reveal armies of maggots at work beneath the skin of a culture that needs a bit of a lie-down in order to collect itself before taking its next giant step which is to conquer Eurasia, a potentially fatal adventure not only for our frazzled institutions but for us the presently living.

Complicity. The behavior of President George W. Bush on 11 September certainly gives rise to all sorts of not unnatural suspicions. I can think of no other modern chief of state who would continue to pose for warm pictures of himself listening to a young girl telling stories about her pet goat while hijacked planes were into three famous buildings.

Constitutionally, Bush is not only chief of state, he is commander-in-chief of the armed forces. Normally, a commander in such a crisis would go straight to headquarters and direct operations while receiving the latest intelligence.

This is what Bush actually did-or did not do-according to Stan Goff, a retired US Army veteran who has taught military science and doctrine at West Point. Goff writes, in The So-called Evidence is a Farce: “I have no idea why people arent asking some very specific questions about the actions of Bush and company on the day of the attacks. Four planes get hijacked and deviate from their plan, all the while on FAA radar.”

Goff, incidentally, like the other astonished military experts, cannot fathom why the government’s automatic ‘standard order of procedure in the event of a hijacking’ was not followed. Once a plane has deviated from its flight-plan, fighter planes are sent up to find out why. That is law and does not require presidential approval, which only needs to be given if there is a decision to shoot down a plane. Goff spells it out: The planes were hijacked between 7:45 and 8:10 am. Who is notified? This is an event already that is unprecedented. But the President is not notified and going to a Florida elementary school to hear children read.

By around 8:15 am it should be very apparent that something is terribly wrong. The President is glad-handing teachers. By 8:45 when American Airlines Flight 11 crashes into the North Tower, Bush is settling in with children for his photo op. Four planes have obviously been hijacked simultaneously and one has just dived into the twin towers, and still no one notifies the nominal Commander-in-Chief. ‘No one has apparently scrambled (sent aloft) Air Force interceptors either. At 9:03, Flight 175 crashes into the South Tower. At 9:05 Andrew Card, the Chief of Staff whispers to Bush (who) ‘briefly turns sombre’ according to reporters. Does he cancel the school visit and convene an emergency meeting? No. He resumes listening to second graders… and continues the banality even as American Airlines Flight 77 conducts an unscheduled point turn over Ohio and heads in the direction of Washington DC.

‘Has he instructed Card to scramble the Air Force? No. An excruciating 25 minutes later, he finally deigns to give a public statement telling the United States what they have already figured out ? that there1s been an attack on the World Trade Centre. There1s a hijacked plane bee-lining to Washington, but has the Air Force been scrambled to defend anything yet? No.

At 9:35, this plane conducts another turn, 360 degree over the Pentagon, all the while being tracked by radar, and the Pentagon is not evacuated, and there are still no fast-movers from the Air Force in the sky over Alexandria and DC. Now the real kicker: a pilot they want us to believe was trained at a Florida puddle-jumper school Piper Cubs and Cessnas, conducts a well-controlled downward spiral descending the last 7,000 feet in two-and-a-half minutes, brings the plane in so low and flat that it clips the electrical wires from across the street from the Pentagon, and flies it with pinpoint accuracy into the side of the building at 460 knots.

When the theory about learning to fly this well at the puddle-jumper school began to lose ground, it was added that they received further training on a flight simulator. This is like saying you prepared your teenager for her first drive on the freeway at rush hour by buying her a video driving game There is a story being constructed about these events.

There is indeed and the more it is added to the darker it becomes. The nonchalance of General Richard B. Myers, acting Joint Chief of Staff, is as puzzling as the Presidents campaigning-as-usual act. Meyers was at the Capitol chatting with Senator Max Cleland. A sergeant, writing later in the AFPS (American Forces Press Service) describes Myers at the Capitol. While in an outer office, he said, he saw a television report that a plane had hit the World Trade Centre. “They thought it was a small plane or something like that,” Myers said. So the two men went ahead with the office call.

Whatever Myers and Cleland had to say to each other (more funds for the military?) must have been riveting because, during their chat, the AFPS reports, the second tower was hit by another jet. “nobody informed us of that,” Myers said. “But when we came out, that was obvious. Then, right at that time, somebody said the Pentagon had been hit.” Finally, somebody thrust a cellphone in Myers hand and, as if by magic, the commanding general of Norad ? our Airspace Command ? was on the line just as the hijackers mission had been successfully completed except for the failed one in Pennsylvania. In later testimony to the Senate Armed Forces Committee, Myers says he thinks that, as of his cellphone talk with Norad, the decision was at that point to start launching aircraft, It was 9:40 AM. One hour and 20 minutes after air controllers knew that Flight 11 had been hijacked; 50 minutes after the North Tower was struck.

This statement would have been quite enough in our old serious army/air force to launch a number of courts martial with an impeachment or two thrown in. First, Myers claims to be uninformed until the third strike. But the Pentagon had been overseeing the hijacked planes from at least the moment of the strike at the first tower: yet not until the third strike, at the Pentagon, was the decision made to get the fighter planes up. Finally, this one is the dog that did not bark. By law, the fighters should have been up at around 8:15. If they had, all the hijacked planes might have been diverted or shot down. I don1t think Goff is being unduly picky when he wonders who and what kept the Air Force from following its normal procedure instead of waiting an hour and 20 minutes until the damage was done and only then launching the fighters. Obviously, somebody had ordered the Air Force to make no move to intercept those hijackings until… what?

On 21 January 2002, the Canadian media analyst Barry Zwicker summed up on CBS-TV: That morning no interceptors responded in a timely fashion to the highest alert situation. This includes the Andrews squadrons which are 12 miles from the White House Whatever the explanation for the huge failure, there have been no reports, to my knowledge, of reprimands. This further weakens the “Incompetence Theory”. Incompetence usually earns reprimands. This causes me to ask whether there were “stand down” orders.?? On 29 August 2002, the BBC reports that on 9/11 there were only four-fighters on ready status in the north-eastern US. Conspiracy? Coincidence? Error?

It is interesting how often in our history, when disaster strikes, incompetence is considered a better alibi than well, yes, there are worse things. After Pearl Harbor, Congress moved to find out why Hawaiis two military commanders, General Short and Admiral Kimmel, had not anticipated the Japanese attack. But President Roosevelt pre-empted that investigation with one of his own. Short and Kimmel were broken for incompetence. The truth is still obscured to this day.

The medias weapons of mass distraction

BUT PEARL HARBOR has been much studied. 11 September, it is plain, is never going to be investigated if Bush has anything to say about it. In January 2002, CNN reported that Bush personally asked Senate Majority Leader Tom Daschle to limit the Congressional investigation into the events of 11 September The request was made at a private meeting with Congressional leaders Sources said Bush initiated the conversation He asked that only the House and Senate intelligence committees look into the potential breakdowns among federal agencies that could have allowed the terrorist attacks to occur, rather than a broader inquiry Tuesdays discussion followed a rare call from Vice President Dick Cheney last Friday to make the same request

The excuse given, according to Daschle, was that resources and personnel would be taken away from the war on terrorism in the event of a wider inquiry. So for reasons that we must never know, those breakdowns are to be the goat. That they were more likely to be not break- but stand-downs is not for us to pry. Certainly the one-hour 20-minute failure to put fighter planes in the air could not have been due to a breakdown throughout the entire Air Force along the East Coast. Mandatory standard operating procedure had been told to cease and desist.

Meanwhile, the media were assigned their familiar task of inciting public opinion against bin Laden, still not the proven mastermind. These media blitzes often resemble the magicians classic gesture of distraction: as you watch the rippling bright colours of his silk handkerchief in one hand, he is planting the rabbit in your pocket with the other. We were quickly assured that Osamas enormous family with its enormous wealth had broken with him, as had the royal family of his native Saudi Arabia. The CIA swore, hand on heart, that Osama had not worked for them in the war against the Soviet occupation of Afghanistan. Finally, the rumour that Bush family had in any way profited by its long involvement with bin Laden family was ? what else? ? simply partisan bad taste.

But Bush Jrs involvement goes back at least to 1979 when his first failed attempt to become a player in the big Texas oil league brought him together with one James Bath of Houston, a family friend, who gave Bush Jr. $50,000 for a 5 per cent stake in Bushs firm Arbusto Energy. At this time, according to Wayne Madsen (In These Times ? Institute for Public Affairs No. 25), Bath was the sole US business representative for Salem bin Laden, head of the family and a brother (one of 17) to Osama bin Laden In a statement issued shortly after the 11 September attacks, the White House vehemently denied the connection, insisting that Bath invested his own money, not Salem bin Ladens in Arbusto. In conflicting statements, Bush at first denied ever knowing Bath, then acknowledged his stake in Arbusto and that he was aware Bath represented Saudi interests after several reincarnations, Arbusto emerged in 1986 as Harken Energy Corporation.

Behind the junior Bush is the senior Bush, gainfully employed by the Carlyle Group which has ownership in at least 164 companies worldwide, inspiring admiration in that staunch friend to the wealthy, the Wall Street Journal, which noted, as early as 27 September 2001, If the US boosts defence spending in its quest to stop Osama bin Ladens alleged terrorist activities, there may be one unexpected beneficiary: bin Ladens family is an investor in a fund established by Carlyle Group, a well connected Washington merchant bank specialising in buyouts of defence and aerospace companies Osama is one of more than 50 children of Mohammed bin Laden, who built the familys $5 billion business.

But Bush pere et fils, in pursuit of wealth and office, are beyond shame or, one cannot help but think, good sense. There is a suggestion that they are blocking investigation of the bin Laden connection with terrorism. Agence France Press reported on 4 November 2001: FBI agents probing relatives of Saudi-born terror suspect Osama were told to back off soon after George W. Bush became president According to BBC TVs News-night (6 Nov 2001), just days after the hijackers took off from Boston aiming for the Twin Towers, a special charter flight out of the same airport whisked 11 members of Osamas family off to Saudi Arabia. That did not concern the White House, whose official line is that the bin Ladens are above suspicion. Above the Law (Green Press, 14 February 2002) sums up: We had what looked like the biggest failure of the intelligence community since Pearl Harbor but what we are learning now is it wasnt a failure, it was a directive. True? False? Bush Jr will be under oath during the impeachment interrogation. Will we hear What is a directive? What is is?

Although the US had, for some years, fingered Osama as a master-mind terrorist, no serious attempt had been made pre-9/11 to bring him to justice dead or alive, innocent or guilty, as Texan law of the jungle requires. Clintons plan to act was given to Condoleezza Rice by Sandy Berger, you will recall, but she says she does not.

As far back as March 1996 when Osama was in Sudan, Major General Elfatih Erwa, Sudanese Minister for Defense, offered to extradite him. According to the Washington Post (3 October 2001), “Erwa said he would happily keep close watch on bin Laden for the United States. But if that would not suffice, the government was prepared to place him in custody and hand him over (US officials) said, “just ask him to leave the country. Just dont let him go to Somalia”, where he had once been given credit for the successful al-Qaeda attack on American forces in 93 that killed 18 Rangers.” Erwa said in an interview, “We said he will go to Afghanistan, and they (US officials) said, “Let him.”

In 1996 Sudan expelled Osama and 3,000 of his associates. Two years later the Clinton administration, in the great American tradition of never having to say thank you for Sudans offer to hand over Osama, proceeded to missile-attack Sudans al-Shifa pharmaceutical factory on the grounds that Sudan was harboring bin Laden terrorists who were making chemical and biological weapons when the factory was simply making vaccines for the UN.

Four years later, John ONeill, a much admired FBI agent complained in the Irish Times a month before the attacks, “The US State Department-and behind it the off lobby who make up President Bushs entourage ? blocked attempts to prove bin Ladens guilt. The US ambassador to Yemen forbade ONeill (and his FBI team) from entering Yemen in August 2001. ONeill resigned in frustration and took on a new job as head of security at the World Trade Centre. He died in the 11 September attack.” Obviously, Osama has enjoyed bipartisan American support since his enlistment in the CIA1s war to drive the Soviets out of Afghanistan. But by 9/11 there was no Soviet occupation of Afghanistan, indeed there was no Soviet Union.

A World Made Safe for Peace and Pipelines

I watched Bush and Cheney on CNN when the Axis of Evil speech was given and the long war proclaimed. Iraq, Iran and North Korea were fingered as enemies to be clobbered because they might or might not be harboring terrorists who might or might not destroy us in the night. So we must strike first whenever it pleases us. Thus, we declared “war on terrorism” ? an abstract noun which cannot be a war at all as you need a country for that. Of course, there was innocent Afghanistan, which was leveled from a great height, but then whats collateral damage ? like an entire country ? when youre targeting the personification of all evil according to Time and the NY Times and the networks?

As it proved, the conquest of Afghanistan had nothing to do with Osama. He was simply a pretext for replacing the Taliban with a relatively stable government that would allow Union Oil of California to lay its pipeline for the profit of, among others, the Cheney-Bush junta.

Background? All right. The headquarters of Unocal are, as might be expected, in Texas. In December 1997, Taliban representatives were invited to Sugarland, Texas. At that time, Unocal had already begun training Afghan men in pipeline construction, with US government approval. BBC News, (4 December 1997): A spokesperson for the company Unocal said the Taliban were expected to spend several days at the companys (Texas) Headquarters a BBC regional correspondent says the proposal to build a pipeline across Afghanistan is part of an international scramble to profit from developing the rich energy resources of the Caspian Sea. The Inter Press Service (IPS) reported: some Western businesses are warming up to the Taliban despite the movements institutionalization of terror, massacres, abductions and impoverishment. CNN (6 October 1996): The United States wants good ties (with the Taliban) but cant openly seek them while women are being oppressed.

The Taliban, rather better organized than rumoured, hired for PR one Leila Helms, a niece of Richard Helms, former Director of the CIA. In October 1996, the Frankfurter Rundschau reported that Unocal has been given the go ahead from the new holders of power in Kabul to build a pipeline from Turkmenistan via Afghanistan to Pakistan This was a real coup for Unocal as well as other candidates for pipelines, including Condoleezzas old employer Chevron. Although the Taliban was already notorious for its imaginative crimes against the human race, the Wall Street Journal, scenting big bucks, fearlessly announced: “Like them or not, the Taliban are the players most capable of achieving peace in Afghanistan at this moment in history.” The NY Times (26 May 1997) leapt aboard the pipeline juggernaut. The Clinton administration has taken the view that a Taliban victory would act as counterweight to Iran and would offer the possibility of new trade routes that could weaken Russian and Iranian influence in the region.

But by 1999, it was clear that the Taliban could never provide us the security we would need to protect our fragile pipelines. The arrival of Osama as warrior for Allah on the scene refocused, as it were, the bidding. New alliances were now being made. The Bush administration soon buys the idea of an invasion of Afghanistan, Frederick Starr, head of the Central Asia Institute at Johns Hopkins University, wrote in the Washington Post (19 December, 2000): The US has quietly begun to align itself with those in the Russian government calling for military action against Afghanistan and has toyed with the idea of a new raid to wipe out bin Laden.

Although with much fanfare we went forth to wreak our vengeance on the crazed sadistic religious zealot who slaughtered 3,000 American citizens, once that war was under way, Osama was dropped as irrelevant and so we are back to the Unocal pipeline, now a go-project. In the light of what we know today, it is unlikely that the junta was ever going to capture Osama alive: he has tales to tell. One Defense Secretary Donald Rumsfeld1s best number now is: “Where is he? Somewhere? Here? There? Somewhere? Who knows?” And we get his best twinkle. He must also be delighted ? and amazed ? that the media have bought the absurd story that Osama, If alive, would still be in Afghanistan, underground, waiting to be flushed out instead of in a comfortable mansion in Osama-loving Jakarta, 2,000 miles to the East and easily accessible by the Flying Carpet One.

Many commentators of a certain age have noted how Hitlerian our junta sounds as it threatens first one country for harbouring terrorists and then another. It is true that Hitler liked to pretend to be the injured ? or threatened ? party before he struck. But he had many great predecessors not lest Imperial Rome. Stephen Gowans War in Afghanistan : A $28 Billion Racket quotes Joseph Schumpeter who, “in 1919, described ancient Rome in a way that sounds eerily like the United States in 2001: “There was no corner of the known world where some interest was not alleged to be in danger or under actual attack. If the interests were not Roman, they were those of Romes allies; and if Rome had no allies, the allies would be invented The fight was always invested with an aura of legality. Rome was always being attacked by evil-minded neighbors.” We have only outdone the Romans in turning metaphors such as the war on terrorism, or poverty, or Aids into actual wars on targets we appear, often, to pick at random in order to maintain turbulence in foreign lands.

As of 1 August 2002, trial balloons were going up all over Washington DC to get world opinion used to the idea the Bush of Afghanistan had gained a title as mighty as his fathers Bush of the Persian Gulf and Junior was now eager to add Iraq-Babylon to his diadem. These various balloons fell upon Europe and the Arab world like so many lead weights. But something new has been added since the classic Roman Hitlerian mantra, they are threatening us, we must attack first. Now everyone is more or less out in the open. The International Herald Tribune wrote in August 2002: The leaks began in earnest on 5 July, when the New York Times described a tentative Pentagon plan that it said called for an invasion by a US force of up to 250,000 that would attack Iraq from the north, south and west. On 10 July, the Times said that Jordan might be used as a base for the invasion. The Washington Post reported, 28 July, that “many senior US military officers contend that Saddam Hussein poses no immediate threat” And the status quo should be maintained. Incidentally, this is the sort of debate that the founding fathers intended the Congress, not the military bureaucrats, to conduct in the name of we the people. But that sort of debate has, for a long time, been denied us.

One refreshing note is now being struck in a fashion unthinkable in imperial Rome: the cheerful admission that we habitually resort to provocation. The Tribune continues: Donald Rumsfeld has threatened to jail anyone found to have been behind the leaks. But a retired army general, Fred Woerner, tends to see a method behind the leaks. “We may already be executing a plan,” he said recently. “Are we involved in a preliminary psychological dimension of causing Iraq to do something to justify a US attack or make concessions? Somebody knows. That is plain.

Elsewhere in this interesting edition of the Herald Tribune wise William Pfaff writes: A second Washington debate is whether to make an unprovoked attack on Iran to destroy a nuclear power reactor being built with Russian assistance, under inspection by the International Atomic Energy Agency, within the terms of the Nuclear Non-proliferation Treaty of which Iran is a signatory No other government would support such an action, other than Israil’ (which) would do so not because it expected to be attacked by Iran but because it, not unjustifiably, opposes any nuclear capacity in the hands of any Islamic government.

Suspect states and the tom-toms of revenge

Of all the enemies to public liberty, war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. As the parent of armies, war encourages debts and taxes, the known instrument for bringing the many under the domination of the few. In war, too, the discretionary power of the executive is extended and all the means of seducing the minds, are added to those of subduing the force, or the people Thus, James Madison warned us at the dawn of our republic.

Post 9/11, thanks to the domination of the few, Congress and the media are silent while the executives, through propaganda and skewed polls, seduces the public mind as hitherto unthinkable centres of power like Homeland Defence (a new Cabinet post to be placed on top of the Defence Department) are being constructed and 4 percent of the country has recently been invited to join Tips, a civilian spy system to report on anyone who looks suspicious or who objects to what the executive is doing at home or abroad?

Although every nation knows how ? if it has the means and the will ? to protect itself from thugs of the sort that brought us 9/11, war is not an option. Wars are for nations not rootless gangs. You put a price on their heads and hunt them down. In recent years, Italy has been doing just that with the Sicilian Mafia; and no one has yet suggested bombing Palermo.

But the Cheney-Bush junta wants a war in order to dominate Afghanistan, build a pipeline, gain control of the oil of Eurasias Stans for their business associates as well as to do as much damage to Iraq and Iran on the grounds that one day those evil countries may carpet our fields of amber, grain with anthrax or something.

The media, never much good at analysis, are more and more breathless and incoherent. On CNN, even the stolid Jim Clancy started to hyperventilate when an Indian academic tried to explain how Iraq was once our ally and friend in its war against our Satanic enemy Iran. None of that conspiracy stuff snarled Clancy. Apparently, conspiracy stuff is now shorthand for unspeakable truth.

As of August, at least among economists, a censensus was growing that, considering our vast national debt (we borrow $2 billion a day to keep the government going) and a tax base seriously reduced by the junta in order to benefit the 1 per cent who own most of the national wealth, there is no way that we could ever find the billions needed to destroy Iraq in a long war or even a short one, with most of Europe lined up against us. Germany and Japan paid for the Gulf War, reluctantly ? with Japan, at the last moment, irritably quarreling over the exchange rate at the time of the contract. Now Germanys Schroder has said no. Japan is mute.

But the tom-toms keep beating revenge; and the fact that most of the world is opposed to our war seems only to bring hectic roses to the cheeks of the Bush administration (Bush Snr of the Carlyle Group, Bush Jnr formerly of Harken, Cheney, formerly of Halliburton, Rice, formerly of Chevron, Rumsfeld, formerly of Occidental). If ever an administration should recluse itself in matters dealing with energy, it is the current junta. But this is unlike any administration in our history. Their hearts are plainly elsewhere, making money, far from our mock Roman temples, while we, alas, are left only with their heads, dreaming of war, preferably against weak peripheral states.

Mohammed Heikel is a brilliant Egyptian journalist-observer, and sometime Foreign Minister, On 10 October 2001, he said to the Guardian: Bin Laden does not have the capabilities for an operation of this magnitude. When I hear Bush talking about al-Qaeda as if it were Nazi Germany or the Communist Party of the Soviet Union, I laugh because I know what is there. Bin Laden has been under surveillance for years: every telephone call was monitored and al-Qaeda has been penetrated by US intelligence, Pakistani intelligence, Saudi intelligence, Egyptian intelligence. They could not have kept secret an operation that required such a degree of organization and sophistication.

The former president of Germanys domestic intelligence service, Eckehardt Werthebach ( American Free Press, 4 December 2001) spells it out. The 9/11 attacks required years of planning while their scale indicates that they were a product of state-organized actions. There it is. Perhaps, after all, Bush Jnr was right to call it a war. But which state attacked us?

Will the suspects please line up. Saudi Arabia? No, no. Why we are paying you $50 million a year for training the royal bodyguard on our own holy if arid soil. True the kingdom contains many wealthy well-educated enemies but Bush Snr and Jnr exchange a knowing look. Egypt? No way. Dead broke despite US baksheesh. Syria? No funds. Iran? Too proud to bother with a parvenu state like the US. Israel? Sharon is capable of anything. But he lacks the guts and the grace of the true kamikaze. Anyway, Sharon was not in charge when this operation began with the planting of sleepers around the US flight schools 5 or 6 years ago. The United States? Elements of corporate America would undeniably prosper from a massive external attack that would make it possible for us to go to war whenever the President sees fit while suspending civil liberties. (The 342 pages of the USA Patriot Act were plainly prepared before 9/11.) Bush Snr and Jnr are giggling now. Why? Because Clinton was president back then. As the former president leaves the line of suspects, he says, more in anger than in sorrow: “When we left the White House we had a plan for an all-out war on al-Queda. We turned it over to this administration and they did nothing. Why Biting his lip, he goes. The Bushes no longer giggle. Pakistan breaks down: I did it! I confess! I couldnt help myself. Save me. I am an evil-doer!

Apparently, Pakistan did do it ? or some of it. We must now go back to 1979 when the largest covert operation in history of the CIA was launched in response to the Soviet invasion of Afghanistan. Central Asia specialist Ahmed Rashid wrote (Foreign Affairs, November-December 1999): With the active encouragement of the CIA and Pakistans ISI (Inter Services Intelligence) who wanted to turn the Afghan jihad into a global war, waged by all Muslim states against the Soviet Union, some 35,000 Muslim radicals, from 40 Islamic countries joined Afghanistans fight between 1982 and 92 more than 100,000 foreign Muslim radicals were directly influenced by the Afghanistan jihad. The CIA covertly trained and sponsored these warriors.

In March 1985, President Reagan issued National Security Decision Directive 166, increasing military aid while CIA specialists met with the ISI counterparts near Rawalpindi, Pakistan. Janes Defence Weekly (14 September 2001) gives the best overview: The trainers were mainly from Pakistans ISI agency who learnt their craft from American Green Beret commandos and Navy Seals in various US training establishments. This explains the reluctance of the administration to explain why so many unqualified persons, over so long a time, got visas to visit our hospitable shores. While in Pakistan, mass training of Afghan (zealots) was subsequently conducted by the Pakistan army under the supervision of the elite Special Services In 1988, with US knowledge, bin Laden created al-Qaeda (The Base); a conglomerate of quasi-independent Islamic terrorist cells spread across 26 or so countries. Washington turned a blind eye to al-Qaeda.

When Mohammed Attas plane struck the World Trade Centres North Tower, George W. Bush and the child at the Florida elementary school were discussing her goat. By coincidence, our word tragedy comes from the Greek: for goat tragos plus oide for song. Goat-song. It is highly suitable that this lament, sung in ancient satyr plays, should have been heard again at the exact moment when we were struck by fire from heaven, and a tragedy whose end is nowhere in sight began for us.

Copyright Gore Vidal

www.karalla.com eme [at] karalla [dot] com 212 860 8900

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Part I: MicroStrategy’s CEO Sped to the Brink http://www.washingtonpost.com/wp-dyn/articles/A2889-2002Jan5.html

Part II: At the Height of a Joy Ride, MicroStrategy Dives http://www.washingtonpost.com/wp-dyn/articles/A6157-2002Jan6.html

Part III: Once Defiant, MicroStrategy Chief Contritely Faces SEC http://www.washingtonpost.com/wp-dyn/articles/A11212-2002Jan7.html

Part IV: ‘Maybe an Older, Wiser Visionary’ http://www.washingtonpost.com/wp-dyn/articles/A16533-2002Jan8.html

…and below is the whole text of the article series. You should love me for all of this copying and pasting.

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MicroStrategy’s CEO Sped to the Brink

By Mark Leibovich Washington Post Staff Writer Sunday, January 6, 2002; Page A01

First of four articles

There were times, when it was all going right, when Michael Saylor would stare out the huge oval windows of his leased Gulfstream jet and fixate on the Rocky Mountains passing below him. He would marvel at how he was covering more territory in five minutes than the western settlers covered by wagon over several months.

This was back in 2000, at the height of the Internet age. In a few Nasdaq months, Saylor’s newly public firm, MicroStrategy Inc., had gained a stock value that exceeded the total worth of his former employer, the venerable DuPont Co.,198 years old. In a few Nasdaq seconds, Saylor could amass more wealth than his father had in his 30-year Air Force career.

It didn’t matter that MicroStrategy was just a software maker that helped companies manage their inventory and customer information. Saylor had what he called “the dot-com halo,” the aura that came with being not just a business, but a revolutionary one. He become an icon to his “constituencies,” as he called them — the media, Wall Street, his employees. He wasn’t building a firm as much as a belief system.

“We’re purging ignorance from the planet,” Saylor often declared in his high, throaty voice. He was on a “crusade for intelligence,” one that sounded just grandiose enough to be plausible at a time when technology chief executives stirred such exuberance, rational or otherwise.

On Feb. 4, 2000, with MicroStrategy’s shares at $142 and his paper wealth shooting into the billions, Saylor hosted a 35th birthday party for himself at Cities, the fashionable Adams Morgan restaurant. “Guess who’s old enough to run for president?” the invitation said, and Saylor duly announced his candidacy that night, a would-be standard bearer for “The Technology Party.” He was kidding. Or seemed to be. But at the time it seemed weirdly possible.

Then, just a few weeks later, it all crashed — a flip of fortunes that was sudden even by the exaggerated norms of the late 1990s and the early part of 2000. Saylor’s life and companybecame object lessons in how ephemeral success could be in the new economy, how perspective could be so easily lost, and how myths — and stock fortunes — could so easily vanish. When MicroStrategy’s story began to unravel, at least some industry and Wall Street watchers believe, it signaled the end of that era. “This one popped the bubble,” wrote James Cramer, columnist for TheStreet.com. “MicroStrategy forever changed the Internet mania.”

In a starkly compressed time frame, Saylor was transformed from a new world titan to an age-old parable: “It’s the same story in a way of a classic Greek tragedy,” said Don Griffith, a former Securities and Exchange Commission lawyer who grew up with Saylor in the Dayton suburb of Fairborn, Ohio. “It’s the story of Icarus and Daedalus. Mike was the guy who flew too close to the sun.”

Saylor grew up wanting to be an Air Force fighter pilot, attended MIT on an ROTC scholarship and entered business after a heart murmur grounded him. He often applied flying metaphors to his corporate rise. He spoke of how the “juice” of high-speed business can either “skyrocket” an entrepreneur or “blow him up.” He also did some of his best thinking in the back of the Gulfstream, the night sky heightening his solitude. These were mostly peaceful meditations. But not the one on the flight that Saylor remembers best.

Late on Friday night, March 17, 2000, Saylor was flying to Washington from San Francisco. It was a few days before MicroStrategy was scheduled to sell newly issued stock to the public, which would help the company pay for its CEO’s manic expansion plans. The sale was expected to raise $2 billion — the largest public offering in software industry history.

Saylor was returning from a “roadshow,” the ritual that comes before a stock issue in which executives promote their companies to big investors and fund managers around the country. By every appearance, Saylor’s meetings were going well, and shares of MicroStrategy finished the week at $226.75. “I’m at the top of the world, everybody loves me,” recalled Saylor, who was then the wealthiest person in the Washington area, at least on paper. “Everybody loves the company, we’re hitting the cover of every magazine. . . . I was household.”

But Saylor knew that he had a secret. A week earlier, MicroStrategy’s financial auditor, PricewaterhouseCoopers, had called into question some of the company’s accounting records. The accountants wanted MicroStrategy to restate some of its financial reports, a potentially devastating step that could send Wall Street into a selling panic. Negotiations had raged all week between officials of MicroStrategy and PricewaterhouseCoopers to determine the need for, or magnitude of, a restatement. Meanwhile, Saylor continued to pitch his company to eager investors in Chicago, Kansas City, Los Angeles and San Francisco.

When the roadshow ended, Saylor flew home, sullen and alone on a beige leather sofa in the back of the $40 million jet. “I know the gods have this wicked sense of humor because of what they did to me,” Saylor said later. “They put me in a position where I was simultaneously the most successful person of my generation and in hell. All at the same time.”

Like the company he still leads, Saylor seems diminished and weary by what he calls “my ordeal.” In the same way that presidents, in their photographs, look as though they’ve aged eight years for every four they’ve been in the White House, Saylor, now 36, seems to have aged about six since his 35th birthday. His boyish flop of brown hair has gone half gray. His fresh round face has become jowly and bearded. His chest-out walk, once the stomping gait of a man who knew exactly where he wanted to go, has acquired an uncertain slump.

In a series of interviews between May and January, Saylor seemed at once humbled by his experience and bitter. At times, he drew comparisons between himself and victims of diseases or violent crimes. “I don’t think that the trauma or stress I felt is any worse than the stress that a father feels when his son has leukemia,” Saylor said last summer, describing his feelings during his company’s sudden fall. “Or whose wife is dying. I think it’s the same . . . in my case, it was my company catching leukemia.”

Saylor always fancied his mission to be a seminal one. His role models were Caesar, Churchill, Gandhi and Gates. He decorated his basement with framed press clippings about himself. He kept a sculpture of Rodin’s “The Thinker” in his office and he had a searing need to believe that MicroStrategy was doing work for the ages. And, for a while, his constituencies needed to believe in him as well — in all his possibility, in all the new economic rules that his success seemed to prove.

As it turned out, Saylor earned his place in history through the narrative of his rise and swoon. This series of articles reconstructs that story. It is based on interviews with Saylor and more than 100 people who have known, watched or worked with him. It is also based on court documents, company memos and internal e-mails that were provided to, or summarized for, The Washington Post by officials at MicroStrategy and sources involved in private lawsuits and an SEC investigation of the company.

What emerges is a vivid dispatch from one of the most perplexing and tumultuous periods in economic history. It also provides one of the great, and largely unseen, corporate dramas in the evolution of the Washington area as a major technology center.

At the story’s hyperkinetic center is Michael Saylor, who became the exemplar of two eras, boom and bust, in their greatest extremes. And it all happened in a matter of days.

“I guess,” Saylor said, smiling at the thought, “that I represent a strange piece of history.”

‘Hit the Floor Running’

The thinking went like this: If Thomas Edison were to write a book about his life and legacy, it would be called “Electricity.” So Michael Saylor believed that he should write a treatise of his own, called “Intelligence.”

His pursuit — to make the species up-to-the-second smarter — was so elemental to civilization that it needed to be distilled in a book, one of those really big books, maybe more than a thousand pages. Not for vanity’s sake, but for history’s.

On Jan. 31, 2000, before a meet-and-greet with former Treasury secretary Robert Rubin, Saylor met with the literary agent Amanda “Binky” Urban in Midtown Manhattan to discuss “Intelligence.” She was intrigued by the idea, and they agreed to keep in touch.

People throughout Saylor’s life describe him as the smartest person they have ever met. “Usually you find a guy with [Saylor’s] intellect in the back of some lab, interacting with rats,” said Joe Robert, a Washington area real estate maven who befriended Saylor during his rise. But Saylor was no outcast, Robert said. He could converse on diverse topics and with multiple audiences: He could quote from Augustus and “Caddyshack” alike, talk circuitry with engineers, numbers with financiers, Big Vision with investors and bachelorhood with the media.

He loved music, played the tenor sax and trombone as a teenager, and would later teach himself guitar and piano. He was valedictorian at Park Hill High School in Fairborn, where he lived from age 11 with his parents, brother and sister in a small aluminum-sided duplex on Wright-Patterson Air Force Base. He was raised in a taut, Southern Baptist household, steeped in chore regimens and vice-free conservatism — no cussing, smoking, drinking. “Hit the floor running, son,” Chief Master Sgt. Jerry Saylor would yell into his son’s bedroom, after waking him at 6 a.m. with a loud clap. The $50,000 ROTC scholarship Saylor earned from MIT was worth five times the amount of his family’s entire savings at that time.

John Sterman, a marketing professor at MIT, said Saylor was “always an unusual fellow, far more serious than most at MIT. . . . a student you wouldn’t forget.” For a class project, Saylor built a computer-simulation model that applied the ideas of Plato’s “Republic” to an ideal civilization. To meet his undergraduate thesis requirement, Saylor, inspired by Machiavelli’s “Discourses,” wrote a computer program that simulated the reactions of varied government systems to calamities such as famines, plagues and war. He graduated with highest honors, earning a degree in aeronautics and astronautics, as well as one in science, technology and society.

Saylor started MicroStrategy in 1989 with Sanju Bansal, his MIT roommate and fraternity brother. Saylor had spent two years writing computer models for DuPont’s titanium dioxide business, but wanted to start his own business. He persuaded his boss to give him a $250,000 consulting contract to continue building computer models. The deal came with office space near DuPont’s headquarters in Wilmington, Del.

In 1992 MicroStrategy developed an early version of the product that would become its franchise: software that allowed companies to extract useful bits of information from their unwieldy corporate databases. By using the software, for instance, McDonald’s could learn that a Chicago franchise was four times more likely to sell Big Macs on winter Friday nights than was a franchise in Miami (where customers disproportionately preferred filet-of-fish sandwiches). While seemingly trivial, such data would prove vital to the companies, and even as other software companies were developing similar “data-mining” products, as they were called, Saylor and Bansal were able to impress and attract an early array of Fortune 500 customers.

In 1994 Saylor and Bansal moved the company and its 50 employees from Wilmington to Tysons Corner, figuring it would be easier to lure elite workers to the Washington area, “a major center of civilization,” Saylor said. MicroStrategy doubled its revenue every year between 1994 and 1997.

‘Information Everywhere’

Part of Saylor’s marketing savvy in the late 1990s sprang from his unwillingness to stay confined to the niche of back-office technology. No matter how solid MicroStrategy’s business and product was, Saylor felt restless. What Saylor craved — and ultimately sold — was a higher corporate purpose for MicroStrategy: He wasn’t so much making tools as much as he was “freeing information.” He wasn’t a seller of data-mining software but a purveyor of “intelligence,” just as Bill Gates’s mission at Microsoft wasn’t simply to sell software for personal computers but to put “a computer on every desktop.”

In computing history, which Saylor studied closely, the dominant companies have been the ones that could shroud the unsexy functionality of their products in the sleek possibility of What Could Come Next. As Internet, database and wireless technologies evolved, Saylor said, information would soon become an essential utility, “like water,” and MicroStrategy would be the company that spread it everywhere. Enlightening McDonald’s about its Big Mac sales was just a start of a grand technological crusade that would eventually “purge ignorance from the planet.”

By the time MicroStrategy held its initial public offering of stock in 1998, Saylor was gaining little notice for his data-mining products and plenty for his vow to spread “information everywhere.” He began to pitch his company’s software products in mystical rhetoric. The back cover of MicroStrategy’s prospectus — published in conjunction with the IPO — included a boldface quotation from science fiction author Arthur C. Clarke: “Any sufficiently advanced technology is indistinguishable from magic.”

Shares were priced at $6 for the June 11 offering (adjusted for a Jan. 4, 2000, stock split), and they doubled by midday. On the Merrill Lynch trading floor that morning, Saylor grinned as he noted that “MSTR,” MicroStrategy’s ticker symbol, was listed on the Nasdaq ticker right after “MSFT” (Microsoft), a company that Saylor idolized.

“Warning,” a message flashed over the trading floor. “Do not confuse MSTR with MSFT.”

The Grand and the Grandiose

On the surface, MicroStrategy seemed the prototype of the democratic new-economy workplace: Employees could wear jeans to work and were always free to e-mail the CEO with ideas. But these egalitarian appearances belied the company’s military ethos, with Saylor as a ubiquitous general in a theater of his own creation. To a degree that is unusual among even the most obsessive entrepreneurs, MicroStrategy has been Saylor’s life. He worked late into most nights, often seven days a week.

Saylor fervidly protected his ownership stake in the firm, and this insistence almost led to the company’s demise before it left Wilmington. In 1994, the firm’s senior managers — Sid Banerjee, Dave Sherwood, Steve Trundell, Eduardo Sanchez, Ed Jurcisin and Manish Acharya — were working long hours and receiving relatively low salaries. When they asked for an equity stake, Saylor and Bansal resisted until the managers finally walked out en masse on a Friday. By Monday, the group had retained a lawyer. Negotiations ensued, and the dispute was settled when Saylor and Bansal agreed to grant the managers a collective 7 percent of the young firm.

Saylor was even more hesitant to give any ownership stake to outside investors, particularly venture capitalists, a species he publicly loathed and distrusted. He feared that venture capitalists — or other big investors — would “dilute the vision” of his company. At the time of the IPO, Saylor retained a remarkable 73.1 percent, or 22.5 million, of the company’s shares (Bansal held another 12 percent). This effectively allowed Saylor to do as he pleased with his firm, unconcerned by any possibility of ever being overruled, taken over or forced out by other investors.

Saylor’s childhood bred in him a strong sense of insularity and control. “I’m very at home in paternalistic environments,” Saylor said. Each winter, he took his employees on a Caribbean cruise (no spouses allowed) to promote corporate solidarity. New workers underwent a rigorous “boot camp” where they were drilled on the arcana of MicroStrategy’s business and required to complete an outdoor ropes course. Saylor’s top lieutenants comprised a brainy fraternity of longtime male pals, several of whom had attended MIT together. Executives who came from other companies often had brief and unpleasant experiences at MicroStrategy.

Saylor was prone to volcanic impatience. “Are you trying to kill us?” Saylor would boom in meetings, or invoke a well-known Gatesism, “That’s the stupidest [expletive] thing I’ve ever heard.” If a person was talking too slowly, Saylor would often take out his Dell laptop and start doing other work. His longtime associates viewed him with a mix of awe and dread: They marveled at his zooming technology mind and also spent a lot of time anticipating what might preoccupy or set him off next. One executive compared the dynamic of MicroStrategy’s executive team to “alcoholics around a dinner table.”

When he was not speaking, Saylor’s eyes would assume a sunken deadness. He spoke in a robotic cadence, as if delivering social graces — “Nice to see you again” — by dint of some how-to program embedded in his skull. He would sometimes talk with such energy that his face twitched. He habitually slammed doors, even when he was not upset. Even his closest friends say Saylor can often be long-winded, tiresome and just odd.

But Saylor could also be inspiring, generous and loyal. He rarely fired people. “You had to really underperform at MicroStrategy to get fired,” said Manish Acharya, who left the firm in early 1999. He recalls firing someone with Saylor — and how Saylor spoke of being “traumatized” for days afterward.

Saylor’s loyalty was returned: MicroStrategy’s turnover rate — about 7 percent in 1997 and 1998 — was low among software companies. With only moderate irony, employees would dub themselves members of the “cult of MicroStrategy,” and Saylor was their charismatic leader. A television monitor in the lobby played a constant loop of Saylor’s speeches.

If they bought into his mission, Saylor told prospective employees at the end of their boot camp sessions, they could help him “bend reality through sheer force of will.” Saylor’s boot-camp sermons lasted hours, sometimes up to nine. “Heaven for me is a microphone and a captive audience,” Saylor said, and he relished the gamesmanship of sales and motivational talks, “that deer-in-the-headlights moment when you know you’ve flipped someone,” he said in 1998.

“I’ve never seen someone who could transfix a room like Mike Saylor,” said Mark Bisnow, who was an aide to Rep. John Anderson and Sen. Robert J. Dole, and whom Saylor hired in April 1998 to be his personal publicist, or, officially, his chief of staff. Bisnow’s mission was, in Saylor’s words, to “put me in front of the right people” — Binky Urban and Robert Rubin, among them. Bisnow ran Saylor’s public life as a permanent branding campaign, which seemed about perfect to Saylor.

“I’m a political leader,” Saylor declared to Washingtonian’s Harry Jaffe in early 2000. “I have a nation. I have constituents. I have investors.” Bisnow worked tirelessly on his behalf, calling anyone, anywhere, who might be worth Saylor’s seduction. Saylor eventually started calling Bisnow his “secretary of state.”

Others called him worse. Several MicroStrategy executives and board members complained — usually privately — that Bisnow had become an unchecked agent of Saylor’s ego. One Washington technology chief called Bisnow “Michael’s crack dealer,” feeding Saylor’s addiction to attention.

“If he ever had any impulse of restraint, Bisnow would push him back in the other direction,” said a longtime MicroStrategy executive who left the company in 2000. Profiles of Saylor included his soliloquies on his ideal wife and the detail that he had a butler, Brian. It was said that Saylor looked like Tom Cruise and dated Queen Noor, King Hussein’s widow (whom he says he has never met).

“I was delighted to help the world discover Mike Saylor,” recalled Bisnow, who left the company last year. The people who criticized Bisnow at MicroStrategy “complained all the way to the bank,” he said.

In late 1999 and early 2000, a recurring source of Saylor’s fascination — and, in turn, the media’s — was his plan to build a “Versailles” on 48 acres in Great Falls. He issued a 100-page request for proposals from architects and sent memos to his public relations staff that outlined some basic features he envisioned for his compound — rooftop conservatory, nine-hole golf course, Japanese gardens. He referred to the compound as “my 21st-century villa,” though Bisnow cautioned him that the term “villa” connoted the Italian leisure class, not the intellectual renaissance he was now leading.

“Mike let himself become this image that kept feeding on itself,” said his friend, America Online co-founder Jim Kimsey. “After a while it’s drinking your own bathwater. After a while it became hubris.”

‘Hey, Mike, You’re Rich’

Saylor had lived a sheltered life: He spent his teenage nights eating ice cream at Friendly’s and lifting weights in his garage with his best friends, Griffith and Tom Spahr, who would later join him at MicroStrategy. They played board games and dabbled in Dungeons and Dragons. “Mike was always the Dungeonmaster,” Spahr recalled, referring to the player who controls the game. “He liked to create and control situations.”

When Saylor arrived at MIT, he had never eaten Chinese food, owned just one suit (beige polyester) and sported a frizzy thin mustache. He confined his friendships mostly to his fraternity, Theta Delta Chi, and had few girlfriends in college or afterward. “Michael recently decided women are an incredible time sink,” Bansal told The Post in 1996.

Until recently, Saylor almost never drank. On the eve of his IPO, aboard a Gulfstream II, MicroStrategy Chief Financial Officer Mark Lynch offered Saylor a celebratory glass of Blue Ribbon Scotch from a $160 bottle. Saylor declined, put the glass aside, took a few sips of champagne and devoured two pink Hostess Sno Balls.

After a day of meetings in New York in January 2000, Saylor and Bisnow went to the bar of the Four Seasons hotel only to find a 45-minute wait for a seat. They turned to leave when Bisnow said, “Hey, Mike, you’re rich, why don’t we do what they do in the movies, hand the maitre d’ a big tip and see what happens?” Bisnow handed the guy a $20 bill and the men were seated.

Around that time, Sen. John F. Kerry (D-Mass.) and his wife, Teresa Heinz, invited Saylor to a private dinner at their Georgetown home. Saylor was flattered that a U.S. senator would care to hear his grand ideas, and when Bisnow mentioned that Kerry might also care about his bank account, he seemed surprised. After the dinner, Saylor was asked by a Kerry aide to host a fundraiser, which he did, despite tending toward conservative views and being a lifelong admirer of George Will.

Saylor was always impressed by wealth, not so much for what the money could buy — although that was enviable too — but for the power, credibility and status that came with it. “When you’re worth a certain amount, you get the attention of everyone in the room,” Saylor said in 1998. In preparing for MicroStrategy’s IPO that year, Saylor offered to sell “friends and family” stock — coveted shares that are usually reserved for company insiders — to a special class of people he dubbed “influencers.” These were the top executives at about 200 nationally known firms, carefully selected by Bisnow. About 5 percent of these “influencers” accepted the shares, according to a source familiar with their apportionment.

As Saylor’s celebrity and wealth grew, he gained entry into increasingly rarefied Washington circles. He attended several of President Bill Clinton’s functions, often arranged by Democratic fundraisers such as Beth Dozoretz. At one reception for Clinton at the Georgetown home of financier Jonathan Silver, the president called on him during a question-and-answer session and Saylor launched into an extended talk about how technology made it possible for every American to carry a panic button, a kind of wireless 911 device. With the proper resources, Saylor said, the government could “significantly cut rape and violent crime.” Clinton asked Saylor to send him a memo on the subject, but he never heard back from the White House.

The Wonder Boy of the Club

Most of Saylor’s powerful new friends came from the burgeoning club of Northern Virginia entrepreneurs said to be transforming Greater Washington from a plodding government enclave into a hotbed of new money and industry. The members included, among others, Joe Robert and James Kimsey, financiers Mark Warner and Russ Ramsey, and entrepreneurs Mario Morino and Jonathan Ledecky. Saylor sought out their companionship and advice at black-tie functions and private dinners. He recruited Ledecky to join the MicroStrategy board and, later, John Sidgmore, the vice chairman of WorldCom. Saylor spoke of the importance of being a good member of the community and of surrounding himself with mentors.

In return, Saylor was embraced as the oddball wonder boy of the local technology sector. “He was sort of adopted as a pet, a curiosity,” said one wealthy local entrepreneur, a friend of Saylor’s. In late 1999, Saylor joined Robert, Kimsey and others on a Caribbean cruise on a 165-foot boat belonging to Hollywood super-agent Mike Ovitz. One afternoon, after drinking tequila shots the night before, Saylor went scuba diving and became sick, vomiting his lunch and inciting a feeding frenzy by a swarm of tropical fish. A few weeks later, Kimsey bought Saylor a bottle of fish food for his birthday.

In time, Saylor became weary and suspicious of several of the local multimillionaires who had become his friends. The more successful he became, people at MicroStrategy recall, the more Saylor would speak of how much smarter and more creative he was than the other younger entrepreneurs he was often grouped with. He began to tune out many of the “mentors” he had cultivated, confiding to at least two friends that AOL co-founder Steve Case was the only person in the Washington tech community whom he considered a peer. (Saylor says that this might have characarized his views at various points in the late 1990s, but that he has since become more humble and less judgmental)

As MicroStrategy’s share price catapulted ever higher, Saylor became fixated by it, checking several times a day. He knew precisely where the stock had to go for him to be a billionaire, or 10-billionaire. Saylor looked to investors not just for money but for a kind of intellectual ratification. He believed in the stock market’s “qualitative ability” to anoint visionaries. “In the marketplace, Nasdaq is the god,” Saylor said.

On the days his stock fell, Saylor was more prone to piqueish fits of micro-management. One day in December 1999, Joe Payne, MicroStrategy’s vice president of marketing, was flying out of Dulles International Airport on a family vacation when he received a call from Saylor on his cell phone. “You’re causing corporate death,” Saylor said acidly and asked why a press release announcing a new partnership agreement had not been issued. Payne explained that the new partner was not ready to announce the agreement.

“Well,” Saylor said, “it’s causing corporate death. The stock is down today. And the reason the stock is down today is because we haven’t gotten that press release out.”

When the stock rose, Saylor was not good at the practiced indifference that CEOs are supposed to evince, especially in front of their employees. Instead, he would casually walk around the office talking about how many paper millions he’d just made as he ate lunch.

There was an honest ebullience about him that was at once crass and refreshing. On MicroStrategy’s annual staff cruise in January 2000, shares rose 19 percent in a single day, and all 1,600 employees were in the Cayman Islands! “We should go on cruises more often,” joked Saylor, who made nearly a billion dollars that day, the dot-com fantasy in a nutshell.

Except that Saylor despised the notion that MicroStrategy was comparable to some dot-com-lately, like he was some newly minted MBA starring in an online toy store. This, he felt, ignored his company’s 11-year track record, its profits, his huge vision. His was not an “Internet company,” he said, it was an “intelligence company.”

“In defense of those who were appealing to Michael’s egomania, he was several cuts above the dot-commers,” Bisnow said. “He had a very solid business software company. And he had these incredible gifts. He could have been someone very memorable, for reasons other than why he ultimately will be.”

Seizing a Halo

MicroStrategy could have continued as just a “very solid business software company.” But that would not have made Saylor memorable, much less historic. So it became clear to Saylor that for the recognition he felt he deserved, he had to be part of Wall Street’s love affair with the Internet. “We were second-class citizens here,” Saylor recalled of MicroStrategy’s status as a mere “software” company. “And time was running out. We needed to get into that halo box.”

This meant trumpeting how his company would thrive in the online world, how Internet and wireless networks could spread freshly mined information “everywhere.” He launched a subsidiary, Strategy.com, that delivered information not to businesses but directly to consumers: weather updates, traffic reports, sports scores via phone, Internet or wireless tools.

Of course it was just a start in the context of the larger dream Saylor was peddling: One day soon, he promised, people would have devices in their ears that would tell them how to avoid clogged highways or incompetent heart surgeons or dangerous neighborhoods. Such intelligence would circulate “everywhere,” cleansing waste, inefficiency and risk from our networked ecosystem. It sounded slightly nutty, but when Saylor was preaching, it could sound oddly imminent, too.

On Jan. 27, 2000, MicroStrategy announced that its revenue for 1999 would be $205.3 million, nearly double the previous year’s. Saylor announced the company’s 16th consecutive quarter of revenue growth and a profit of $3.8 million. The new numbers solidified his cachet as an Internet visionary who could actually make money. He was profiled on “60 Minutes,” in Time and Newsweek (headline: “Caesar and Edison and . . . Saylor?”), and the framed press clippings he hung in his basement began to trail up the staircase and into the first floor of his house.

Shares of MicroStrategy jumped from $225 to $246 on March 7. The price continued upward as Saylor, Mark Lynch and Nick Weir, the head of Strategy.com, began their roadshow in Europe. Investors in London, Geneva and Paris begged to buy the increasingly pricey shares. The stock closed that Thursday, March 9, at $283.

On Friday, Saylor, Lynch and Weir flew back to Washington, with plans to begin the U.S. leg of the roadshow on Monday. On the people mover at Dulles, they checked messages and learned that shares of MicroStrategy had jumped another 30 points. The stock closed that day at $313 after hitting $333 in the early afternoon. Saylor had made another $1.3 billion while he crossed the Atlantic. He was now worth $13.6 billion.

“Do you ever get the feeling things are going just a little bit too well?” Saylor said to Weir as Saylor stepped into his waiting limousine.

“Yes,” Weir said, “and it scares the hell out of me.”

Staff researcher Richard Drezen contributed to this report.

Next: Damage control.

© 2002 The Washington Post Company

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At the Height of a Joy Ride, MicroStrategy Dives

By Mark Leibovich Washington Post Staff Writer Monday, January 7, 2002; Page A01

Second of four articles

Michael Saylor, the founder and CEO of the bull market sensation MicroStrategy Inc., was enjoying a sunny weekend at his home in Vienna. His paper fortune had just hit $13.6 billion, which was $4.5 billion more than it was the previous weekend and $6.2 billion more than it was the weekend before that.

But that Sunday, March 12, 2000, the company’s chief financial officer, Mark Lynch, received a call at home from Warren Martin, a partner at PricewaterhouseCoopers, MicroStrategy’s financial auditors. Martin told Lynch that the firm’s national office was reviewing three large contracts that MicroStrategy had booked the previous fall. Could MicroStrategy possibly delay the $2 billion stock offering it had planned for later that month? Martin asked.

Impossible, Lynch replied. The company had already begun its roadshow, the tour that leads up to a stock offering in which top executives pitch their firms to big investors in several cities. Martin told Lynch he would get back to him.

Lynch explained the situation to Saylor the next day during a roadshow stop in Philadelphia. Saylor was unconcerned at first. He assumed that Pricewaterhouse’s past approval of MicroStrategy’s financial statements would insulate the company from having to revise its numbers. “Please make this go away,” Lynch told Saylor, and Saylor went back to what he loved most, delivering evangelical pitches for MicroStrategy.

In early 2000, investors were falling heavily for “Mike’s Come-to-Jesus speech,” as some MicroStrategists called it. And they were not the only ones hearing his ever more sweeping declarations. “I think my software is going to become so ubiquitous, so essential, that if it stops working, there will be riots,” Saylor told the New Yorker’s Larissa McFarquar in an article that appeared that March. “I mean that literally. I mean that people will die this year because they didn’t buy my software.”

Friends and aides warned Saylor to tone down the rhetoric, telling him he risked sounding offensive or ridiculous. His staff and MicroStrategy’s board members reminded him to stay focused on business “fundamentals” — operations, finance, customer service. But Wall Street was the oracle that Saylor heeded the most, and he relied heavily on Lynch to please it.

Lynch, then 37, was affable, soft-spoken and well liked at MicroStrategy. With a sheepish, Woody Harrelson-like disposition, he was viewed as a sort of everyman ambassador to the volatile Saylor. He was one of the few people in the chief executive’s inner circle who did not talk like a whiz kid or boast an MIT or Ivy League pedigree. Lynch, who attended Penn State University, worked hard, avoided confrontation and was one of the few outside executives who succeeded at MicroStrategy, largely, in the words of one insider, “by being a good soldier.”

Lynch was also gifted at “managing Mike.” This meant he could steel himself from Saylor’s outbursts and also keep the chief executive happy while he performed his increasingly difficult job. What was clear to anyone inside MicroStrategy was that Lynch was under enormous stress. As the company revised its business model to suit the online mania of the late 1990s, Lynch and his small financial team faced tricky accounting challenges. They were no longer a simple “business intelligence” company that made its money by licensing software to firms that helped them mine their corporate databases for useful information.

Now MicroStrategy’s expanded business was more complex. It included Strategy.com, Saylor’s fixation, which delivered information such as weather updates and sports scores directly to consumers by phone, computer and wireless tools. The subsidiary made deals with companies such as Ameritrade, the online brokerage that used MicroStrategy’s software to relay stock quotes to its customers. MicroStrategy could no longer account for every deal as a straight-forward, one-time transaction. Once-simple questions about how and when to account for sales were opened up to interpretation.

Quietly, and over several months, people within MicroStrategy had raised questions about the company’s accounting methods. Some midlevel officials who came to work at the company from larger software firms such as Oracle or Sybase were amazed at how much revenue MicroStrategy was able to book up-front. While a deal might span for several years, MicroStrategy would often take credit for a large proportion of the money at the start.

Likewise , the audit committee of MicroStrategy’s board of directors — Ralph Terkowitz, a vice president of technology at The Washington Post Co., and Frank Ingari, chief executive of Wheelhouse Corp. — had repeatedly expressed dissatisfaction with the quality of Pricewaterhouse’s reviews of its books. Terkowitz and Ingari met regularly with Lynch and Warren Martin. Terkowitz and Ingari told Martin that Pricewaterhouse’s quarterly audits seemed sparse and undetailed, board sources said, especially given the mounting revenue that MicroStrategy was recording.

Each time they complained, Martin reassured Terkowitz and Ingari that the accounting was “accurate and conservative.”

Saylor said later he was never made aware of the audit committee’s concerns about Pricewaterhouse’s work. But suspicions about MicroStrategy’s accounting had also entered the public domain. In November 1999, the Center for Financial Research and Analysis, a Rockville firm that studies corporate financial statements, issued a report that expressed “concern about the quality of MicroStrategy’s September quarter revenue and earnings” as well as “the timing of revenue and income recognized in the September quarter.” Then, a brief article by David Raymond in the March 6, 2000, Forbes magazine cast suspicions about three deals that MicroStrategy had recorded in the third and fourth quarters of 1999.

None of this particularly troubled Saylor. Warren Martin had approved everything, after all. Nor did the skeptics seem to bother Wall Street — indeed, MicroStrategy’s stock price jumped $21 on the issue date of the Forbes piece. And Saylor was feeling emboldened. “I feel that if I don’t succeed,” he was quoted saying in the New Yorker, “it’s an abomination in the eyes of God.”

An Urgent Message

Continuing the roadshow, Saylor and Lynch arrived at the Ritz-Carlton Hotel in Houston late Monday night, March 13. Lynch had a message waiting from Martin when he checked in: Call him back at 10:30, East Coast time, the message said. He would be his office.

Worried by the urgency of the message, Saylor and Lynch called Martin together from Saylor’s suite. Martin put John Dirks, the head of Pricewaterhouse’s national technology practice, on the phone. Dirks, whom Saylor had never met, said he had reviewed some contracts booked in the previous quarter and concluded that the original accounting had been done incorrectly. Saylor’s face became red.

“We believe it would be appropriate for us to retract the previously audited financial statement of December 1999,” Dirks said, according to a source familiar with that conversation. He suggested that MicroStrategy issue a press release announcing it would be restating its revenue figures from the previous quarter.

Dirks focused on a large deal that MicroStrategy had struck the previous fall with NCR Corp, a computer equipment and services firm. MicroStrategy sold $27.5 million worth of software and services to NCR for NCR to “resell” to its own customers. As part of the transaction, MicroStrategy agreed to pay $25 million in stock and cash to NCR for one of its business units and a data warehousing system. Some stock analysts saw the deal as a virtual revenue wash, but MicroStrategy still issued a press release on Oct. 4, 1999, hailing its “52.5 million agreement with NCR.” MicroStrategy recorded $17.5 million in sales from the NCR deal in the quarter that ended that Sept. 30. NRC accounted for the deal in the following quarter.

Without that $17.5 million, MicroStrategy’s revenue for the third quarter would have dropped nearly 20 percent from the previous quarter, instead of growing by 20 percent. It would have reported a loss of 14 cents a share instead of a profit of 9 cents. And it would have fallen well below Wall Street’s expectations, making it unlikely its stock price would have risen as much as it did the following month, when Saylor and a group of company insiders sold shares at a collective value of $82 million.

The firm’s accountants had approved MicroStrategy’s financial statements until as late as Jan. 26, 2000. They were acting now, they privately told MicroStrategy officials, in response to the Forbes article, which had examined the NCR deal in detail. Citing an ongoing client relationship with MicroStrategy, Pricewaterhouse refused to respond to several written questions for these articles. Dirks and Martin also declined to comment through Pricewaterhouse spokesman Steven Silber.

“Wait,” Saylor said to Dirks and Martin, his voice cracking, “you guys signed off on this.” If MicroStrategy issued a press release, he said, “there will be a collapse of confidence and trust in our company that will cause great collateral damage.”

Everyone agreed to talk again the next morning. Lynch bought cigarettes, and neither he nor Saylor slept that night.

At midnight Washington time, Saylor and Lynch called the Arlington home of MicroStrategy’s chief counsel, Jonathan Klein. This set off a flurry of sleep-jangling calls between Klein, other MicroStrategy attorneys, executives and members of the company’s board of directors.

On the Road Again

Late on Tuesday, Lynch returned to Washington to join a group of MicroStrategy accountants, lawyers and board members who were meeting with Pricewaterhouse. Saylor continued his roadshow, except for a trip back to Washington where he announced that he would spend $100 million of his own money to start a free online university, a plan that was previewed on the front page of The Washington Post.

Back on the road, Saylor would call Klein in Washington after every pitch for updates. The meetings centered on small computations, arcane rules and subjective analyses, but Saylor told his executives they were really about something else: “Whether we live, or whether everything will end.”

Lynch slept a total of eight hours over those five days. The numbers they discussed fluctuated widely.

On Sunday, March 19, at 4 p.m., MicroStrategy’s board of directors, made up of many of the prominent local businessmen Saylor had cultivated during his rise, convened around a large table in a 14th-floor conference room of the company’s Tysons Corner offices. In addition to Saylor, Terkowitz and Ingari, the board included Worldcom Corp. Vice Chairman John Sidgmore, who had joined the board a week before, entrepreneur Jonathan Ledecky; and MicroStrategy co-founder Sanju Bansal. The board voted to issue an accounting restatement the next day.

At the end of the day, they were joined by top company executives, lawyers and a crisis public relations team that was brought in from New York. “It will be a PR victory for us if our stock doesn’t drop 100 points tomorrow,” Ledecky said.

But Saylor grew more frustrated by what he was hearing. He became especially agitated with Ralph Ferrara, a securities law expert from the Washington office of Debevoise & Plimpton who spoke to the board about the accounting problems. As Ferrara was making a point about the possible ramifications of the restatement, Saylor cut him off, according to two sources who were in the room. Saylor told Ferrara that none of the information he was providing was new to him.

“If you know all this,” Ferrara snapped back, “then you’ve ruined your company.”

Stunned, Saylor remained silent for several minutes while Ferrara continued, sources recalled. Saylor, who does not remember this specific exchange, said he never acted in any way that would have “ruined the company,” and if Ferrara had accused him of it, he would have responded immediately.

After Ferrara continued for a few minutes, the sources said, Saylor began banging his palm on the table in boredom. He said Ferrara was lingering on unimportant detail and he told him to move on to the next item. “Michael, my D and O [directors and officers] insurance only covers me up to $15 million,” Ledecky said, glaring at Saylor. “After that, they come after my own assets. So I want to hear this.” Saylor’s eyes bulged, he went silent again and Ferrara continued.

Saylor recalls the tension in that meeting to be a result of “our company heading into a horrifically difficult period.” Up until six days before, he added, “everyone told me I was doing a perfect job.”

As midnight approached on March 19, Saylor called his family to inform them of the announcement to come. He spoke longest to his mother, Phyllis Saylor, the dominant figure in Michael’s life. She doted on her son, and friends said Saylor often credited her with instilling a belief that he could “do great and enormous things.”

“There’s gonna be a lot of bad publicity,” Saylor explained to his mother, who had recently accompanied her son to the White House millennium party. “People will write bad things about me.”

“I loved you when you were a paper boy and a $30,000-a-year engineer,” Phyllis Saylor reassured her son. “And I’ll love you just as much tomorrow.”

Hate Mail

The angry messages started as soon as Glenda Thomas, Michael Saylor’s executive assistant, arrived at work the next morning, March 20. Hate mail, electronic and hand-delivered. “I hope you burn in hell” phone calls. Profane threats against her boss that brought tears to Thomas’s eyes.

MicroStrategy had issued a press release at 8:06 a.m. announcing its restatement. Instead of claiming a 1999 profit of $12.6 million, as it had previously announced, the company now said it would show a loss of about $34 million to $40.3 million. Revenue for that year, previously reported at $205.3 million, would be reduced to “between approximately $150 million and $155 million.” The company also reduced its 1998 revenues from $106.4 million to “between approximately $95.9 million and $100.9 million.”

Saylor held a conference call with stock analysts just after 9 a.m. Six employees crowded into the office of Sid Banerjee, MicroStrategy’s vice president for worldwide services to listen on a speaker phone. Banerjee charted MicroStrategy’s share price on Yahoo’s financial Web site. Every few minutes, while Saylor spoke, Banerjee pressed the “refresh” button on his browser; and every few minutes, Banerjee would see that the stock had dropped by another double-digit dollar amount.

Saylor remembers little about the day. He did interviews, about 20, his face filling office televisions next to a diving graph line of his company’s share price. By the time the markets closed, MicroStrategy’s shares had lost 62 percent of their value — dropping from $226.75 to $86.75. The public stock offering was postponed, so was a planned share split. Five class action lawsuits were filed. Shareholders lost a collective $11.1 billion.

At 4:01 p.m., Saylor received a digital page from a Strategy.com stock service: “Hello, Michael,” it said. “Your portfolio is down $6.1 billion.”

Gallows Humor

Saylor figured the trouble would blow over quickly. Privately, friends said, he was both angry, mostly at PricewaterhouseCoopers, and quick to play down the company’s culpability for the restatement. He resisted the gallows humor that swept the company’s hallways and e-mail network. When an employee showed him the front page of the March 21 New York Daily News, a close-up of Saylor’s with the headline “LOST $6B IN A DAY,” Saylor did not smile.

One Sunday a few weeks later, Saylor called about 30 of his top executives to a meeting in a basement conference room at the McLean Hilton. He said he was determined to keep growing, keep hiring people and keep pumping resources into Strategy.com, an increasingly unpopular service within the top ranks of the company given how expensive it was to run.

There was growing sentiment to refocus on MicroStrategy’s core business of “business intelligence software,” which was bringing in most of the revenue. For months, a few executives had been referring to Strategy.com as “Mike’s pet,” while others simply called it his “dog.” But Saylor clung to Strategy.com, symbol of big possibilities and key to Wall Street’s bestowing him the dot-com halo he so coveted.

Saylor’s overriding message at the Hilton was that the restatement was trivial and that everything would settle back to normal. But many “constituencies” were not cooperating, especially the media, where Saylor’s pumped-up image was suffering a harsh deflating. He began devoting more time to managing public relations. He spoke of the press in increasingly Nixonian terms. “Our enemies SHOULD NOT own our news ticker,” he wrote in a May 18, 2000, e-mail to several members of his marketing and public relations staff. “I need you guys to fix this. Issue one press release per hour if you must.”

“When we let negative press releases pile up on that ticker,” he wrote in another e-mail that day, “we are allowing those who would see us fail clogg [sic] our arteries and attach weights to our limbs.”

But it was becoming clear to Saylor that the unpleasantness would not be short-term. Lawyers were everywhere. There were class action attorneys, smelling fresh kill, as they often do when companies suffer huge stock losses after a tacit admission of past errors (in this case, MicroStrategy’s restatement). Lawyers for the Securities and Exchange Commission began to snoop.

MicroStrategy retained an A-list cast of Washington lawyers to defend it, among them Ferrara and Brendan Sullivan of Williams & Connolly. Saylor was represented personally by Harvey Pitt of Fried, Frank Shriver and Jacobson — and, according to a filing with the SEC, Saylor’s personal legal representation cost the company $1 million in 2000.

Bansal was represented by Neil Eggleston, formerly of the Clinton White House, and Lynch by Bruce Baird of Covington& Burling. Robert Fiske, the former Whitewater prosecutor, represented the outside board of directors. There were scores of other private lawyers to go with MicroStrategy’s own in-house lawyers. The free-wheeling cult of MicroStrategy had lawyered up.

Everyone seemed suspicious, choosing words carefully with old friends. Press releases were vetted, sometimes for days. If information was flowing at all, it was behind doors. Board meetings, several of which occurred in the days before and after March 20, became more heated. This was a change from prior meetings, which Saylor tended to dominate. Saylor was bluntly urged to bring in more experienced help.

There was concern that certain executives, particularly Lynch, were in way above their depth and experience, especially given the company’s mounting financial troubles. Several members of MicroStrategy’s board and legal team were pushing Saylor to fire Lynch immediately. But Saylor resisted, believing that the board just wanted to do something to make itself look tough.

There were practical reasons for Saylor to keep Lynch. One was that to hire a new chief financial officer and educate him about MicroStrategy’s finances would take months, but MicroStrategy had just a few weeks.

By April 13, it was due to file with the SEC its “10-K” financial form, which would include extensive details about its restatement. If the company failed to file it, Nasdaq could “de-list” the company, or no longer include it on its exchange. Lynch, who told Saylor he would do whatever he wanted him to do — including resign — worked 80-hour weeks from mid-March to mid-May. He resumed smoking and lost 10 pounds.

In a board meeting that Spring, Saylor asked the board if they had “lost confidence” in his ability to lead the company, sources close to the board said. No, was their answer, but they had reservations, concerns that only mounted through the summer.

But ultimately, any move to remove Saylor would have been moot because the chief executive held more than 75 percent of the voting power on important company decisions. Board members were essentially advisers, powerless to make him do anything he didn’t want to do. This contrasted with another “constituency” that Saylor feared could “torch the whole thing:” the SEC.

Staff researcher Richard Drezen contributed to this report.

Next: Facing the SEC

© 2002 The Washington Post Company

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Once Defiant, MicroStrategy Chief Contritely Faces SEC

By Mark Leibovich Washington Post Staff Writer Tuesday, January 8, 2002; Page A01

Shortly after March 20, 2000, the worst day of Michael Saylor’s life, one of his blue-chip Washington lawyers, Brendan Sullivan, promised him that everything was about to get worse.

This was just after MicroStrategy Inc., the company Saylor led, had been forced to issue a “restatement” of its recent financial records, effectively turning two years of profits into two years of losses; it was after the company’s stock price fell from $226.75 to $86.75 a share in a single day of trading.

“This is going to be like getting on a raft at the top of the Grand Canyon,” Saylor recalled Sullivan telling him. “You’re going to go all the way to the bottom and you’re going to hit rapids every step of the way. And you just gotta hold on.”

Still, Saylor was defiant, even after MicroStrategy’s shareholders lost a collective $11.1 billion in a single day. “Mother Teresa never quit during a down quarter,” he told Reuters on March 20, “and what we’re doing is just as important.” He maintained that MicroStrategy’s mistakes had been negligible. He told friends that his company had been the victim of “bean-counter sophistry” from its auditors, PricewaterhouseCoopers, and from the “jackals” in the press.

But there was something Saylor feared ­ the Securities and Exchange Commission. Its chairman, Arthur Levitt Jr., had placed a high priority on scrutinizing corporate accounting standards, especially for the fast-growing technology firms. To have an SEC investigation pending for months, or years, can kill a young firm, especially a cash guzzler such as MicroStrategy, which needed to raise money in the aftermath of its aborted $2 billion stock offering. The SEC, Saylor would say in his preferred “Star Trek” parlance, could “vaporize us.”

On April 13, MicroStrategy announced that the commission had begun an investigation into its accounting practices. The same day MicroStrategy also disclosed that it had overstated revenue for the previous three years, not just two.

Nearly all SEC investigations end in a settlement. But just the idea of it ran counter to Saylor’s natural impulse to fight. His attorneys warned that fighting was a bad idea if he wanted the keep control of his company; MicroStrategy’s fate and that of its founder, they said, would depend largely on Saylor’s ability to abide compromise and show contrition. Whether that was possible was not yet clear.

The SEC had a team of five lawyers and two accountants working on the MicroStrategy case. It was led by Gregory S. Bruch, a Stanford-trained investigator, who is described by a former colleague as an “aggressive do-gooder” determined to “teach lessons in the interests of public good.”

Bruch (pronounced “Brew”), a former Eagle Scout from Independence, Mo., often expressed bemusement at the arrogance of the new-technology zillionaires of the period. During the MicroStrategy investigation, Bruch read many of Saylor’s internal e-mails and was amazed at some of the things that seemed to preoccupy the entrepreneur: finding the right person, for example, to compile his speeches and ideas and write a history of the company.

Explanation Questioned

After the restatement, Saylor’s explanations of MicroStrategy’s accounting problems began to sound increasingly dubious to many of his own executives. In the first weeks after March 20, executives recall, Saylor had relied on a simple, two-pronged excuse: “Software accounting is complicated” and “The auditors were signing off.” But many people within MicroStrategy were beginning to think the company was wrong, at least on the timing issue ­ the easy-to-discern notion that company officials had counted certain deals in quarters that they knew had ended when the deals were signed.

Saylor himself was on record as saying he knew the practice was wrong.

“There’s a difference between 11:59 and 12:01, the last day of March,” Saylor said in a Washington Post interview in June 1999. “One of them is you go to jail if the thing gets signed at 12:01 [and you record it the day before]. One of them is the stock is up $500 million and the other one is you’ve just torched the life and livelihood of a thousand families.”

It had become apparent, largely through statements from some MicroStrategy customers in the press, that the company had made a practice of “turning the clock back” at the end of certain quarters. Or it was operating by a flawed clock. Either way, not everything could be blamed on PricewaterhouseCoopers.

While his attorneys, particularly Jonathan Klein, the company’s general counsel, told Saylor to stop talking to the press, Mark Bisnow, the Washington political veteran who became Saylor’s personal publicist, told Saylor that candid apologies would be his best strategy and the quickest route to rehabilitation.

Bisnow cited the example of Sen. John McCain (R-Ariz.), who was then challenging George W. Bush for the Republican presidential nomination. After McCain was tainted in the Keating Five scandal of the early 1990s, he transformed himself into what Bisnow called “the gold standard of integrity.” McCain achieved this by repeatedly admitting his mistakes, Bisnow said.

“Everyone knows you’re brilliant, but the one thing everyone comments on is your need for humility,” Bisnow wrote in an e-mail to Saylor in April 2000. “A lot of people, especially in the high tech industry, know that accounting issues are complicated. . . . Now is the time to show that this is a time of great education for you, that you are prepared to emerge a new person from this experience.”

Saylor enjoyed the McCain parallel, Bisnow said. But Bisnow became frustrated that Saylor ignored the part about admitting wrongdoing. Saylor himself said he never felt the comparison was fully “appropriate” to his own situation.

Saylor saw himself as an outsider snared by the Washington culture. “I come from a naive, sort of a lower-middle-class family,” he said later. “I didn’t understand the media. I didn’t understand politics. If I were a Kennedy, I would get it.” He told one associate that “Janet Reno would not rest” until she indicted him.

Before appearing at a shareholder meeting that June, Saylor became furious at a speech that had been prepared for him by MicroStrategy’s vice president of marketing, Joe Payne. The speech had a penitent tone and included an apology to shareholders.

“I’m not saying this,” Saylor said to Payne, shaking his head. “It makes it look like I did something wrong.”

But Saylor read the speech verbatim, in a flat monotone like a hostage forced to speak on TV. Shares of MicroStrategy jumped $3.88 that day, closing at $42.44.

Running Out of Cash

Meanwhile, his company was running out of cash. Within a few weeks of MicroStrategy’s restatement, the company fell out of compliance with the conditions of a credit line it held with Bank of America. This forced Saylor to personally guarantee the terms of the company’s lending, an unusual move by a chief executive, and also a sign of Bank of America’s unease with MicroStrategy’s financial status. The previous fall, Saylor had liquidated $42 million of his stock assets ­ his only personal stock sale to that point. The sale provided a thin cushion for MicroStrategy, which needed $6 million just to meet its payroll every two weeks, according to a company source.

Saylor, despite his enormous stock holdings, was vulnerable to personal bankruptcy unless the company could raise money fast ­ and ongoing SEC investigations are no selling point.

In June, MicroStrategy sold about 4 percent of its outstanding shares and accepted a $125 million investment from a group led by Promethean Asset Management LLC of Chicago. But the Promethean investment hurt MicroStrategy in the long-term because of a provision that allowed Promethean to gain more shares if the company’s stock price dropped after the purchase date ­ which it steadily did. In investment circles, such provisions have been called “death spirals” because a firm’s stock price often falls after taking on such financing, and as the price drops, the company has to issue more stock. MicroStrategy was eventually forced to renegotiate the deal.

But in June 2000 the Promethean deal provided MicroStrategy with a temporary life jacket. Saylor, however, was increasingly scared for his job.

Bruch was convinced that MicroStrategy’s top executives should be held responsible for the accounting problems that led to the restatement of results. “This was not a case of incompetence,” Bruch said in an interview, referring to Saylor, MicroStrategy co-founder Sanju Bansal and Chief Financial Officer Mark Lynch. “These were not bumblers. They’re smart guys. If there were errors made, you expect there to be a random distribution of errors. It wasn’t.” Rather, he said, there were consistent “errors” made in the company’s favor.

Beltway securities lawyers tend to be an incestuous group, often moving freely between the SEC and private practice. A prime example is Harvey L. Pitt. Pitt represented Saylor before the SEC and is now its chairman. Ralph Ferrara, a securities law expert who represented the firm and had shared an office with Pitt at the SEC in the 1970s, also interviewed with the White House for the job, according to sources familiar with those discussions.

Unlike many dealings between competing legal interests, SEC and private lawyers are often cooperative. A company’s legal team will conduct an investigation of the firm it is representing, then present its findings to the SEC. A lawyer’s credibility with the SEC is vital, especially because the attorney could be working with the agency, or for the agency, again.

Between April and June of 2000, Bruch and Ferrara oversaw parallel investigations of the company. They scrutinized several years of MicroStrategy documents ­ filings, contract drafts, memos and, most compellingly, e-mails. The most incriminating were from Lynch, who would use terms like “scorching the earth,” often in response to pressure from Saylor to achieve “maximum results,” said an SEC source who had viewed the e-mails.

In June, Ferrara and his partner John Tuttle met with Bruch to discuss their mutual findings. In the following weeks, the parties held a series of discussions about settling the case. Ferrara argued ­ and Bruch became convinced ­ that barring Saylor and Bansal from the company would probably kill it and would only hurt shareholders more. Still, Bruch was prepared for a long fight, even though it was far from certain that he could win a case against the three executives if it went to trial. PricewaterhouseCoopers’ role would be a “litigation risk,” he said in an interview, meaning that a jury would be likely to view the accounting firm’s advice as a mitigating factor in assessing MicroStrategy’s guilt.

As he negotiated with Ferrara, Bruch asked variations on the same question: “How do I get comfortable leaving these guys in here?” A recurring point of contention involved a single word: “fraud.”

SEC officials believed this was a case of fraud, while Ferrara argued against including the word in the SEC’s complaint. Bruch used a favorite term whenever Ferrara threatened to refuse a settlement that included a fraud charge. “If you do that, then we’ll unleash the hounds,” Bruch would say, meaning that the SEC would expand the scope and tone of the investigation, and that could take years.

As it turned out, Ferrara was able to avoid a charge of fraud against the company ­ but not Saylor, Bansal and Lynch as individuals. This was an important point for Ferrara. If the company had been cited for fraud, it would have become even more difficult for MicroStrategy to raise money. The company also agreed to add an experienced outsider to the audit committee of its board of directors ­ something it had said it would do before, but never had.

But before he agreed to anything, Bruch needed Saylor, Bansal and Lynch to answer detailed questions about how the accounting fiasco happened. They needed to explain the fine print of some of their contracts, what they meant by certain colorfully worded e-mails. “I need to be convinced that these guys “get it,” Bruch told Ferrara.

Saylor, Bansal and Lunch each had his own counsel, his own concerns and his own grievances: Bansal felt unfairly targeted, given that his main charge at the company was to bring in deals, not record and account for them. Lynch said he felt squeezed between Saylor’s ambitious revenue demands and PricewaterhouseCoopers’ willingness to approve the company’s numbers.

Saylor complained in various private forums about Lynch, saying things like “My CFO didn’t do his job,” or that Lynch was “too aggressive.” But he was also worried that Bansal and Lynch could quit, breaking up their circle and opening up the possibility of lawsuits between them that could further damage the company.

Bruch insisted that Saylor, Bansal and Lynch had to sign on to the final settlement together. Lynch was the most conflicted, but in the end all three agreed. The contours of a deal were set that would allow Saylor to keep control of his company, but with a big qualifier: He would have to explain to the SEC that he understood his company’s mistakes and how they had happened.

On the night before his appearance before the SEC in November 2000, Saylor went home early, around 8 p.m. He called his mother. He tried to soothe himself, sat down at his piano and played Beethoven’s Moonlight Sonata.

Questioned at SEC

The next day, Pitt told lawyer jokes as he and Saylor rode in a Lincoln Town Car to the SEC. Saylor kept taking deep breaths and worried about his ability to remain disciplined and contrite over several hours. In the commission’s basement hearing room, Pitt sat on Saylor’s left, Ferrara on his right.

Pitt, undeterred by a “No Eating” sign, spread out a smorgasbord of Diet Cokes, bottled water, fruit, sandwiches, chips and a five-pound tin of deluxe nuts, which he offered to everyone in the room.

Across from them were the seven SEC officials who had worked on his case. Bruch sat in the middle, flanked by Laura Josephs, a seasoned investigator, and Jay Balacek, a former Harlem beat cop. Josephs, sick with pneumonia, asked general questions to start, then drilled down to the fine points of contracts and internal e-mails. Her questions came in a methodical flurry, interrupted by a hacking cough.

The interview began at 9:30 a.m. and ended at 6:30 p.m. with a 45-minute break for lunch. Sources on both sides said Saylor was deferential and earnest, admitting he had not put the “financial infrastructure” in place to manage a company growing as fast as MicroStrategy. One person in the room described him that day as “almost elfin.”

Saylor recapped the story of MicroStrategy, how he always wanted it to be a force for a better civilization and how he was sorry for all the pain he had caused his shareholders. Again and again he apologized, saying that as CEO, he bore responsibility for everything that happened. He asked to be allowed to learn from his mistakes.

As he finished speaking, Saylor’s voice cracked and his eyes welled with tears.

Saylor Keeps Job

It could have been an act ­ SEC officials were fully open to that possibility. Saylor seemed so well-prepped by his lawyers, “like a guy who needed to be trained in how to talk to people as equals,” said an SEC source who was in the room. But Saylor had demonstrated the requisite contrition. He gave good answers on small points, didn’t stonewall or argue. He could keep his job.

Still, the SEC’s findings, issued in mid-December, provided a detailed account of how Saylor, Bansal and Lynch were complicit in manipulating MicroStrategy’s financial reports. “Each knew, or was reckless in not knowing, that MicroStrategy’s financial statements were materially misleading.” At the end of each quarter, the SEC said, “Saylor, Bansal and Lynch discussed, within a range, the financial results they would like to report in the just-ended quarter and whether to forestall recognizing some revenue.

“To maintain maximum flexibility to achieve the desired quarterly financial results, MicroStrategy held, until after the close of the quarter, contracts that had been signed by customers but had not yet been signed by Saylor, Bansal and Lynch. Only after Saylor, Bansal and Lynch discussed the desired financial results were the unsigned contracts apportioned, between the just-ended quarter and the then-current quarter, and signed by either Bansal and Lynch and given an ‘effective date.’ In some instances, Bansal and Lynch signed contracts without affixing a date, allowing the company further flexibility to assign a date at a later time.”

In other instances, the SEC said, Saylor, Bansal and Lynch knowingly booked revenue from deals before the contracts were signed.

Saylor, Bansal and Lynch agreed to pay fines of $350,000 to settle the SEC’s charges of civil accounting fraud ­ the largest fines that the SEC had ever levied in a case that did not involve insider trading.

The executives also agreed to “disgorge” a combined $10 million of what the SEC labeled “ill-gotten gains” on stock sales ­ $8.3 million by Saylor, $1.6 million by Bansal and $138,000 by Lynch. Lynch, who had already resigned as chief financial officer to become vice president of business affairs, was barred from practicing accounting before the SEC for at least three years.

In agreeing to pay the fines, Saylor, Bansal and Lynch did not admit or deny wrongdoing. Saylor, Lynch and Bansal all declined comment on their SEC settlement.

On the day the settlement was announced, MicroStrategy’s stock closed at $15.38.

Next: Aftermath.

© 2002 The Washington Post Company

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‘Maybe an Older, Wiser Visionary’ Chastened Wonder Boy Back to Business Roots

By Mark Leibovich Washington Post Staff Writer Wednesday, January 9, 2002; Page A01

Last of four articles

In the summer of 2000, Michael Saylor began coming to work late and leaving early. He spent most weekends in the Hamptons. This is not unusual for CEOs in summer, but it was uncharacteristic of Saylor, who rarely went a full weekend without seeing his office at MicroStrategy Inc. and had not taken a vacation since a 1997 trip to London with his mother.

Saylor seemed depressed and withdrawn around the office, repeating platitudes — “We’re working hard, we’ve got a great team” — to people he had known for years. He was “totally checked out,” one executive said, although given Saylor’s fixation with MicroStrategy’s “personal intelligence network,” Strategy.com, they had become accustomed to operating without Saylor’s engagement in the company’s main business, data-mining software.

While Saylor seemed increasingly isolated at work, friends said, he didn’t like being alone. He always took a small entourage with him when he went to Long Island, filling a time-share Hawker jet with new friends such as venture capitalist Mark Ein, real estate developer John Mason and the occasional MicroStrategy pal like Paul Williams.

Despite MicroStrategy’s travails, the summer of 2000 was part of Saylor’s ongoing introduction to the moneyed culture. Williams remembers one of the first weekends they spent in the Hamptons. They were visiting friends, walking up a stone driveway to a huge house while a huge American flag waved in a sea breeze over parked Porsches and Mercedes-Benzes. “How did we get here?” Saylor said to Williams. “Do we really belong here?”

As the summer wore on, Saylor became more comfortable in that setting, but something changed. He began to drink, according to friends, who had always known him as a teetotaler. Alcohol had carried a strong stigma in the Saylor home when he was growing up. His maternal grandfather was an alcoholic.

Saylor said that his drinking should be viewed in the context of his broader personal evolution. “By the summer of 2000, I began taking a more normal view of what a social life should be,” he said.

But what was striking to those who knew him was how drinking exaggerated his already outsized personality. Friends said he could be a sloppy, space-taking drunk who nuzzled up too close to people, putting his arm around them whether he knew them well or not.

After attending a party at the home of rapper Sean “Puffy” Combs, in which all the guests were required to wear white, he threw a bash at his home celebrating his own favorite color — “the black party.” He frequented Cities in Adams Morgan and Cafe Milano in Georgetown. At least two MicroStrategy officials received calls from people who were concerned that they had seen Saylor drunk in public, or at least carrying on loudly, and they were worried about how it might look, given the company’s very public struggles.

Back in the late 1990s, Saylor would tell his new employees that if they were up to his mission, they could “bend reality through sheer force of will.” But as the Nasdaq continued its crash through the end of 2000, and the U.S. economy followed in 2001, reality had become harshly formidable. Longtime employees were leaving MicroStrategy; morale was tumbling, and so was the stock. By the beginning of 2001, shares of MicroStrategy had sunk into single digits. That April, MicroStrategy said it was scaling back plans for Strategy.com, the subsidiary that Saylor had once considered the cornerstone of its effort to deliver “information everywhere.”

Unlike many Internet highfliers, MicroStrategy had an established business to fall back on when the bubble popped: The company refocused on data-mining software, tools that cull information from databases so businesses can analyze customer habits and trends.

“I sell carburetors” is how Saylor now describes his work, underscoring the utilitarian dullness of his core product. “If you ask me about my life, I’m going to say this week I worked on Carburetor Version 3. Next year, I’ll say carburetor Version 4. It’s all about carburetors.”

MicroStrategy’s annual shareholder meeting last July seemed about three eras removed from the momentous gatherings Saylor hosted the year before, such as the massive Super Bowl party MicroStrategy held at FedEx Field. About 60 shareholders showed up at the Dulles Marriott, slumped on green felt-covered seats in Salons B and C, just off the lobby, next to a training session for employees of Gates Rubber Co. in Salon D.

“We went into the jungle, and the jungle was a pretty ugly place,” Saylor told the shareholders. He took questions — four questions that took 40 minutes to answer. When he finished and thanked everyone for coming and for their continued support, there was no applause.

A ‘Wake-Up Call’

Saylor’s relations with his board of directors had been deteriorating for several months, culminating last summer, when MicroStrategy’s shares dipped below $4. In one-on-one and group meetings with Saylor, the board — which included well-known local business figures such as WorldCom Inc. Vice Chairman John Sidgmore and entrepreneur Jonathan Ledecky — had criticized Saylor for, among other things, clinging to Strategy.com until it had burned too much money, for refusing to cut staff and for his apparent disengagement from the company.

The July 14 shareholder meeting was a pivotal day. Several people who attended that meeting — including members of the board — found Saylor’s performance to be lackluster, unfocused and uninspired. He was a very different CEO from the wonder boy who had dazzled so many roomfuls on his way up.

In a heated meeting that followed, the board confronted Saylor about his slipping performance. He was defensive, according to a source close to the board, but he took a clear message from the discussion: The board wanted him to step down as chief executive. He could stay on as chairman, but MicroStrategy needed someone new to lead it day-to-day. Several seasoned candidates were interviewed.

But Saylor refused to relinquish his CEO job to any of them, and there was nothing the board could do about it. Saylor had designed MicroStrategy’s ownership structure so that he held complete control of all company decisions. Not only did he own a large majority of the company’s shares, but he also insisted that there be two “tiers” of shareholders: Class B shareholders (himself and a small group of company insiders, who received 10 votes on important company decisions for every one share owned) and Class A shareholders (everyone else, who received one vote per share).

The board could have voted to fire Saylor anyway. And Saylor could have then fired his board and brought in a new group. That was viewed as an endgame scenario by everyone, given the signal it would have sent to Wall Street — at least the part of Wall Street that still paid attention to MicroStrategy. Firing Saylor was never put to a formal vote. One member described the dispute with Saylor and his board as a “Mexican standoff.”

In retrospect, Saylor said, the board drama was a “wake-up call” for him to abandon his grandest ambitions. No longer would it be his mission to spread information everywhere. He would take his job more seriously, he said, and “abandon blind hope as a strategy.”

Today Strategy.com has been shut down. In systematic layoffs, MicroStrategy’s staff has shrunk to 850 (down from a high of 2,400). Saylor has abandoned his plans to write a book, and he has removed the articles about himself that he had framed from his basement wall. They are now stored in his garage, replaced by van Gogh prints. His office, which once included a sculpture of Rodin’s “Thinker,” is now completely unfurnished except for a pillow embroidered with the words “You never know how many friends you have until you own a home in the Hamptons.”

Saylor remains what he calls “household” — as in a household name — but largely on the strength of his No. 1 ranking in Fortune magazine’s “Billionaire Losers Club” (lost: $13.53 billion) and his once-grandiose plans.

“For the last 18 months, I’ve had to deal with everyone in town wanting to know how my mansion is going,” he said one day last summer over dinner at the Capital Grille in Tysons Corner, downstairs from MicroStrategy’s new, smaller offices. His voice was rising, and people at adjoining tables were peering back at him.

“There’s no house,” said Saylor, who instead of the grand house he once planned lives in a large brick Colonial in McLean. “I’ve been ridiculed in the press for expressing the hope of building a house one day. Like, how much more ridiculous could it get to be ridiculed not for something you’ve done, but for something you’ve whimsically spoke about doing?”

Saylor is still extremely rich. His holdings in MicroStrategy are worth close to $200 million. He liquidated about $10 million last year to diversify his financial holdings and, in the long term, realize his plan for an online university.

He has become used to a certain lifestyle, stepping out of his big limousine at the Legg Mason tennis tournament, riding it around Adams Morgan and Georgetown, inviting people into the back seat to see a Santana concert on his DVD player. He jetted weekly to the Hamptons again last summer, this time staying in a large home he rented in Bridgehampton. He threw a “red party” at Cities to celebrate his 36th birthday. He wore black leather pants and a new red sweater that Brian, his butler, bought specially for the occasion. (Brian the butler has since been replaced by Herman the butler.)

Looking back on his “ordeal,” Saylor is sometimes wistful. Since March 20, 2000, Saylor said, he has grown more humble and less judgmental and more sympathetic to humanity. On other days, he is sarcastic and bitter. “No one should articulate any grand notion,” he said, shaking his head. “And I refuse to apologize for that. Do I regret that I got bludgeoned? Yes. Do I regret that I got bludgeoned because I made the mistake of being passionate and idealistic? Yes. That was my sin. I was youthful and naive.”

Saylor often uses metaphor to describe his experience and its meanings. He was an innocent boy swimming in the ocean, he said, when a magical tidal wave came, a tidal wave of funding, fame and techno-mania to go with swells of adulation to reinforce everything his mother used to tell him: that he was put on earth to “do great and enormous things.”

“The little kid’s on a surfboard, and the tidal wave lifts him 300 feet in the air, right? What do you think that child would do? That child would try his best to stand up on his board.”

But instead he crashes violently into the rocks.

“And he deserves something better than for some journalist after the fact to say, ‘Ha, ha, ha, he thought he could ride a 300-foot wave. Now, look what it got him. . . . Let that be a lesson to other presumptuous little kids who would dare to stand up on that wave in the future.’ ”

But all the little kid wanted to do was surf, Saylor said with a pleading insistence. “It’s like a gleeful satisfaction people take in order to ridicule idealists who actually wanted to do something decent.”

He turns to music metaphors, craftsman metaphors. He compares himself to the homecoming queen who tries out for the cheerleading squad but trips and falls and finds that suddenly everybody hates her. He spins metaphors of extreme violence — rape metaphors, a knifing metaphor. When he is reminded in a later interview that such graphic comparisons could be distasteful to some, he said, for the record, that it is not his intention to offend anyone.

He said he hopes these articles will reflect MicroStrategy’s “going-forward attitude” — how the company has become more focused, how its software wins technology “bake-offs” against its competitors. The latest versions of MicroStrategy’s software, he said, are the carburetors, actually the engines, that allow Safeway to track a package of, say, Chips Ahoy cookies as it passes through a checkout scanner in the District and alert inventory managers in a warehouse of a potential “out-of-stock situation” well before the store runs out of cookies.

Friends say Saylor is fully reengaged at work. His board seems to agree, and the calls for him to leave as CEO have subsided. He has returned to his business roots, one executive said, and the burden of being an “industrialist” has been lifted. “I’m still a visionary,” Saylor said. “I’m a bit more mature, maybe an older, wiser visionary. And I realize today that if your vision is your vision, that and a quarter gets you a cup of coffee. But if you can make your vision your customer’s vision, then you have a business.”

Still, Saylor hardly seemed reconciled, often speaking of how things could have turned out differently.

What would have happened, for example, if John Dirks, the PricewaterhouseCoopers official who recommended that MicroStrategy “restate” its financial records in March 2000, had taken a vacation instead?

He went from being a first-class citizen in Washington to a fourth-class citizen, Saylor said, and now he has scratched his way up to being a second-class citizen. He illustrates his boomeranging fortunes with numbers: He was invited to the White House 10 times in 1999 and early 2000, he said, but not once in 2001.

Even his most avid critics say that Saylor was, in part, a product of his times. Saylor’s sins were more in the realm of breaking rules he believed he could, said Greg Bruch, the SEC lawyer who led the investigation of MicroStrategy in 2000.

“As a society, we needed to build Mike up,” said Manish Acharya, an early MicroStrategy employee who left the firm in early 1999. “What does it take not to be intoxicated? If everyone was given the kind of press he got, the kind of Wall Street value, how would they react? Would Mike fall into the top of the spectrum, or bottom? Or maybe he was average?”

‘Collecting Experience’

While Saylor has made new friends in the past two years, he has also lost a lot of friends — many of whom once made up his adult fraternity at MicroStrategy. Several of those he still considers friends are quick to speak critically of him, usually not for attribution. Some have gotten married and had children and have moved on to new chapters, enriched, in many cases, by the millions of dollars they made at MicroStrategy in better days. They are a close-knit group who have kept in touch, have hired one another for companies they’ve joined or started and are mostly grateful for the exhilarating times they spent at MicroStrategy. Nearly all of them say that Saylor is brilliant and they would never count him out.

But many of them left MicroStrategy feeling worn down by Saylor, tired of his abuse and angered by the restatement crisis. They also evince a sense of sadness when they speak about Saylor. “A lot of people who worked at MicroStrategy alternate between seeing Mike as this incorrigible ball of hubris and also feeling sorry for him as a human being,” said Mark Bisnow, Saylor’s personal publicist.

One longtime MicroStrategy executive compared Saylor to an addict. In a period of addiction, he said, a person’s emotional and social development gets stunted. “Over 12 years, Michael became addicted to power and control,” the former executive said. It made it impossible for him to grow into a normal adulthood.

Another former executive recalls seeing Saylor, along with dozens of present and former employees, at the wedding of longtime MicroStrategist Sid Banerjee last summer. Saylor was in a gregarious mood and kept mentioning that he had a bottle of tequila out in his limo. As if he was in tycoon high school, the former executive said, “like it was just so cool to have this bottle of tequila in his limo.”

A few friends, business associates and at least one board member have expressed concern to Saylor about his increased drinking. But in an interview last week, Saylor said he has no problem with alcohol. He drinks only on weekends, he said, and it has had no effect on his work. He said he has never drunk in front of his parents.

The restatement crisis showed him how quickly money could vanish, he said. He has become more “epicurean” in recent months. He has begun to define security in terms of “collecting experience,” not collecting money. Now, he goes out and he meets friends at clubs. He has come to see that business is no longer the life-and-death matter that he once believed it was, even just a few months ago.

Saylor said he has also become more “spiritual and philosophically complex,” more pragmatic and existential. “In the Air Force, they get promoted by taking a test, showing discipline. In my world, business, it’s like politics, and who you know and what you said and quantum weirdness and random stuff.”

Saylor said he agreed to be interviewed for these articles only because they were going to be written regardless of his participation. He is trying hard, he said, to be boring. “When you’re seeking to build a business and no one knows who you are,” he said, “the key is to be interesting, say interesting things in order to get attention.” He’s trying to only say “extremely uninteresting things.”

One afternoon in early September, Saylor was sitting in a conference room at his office and trying to achieve his goal. He kept invoking carburetors, saying that the only people he wants to talk to are “technologists who are building analytical applications” he said. “Tools for techies,” he repeated several times.

Then he began talking about the nature of public life and the elaborate web that is spun between the idealists and the cynics and how it creates a brutal system of checks and balances that can result in “human carnage.”

“Your 2:45 is here,” his assistant, Glenda Thomas, interrupted, poking her head in.

“Five minutes,” Saylor said before going on for 20 more, describing his ideas on the economic and cultural “ecosystem” he inhabits, and why he admires Oracle Corp. founder Larry Ellison for rebounding after a dreadful accounting restatement by Oracle in the early 1990s.

Thomas, who would soon be leaving for a new job at AOL, poked her head in again.

Saylor led the reporter out, spinning more opinions on “the system,” and then followed the reporter to the elevator bank, talking for 10 more minutes. The 2:45 stood in the lobby a few feet away, having now waited 35 minutes. He is, in Saylor’s words, “the CFO of one of our VARs,” meaning the chief financial officer of one of MicroStrategy’s “value-added resellers.” A carburetor guy, checking his watch.

As the elevator opened, Saylor followed the reporter halfway in and declared that he had learned many lessons about life, leadership and humanity over the past two years. “They can all be valuable,” he said by way of goodbye. “I’ll be better prepared for my next life, whether it’s in politics or whatever.”

© 2002 The Washington Post Company

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-Ian.

MicroStrategy’s CEO Sped to the Brink

By Mark Leibovich Washington Post Staff Writer Sunday, January 6, 2002; Page A01

First of four articles

There were times, when it was all going right, when Michael Saylor would stare out the huge oval windows of his leased Gulfstream jet and fixate on the Rocky Mountains passing below him. He would marvel at how he was covering more territory in five minutes than the western settlers covered by wagon over several months.

This was back in 2000, at the height of the Internet age. In a few Nasdaq months, Saylor’s newly public firm, MicroStrategy Inc., had gained a stock value that exceeded the total worth of his former employer, the venerable DuPont Co.,198 years old. In a few Nasdaq seconds, Saylor could amass more wealth than his father had in his 30-year Air Force career.

It didn’t matter that MicroStrategy was just a software maker that helped companies manage their inventory and customer information. Saylor had what he called “the dot-com halo,” the aura that came with being not just a business, but a revolutionary one. He become an icon to his “constituencies,” as he called them — the media, Wall Street, his employees. He wasn’t building a firm as much as a belief system.

“We’re purging ignorance from the planet,” Saylor often declared in his high, throaty voice. He was on a “crusade for intelligence,” one that sounded just grandiose enough to be plausible at a time when technology chief executives stirred such exuberance, rational or otherwise.

On Feb. 4, 2000, with MicroStrategy’s shares at $142 and his paper wealth shooting into the billions, Saylor hosted a 35th birthday party for himself at Cities, the fashionable Adams Morgan restaurant. “Guess who’s old enough to run for president?” the invitation said, and Saylor duly announced his candidacy that night, a would-be standard bearer for “The Technology Party.” He was kidding. Or seemed to be. But at the time it seemed weirdly possible.

Then, just a few weeks later, it all crashed — a flip of fortunes that was sudden even by the exaggerated norms of the late 1990s and the early part of 2000. Saylor’s life and companybecame object lessons in how ephemeral success could be in the new economy, how perspective could be so easily lost, and how myths — and stock fortunes — could so easily vanish. When MicroStrategy’s story began to unravel, at least some industry and Wall Street watchers believe, it signaled the end of that era. “This one popped the bubble,” wrote James Cramer, columnist for TheStreet.com. “MicroStrategy forever changed the Internet mania.”

In a starkly compressed time frame, Saylor was transformed from a new world titan to an age-old parable: “It’s the same story in a way of a classic Greek tragedy,” said Don Griffith, a former Securities and Exchange Commission lawyer who grew up with Saylor in the Dayton suburb of Fairborn, Ohio. “It’s the story of Icarus and Daedalus. Mike was the guy who flew too close to the sun.”

Saylor grew up wanting to be an Air Force fighter pilot, attended MIT on an ROTC scholarship and entered business after a heart murmur grounded him. He often applied flying metaphors to his corporate rise. He spoke of how the “juice” of high-speed business can either “skyrocket” an entrepreneur or “blow him up.” He also did some of his best thinking in the back of the Gulfstream, the night sky heightening his solitude. These were mostly peaceful meditations. But not the one on the flight that Saylor remembers best.

Late on Friday night, March 17, 2000, Saylor was flying to Washington from San Francisco. It was a few days before MicroStrategy was scheduled to sell newly issued stock to the public, which would help the company pay for its CEO’s manic expansion plans. The sale was expected to raise $2 billion — the largest public offering in software industry history.

Saylor was returning from a “roadshow,” the ritual that comes before a stock issue in which executives promote their companies to big investors and fund managers around the country. By every appearance, Saylor’s meetings were going well, and shares of MicroStrategy finished the week at $226.75. “I’m at the top of the world, everybody loves me,” recalled Saylor, who was then the wealthiest person in the Washington area, at least on paper. “Everybody loves the company, we’re hitting the cover of every magazine. . . . I was household.”

But Saylor knew that he had a secret. A week earlier, MicroStrategy’s financial auditor, PricewaterhouseCoopers, had called into question some of the company’s accounting records. The accountants wanted MicroStrategy to restate some of its financial reports, a potentially devastating step that could send Wall Street into a selling panic. Negotiations had raged all week between officials of MicroStrategy and PricewaterhouseCoopers to determine the need for, or magnitude of, a restatement. Meanwhile, Saylor continued to pitch his company to eager investors in Chicago, Kansas City, Los Angeles and San Francisco.

When the roadshow ended, Saylor flew home, sullen and alone on a beige leather sofa in the back of the $40 million jet. “I know the gods have this wicked sense of humor because of what they did to me,” Saylor said later. “They put me in a position where I was simultaneously the most successful person of my generation and in hell. All at the same time.”

Like the company he still leads, Saylor seems diminished and weary by what he calls “my ordeal.” In the same way that presidents, in their photographs, look as though they’ve aged eight years for every four they’ve been in the White House, Saylor, now 36, seems to have aged about six since his 35th birthday. His boyish flop of brown hair has gone half gray. His fresh round face has become jowly and bearded. His chest-out walk, once the stomping gait of a man who knew exactly where he wanted to go, has acquired an uncertain slump.

In a series of interviews between May and January, Saylor seemed at once humbled by his experience and bitter. At times, he drew comparisons between himself and victims of diseases or violent crimes. “I don’t think that the trauma or stress I felt is any worse than the stress that a father feels when his son has leukemia,” Saylor said last summer, describing his feelings during his company’s sudden fall. “Or whose wife is dying. I think it’s the same . . . in my case, it was my company catching leukemia.”

Saylor always fancied his mission to be a seminal one. His role models were Caesar, Churchill, Gandhi and Gates. He decorated his basement with framed press clippings about himself. He kept a sculpture of Rodin’s “The Thinker” in his office and he had a searing need to believe that MicroStrategy was doing work for the ages. And, for a while, his constituencies needed to believe in him as well — in all his possibility, in all the new economic rules that his success seemed to prove.

As it turned out, Saylor earned his place in history through the narrative of his rise and swoon. This series of articles reconstructs that story. It is based on interviews with Saylor and more than 100 people who have known, watched or worked with him. It is also based on court documents, company memos and internal e-mails that were provided to, or summarized for, The Washington Post by officials at MicroStrategy and sources involved in private lawsuits and an SEC investigation of the company.

What emerges is a vivid dispatch from one of the most perplexing and tumultuous periods in economic history. It also provides one of the great, and largely unseen, corporate dramas in the evolution of the Washington area as a major technology center.

At the story’s hyperkinetic center is Michael Saylor, who became the exemplar of two eras, boom and bust, in their greatest extremes. And it all happened in a matter of days.

“I guess,” Saylor said, smiling at the thought, “that I represent a strange piece of history.”

‘Hit the Floor Running’

The thinking went like this: If Thomas Edison were to write a book about his life and legacy, it would be called “Electricity.” So Michael Saylor believed that he should write a treatise of his own, called “Intelligence.”

His pursuit — to make the species up-to-the-second smarter — was so elemental to civilization that it needed to be distilled in a book, one of those really big books, maybe more than a thousand pages. Not for vanity’s sake, but for history’s.

On Jan. 31, 2000, before a meet-and-greet with former Treasury secretary Robert Rubin, Saylor met with the literary agent Amanda “Binky” Urban in Midtown Manhattan to discuss “Intelligence.” She was intrigued by the idea, and they agreed to keep in touch.

People throughout Saylor’s life describe him as the smartest person they have ever met. “Usually you find a guy with [Saylor’s] intellect in the back of some lab, interacting with rats,” said Joe Robert, a Washington area real estate maven who befriended Saylor during his rise. But Saylor was no outcast, Robert said. He could converse on diverse topics and with multiple audiences: He could quote from Augustus and “Caddyshack” alike, talk circuitry with engineers, numbers with financiers, Big Vision with investors and bachelorhood with the media.

He loved music, played the tenor sax and trombone as a teenager, and would later teach himself guitar and piano. He was valedictorian at Park Hill High School in Fairborn, where he lived from age 11 with his parents, brother and sister in a small aluminum-sided duplex on Wright-Patterson Air Force Base. He was raised in a taut, Southern Baptist household, steeped in chore regimens and vice-free conservatism — no cussing, smoking, drinking. “Hit the floor running, son,” Chief Master Sgt. Jerry Saylor would yell into his son’s bedroom, after waking him at 6 a.m. with a loud clap. The $50,000 ROTC scholarship Saylor earned from MIT was worth five times the amount of his family’s entire savings at that time.

John Sterman, a marketing professor at MIT, said Saylor was “always an unusual fellow, far more serious than most at MIT. . . . a student you wouldn’t forget.” For a class project, Saylor built a computer-simulation model that applied the ideas of Plato’s “Republic” to an ideal civilization. To meet his undergraduate thesis requirement, Saylor, inspired by Machiavelli’s “Discourses,” wrote a computer program that simulated the reactions of varied government systems to calamities such as famines, plagues and war. He graduated with highest honors, earning a degree in aeronautics and astronautics, as well as one in science, technology and society.

Saylor started MicroStrategy in 1989 with Sanju Bansal, his MIT roommate and fraternity brother. Saylor had spent two years writing computer models for DuPont’s titanium dioxide business, but wanted to start his own business. He persuaded his boss to give him a $250,000 consulting contract to continue building computer models. The deal came with office space near DuPont’s headquarters in Wilmington, Del.

In 1992 MicroStrategy developed an early version of the product that would become its franchise: software that allowed companies to extract useful bits of information from their unwieldy corporate databases. By using the software, for instance, McDonald’s could learn that a Chicago franchise was four times more likely to sell Big Macs on winter Friday nights than was a franchise in Miami (where customers disproportionately preferred filet-of-fish sandwiches). While seemingly trivial, such data would prove vital to the companies, and even as other software companies were developing similar “data-mining” products, as they were called, Saylor and Bansal were able to impress and attract an early array of Fortune 500 customers.

In 1994 Saylor and Bansal moved the company and its 50 employees from Wilmington to Tysons Corner, figuring it would be easier to lure elite workers to the Washington area, “a major center of civilization,” Saylor said. MicroStrategy doubled its revenue every year between 1994 and 1997.

‘Information Everywhere’

Part of Saylor’s marketing savvy in the late 1990s sprang from his unwillingness to stay confined to the niche of back-office technology. No matter how solid MicroStrategy’s business and product was, Saylor felt restless. What Saylor craved — and ultimately sold — was a higher corporate purpose for MicroStrategy: He wasn’t so much making tools as much as he was “freeing information.” He wasn’t a seller of data-mining software but a purveyor of “intelligence,” just as Bill Gates’s mission at Microsoft wasn’t simply to sell software for personal computers but to put “a computer on every desktop.”

In computing history, which Saylor studied closely, the dominant companies have been the ones that could shroud the unsexy functionality of their products in the sleek possibility of What Could Come Next. As Internet, database and wireless technologies evolved, Saylor said, information would soon become an essential utility, “like water,” and MicroStrategy would be the company that spread it everywhere. Enlightening McDonald’s about its Big Mac sales was just a start of a grand technological crusade that would eventually “purge ignorance from the planet.”

By the time MicroStrategy held its initial public offering of stock in 1998, Saylor was gaining little notice for his data-mining products and plenty for his vow to spread “information everywhere.” He began to pitch his company’s software products in mystical rhetoric. The back cover of MicroStrategy’s prospectus — published in conjunction with the IPO — included a boldface quotation from science fiction author Arthur C. Clarke: “Any sufficiently advanced technology is indistinguishable from magic.”

Shares were priced at $6 for the June 11 offering (adjusted for a Jan. 4, 2000, stock split), and they doubled by midday. On the Merrill Lynch trading floor that morning, Saylor grinned as he noted that “MSTR,” MicroStrategy’s ticker symbol, was listed on the Nasdaq ticker right after “MSFT” (Microsoft), a company that Saylor idolized.

“Warning,” a message flashed over the trading floor. “Do not confuse MSTR with MSFT.”

The Grand and the Grandiose

On the surface, MicroStrategy seemed the prototype of the democratic new-economy workplace: Employees could wear jeans to work and were always free to e-mail the CEO with ideas. But these egalitarian appearances belied the company’s military ethos, with Saylor as a ubiquitous general in a theater of his own creation. To a degree that is unusual among even the most obsessive entrepreneurs, MicroStrategy has been Saylor’s life. He worked late into most nights, often seven days a week.

Saylor fervidly protected his ownership stake in the firm, and this insistence almost led to the company’s demise before it left Wilmington. In 1994, the firm’s senior managers — Sid Banerjee, Dave Sherwood, Steve Trundell, Eduardo Sanchez, Ed Jurcisin and Manish Acharya — were working long hours and receiving relatively low salaries. When they asked for an equity stake, Saylor and Bansal resisted until the managers finally walked out en masse on a Friday. By Monday, the group had retained a lawyer. Negotiations ensued, and the dispute was settled when Saylor and Bansal agreed to grant the managers a collective 7 percent of the young firm.

Saylor was even more hesitant to give any ownership stake to outside investors, particularly venture capitalists, a species he publicly loathed and distrusted. He feared that venture capitalists — or other big investors — would “dilute the vision” of his company. At the time of the IPO, Saylor retained a remarkable 73.1 percent, or 22.5 million, of the company’s shares (Bansal held another 12 percent). This effectively allowed Saylor to do as he pleased with his firm, unconcerned by any possibility of ever being overruled, taken over or forced out by other investors.

Saylor’s childhood bred in him a strong sense of insularity and control. “I’m very at home in paternalistic environments,” Saylor said. Each winter, he took his employees on a Caribbean cruise (no spouses allowed) to promote corporate solidarity. New workers underwent a rigorous “boot camp” where they were drilled on the arcana of MicroStrategy’s business and required to complete an outdoor ropes course. Saylor’s top lieutenants comprised a brainy fraternity of longtime male pals, several of whom had attended MIT together. Executives who came from other companies often had brief and unpleasant experiences at MicroStrategy.

Saylor was prone to volcanic impatience. “Are you trying to kill us?” Saylor would boom in meetings, or invoke a well-known Gatesism, “That’s the stupidest [expletive] thing I’ve ever heard.” If a person was talking too slowly, Saylor would often take out his Dell laptop and start doing other work. His longtime associates viewed him with a mix of awe and dread: They marveled at his zooming technology mind and also spent a lot of time anticipating what might preoccupy or set him off next. One executive compared the dynamic of MicroStrategy’s executive team to “alcoholics around a dinner table.”

When he was not speaking, Saylor’s eyes would assume a sunken deadness. He spoke in a robotic cadence, as if delivering social graces — “Nice to see you again” — by dint of some how-to program embedded in his skull. He would sometimes talk with such energy that his face twitched. He habitually slammed doors, even when he was not upset. Even his closest friends say Saylor can often be long-winded, tiresome and just odd.

But Saylor could also be inspiring, generous and loyal. He rarely fired people. “You had to really underperform at MicroStrategy to get fired,” said Manish Acharya, who left the firm in early 1999. He recalls firing someone with Saylor — and how Saylor spoke of being “traumatized” for days afterward.

Saylor’s loyalty was returned: MicroStrategy’s turnover rate — about 7 percent in 1997 and 1998 — was low among software companies. With only moderate irony, employees would dub themselves members of the “cult of MicroStrategy,” and Saylor was their charismatic leader. A television monitor in the lobby played a constant loop of Saylor’s speeches.

If they bought into his mission, Saylor told prospective employees at the end of their boot camp sessions, they could help him “bend reality through sheer force of will.” Saylor’s boot-camp sermons lasted hours, sometimes up to nine. “Heaven for me is a microphone and a captive audience,” Saylor said, and he relished the gamesmanship of sales and motivational talks, “that deer-in-the-headlights moment when you know you’ve flipped someone,” he said in 1998.

“I’ve never seen someone who could transfix a room like Mike Saylor,” said Mark Bisnow, who was an aide to Rep. John Anderson and Sen. Robert J. Dole, and whom Saylor hired in April 1998 to be his personal publicist, or, officially, his chief of staff. Bisnow’s mission was, in Saylor’s words, to “put me in front of the right people” — Binky Urban and Robert Rubin, among them. Bisnow ran Saylor’s public life as a permanent branding campaign, which seemed about perfect to Saylor.

“I’m a political leader,” Saylor declared to Washingtonian’s Harry Jaffe in early 2000. “I have a nation. I have constituents. I have investors.” Bisnow worked tirelessly on his behalf, calling anyone, anywhere, who might be worth Saylor’s seduction. Saylor eventually started calling Bisnow his “secretary of state.”

Others called him worse. Several MicroStrategy executives and board members complained — usually privately — that Bisnow had become an unchecked agent of Saylor’s ego. One Washington technology chief called Bisnow “Michael’s crack dealer,” feeding Saylor’s addiction to attention.

“If he ever had any impulse of restraint, Bisnow would push him back in the other direction,” said a longtime MicroStrategy executive who left the company in 2000. Profiles of Saylor included his soliloquies on his ideal wife and the detail that he had a butler, Brian. It was said that Saylor looked like Tom Cruise and dated Queen Noor, King Hussein’s widow (whom he says he has never met).

“I was delighted to help the world discover Mike Saylor,” recalled Bisnow, who left the company last year. The people who criticized Bisnow at MicroStrategy “complained all the way to the bank,” he said.

In late 1999 and early 2000, a recurring source of Saylor’s fascination — and, in turn, the media’s — was his plan to build a “Versailles” on 48 acres in Great Falls. He issued a 100-page request for proposals from architects and sent memos to his public relations staff that outlined some basic features he envisioned for his compound — rooftop conservatory, nine-hole golf course, Japanese gardens. He referred to the compound as “my 21st-century villa,” though Bisnow cautioned him that the term “villa” connoted the Italian leisure class, not the intellectual renaissance he was now leading.

“Mike let himself become this image that kept feeding on itself,” said his friend, America Online co-founder Jim Kimsey. “After a while it’s drinking your own bathwater. After a while it became hubris.”

‘Hey, Mike, You’re Rich’

Saylor had lived a sheltered life: He spent his teenage nights eating ice cream at Friendly’s and lifting weights in his garage with his best friends, Griffith and Tom Spahr, who would later join him at MicroStrategy. They played board games and dabbled in Dungeons and Dragons. “Mike was always the Dungeonmaster,” Spahr recalled, referring to the player who controls the game. “He liked to create and control situations.”

When Saylor arrived at MIT, he had never eaten Chinese food, owned just one suit (beige polyester) and sported a frizzy thin mustache. He confined his friendships mostly to his fraternity, Theta Delta Chi, and had few girlfriends in college or afterward. “Michael recently decided women are an incredible time sink,” Bansal told The Post in 1996.

Until recently, Saylor almost never drank. On the eve of his IPO, aboard a Gulfstream II, MicroStrategy Chief Financial Officer Mark Lynch offered Saylor a celebratory glass of Blue Ribbon Scotch from a $160 bottle. Saylor declined, put the glass aside, took a few sips of champagne and devoured two pink Hostess Sno Balls.

After a day of meetings in New York in January 2000, Saylor and Bisnow went to the bar of the Four Seasons hotel only to find a 45-minute wait for a seat. They turned to leave when Bisnow said, “Hey, Mike, you’re rich, why don’t we do what they do in the movies, hand the maitre d’ a big tip and see what happens?” Bisnow handed the guy a $20 bill and the men were seated.

Around that time, Sen. John F. Kerry (D-Mass.) and his wife, Teresa Heinz, invited Saylor to a private dinner at their Georgetown home. Saylor was flattered that a U.S. senator would care to hear his grand ideas, and when Bisnow mentioned that Kerry might also care about his bank account, he seemed surprised. After the dinner, Saylor was asked by a Kerry aide to host a fundraiser, which he did, despite tending toward conservative views and being a lifelong admirer of George Will.

Saylor was always impressed by wealth, not so much for what the money could buy — although that was enviable too — but for the power, credibility and status that came with it. “When you’re worth a certain amount, you get the attention of everyone in the room,” Saylor said in 1998. In preparing for MicroStrategy’s IPO that year, Saylor offered to sell “friends and family” stock — coveted shares that are usually reserved for company insiders — to a special class of people he dubbed “influencers.” These were the top executives at about 200 nationally known firms, carefully selected by Bisnow. About 5 percent of these “influencers” accepted the shares, according to a source familiar with their apportionment.

As Saylor’s celebrity and wealth grew, he gained entry into increasingly rarefied Washington circles. He attended several of President Bill Clinton’s functions, often arranged by Democratic fundraisers such as Beth Dozoretz. At one reception for Clinton at the Georgetown home of financier Jonathan Silver, the president called on him during a question-and-answer session and Saylor launched into an extended talk about how technology made it possible for every American to carry a panic button, a kind of wireless 911 device. With the proper resources, Saylor said, the government could “significantly cut rape and violent crime.” Clinton asked Saylor to send him a memo on the subject, but he never heard back from the White House.

The Wonder Boy of the Club

Most of Saylor’s powerful new friends came from the burgeoning club of Northern Virginia entrepreneurs said to be transforming Greater Washington from a plodding government enclave into a hotbed of new money and industry. The members included, among others, Joe Robert and James Kimsey, financiers Mark Warner and Russ Ramsey, and entrepreneurs Mario Morino and Jonathan Ledecky. Saylor sought out their companionship and advice at black-tie functions and private dinners. He recruited Ledecky to join the MicroStrategy board and, later, John Sidgmore, the vice chairman of WorldCom. Saylor spoke of the importance of being a good member of the community and of surrounding himself with mentors.

In return, Saylor was embraced as the oddball wonder boy of the local technology sector. “He was sort of adopted as a pet, a curiosity,” said one wealthy local entrepreneur, a friend of Saylor’s. In late 1999, Saylor joined Robert, Kimsey and others on a Caribbean cruise on a 165-foot boat belonging to Hollywood super-agent Mike Ovitz. One afternoon, after drinking tequila shots the night before, Saylor went scuba diving and became sick, vomiting his lunch and inciting a feeding frenzy by a swarm of tropical fish. A few weeks later, Kimsey bought Saylor a bottle of fish food for his birthday.

In time, Saylor became weary and suspicious of several of the local multimillionaires who had become his friends. The more successful he became, people at MicroStrategy recall, the more Saylor would speak of how much smarter and more creative he was than the other younger entrepreneurs he was often grouped with. He began to tune out many of the “mentors” he had cultivated, confiding to at least two friends that AOL co-founder Steve Case was the only person in the Washington tech community whom he considered a peer. (Saylor says that this might have characarized his views at various points in the late 1990s, but that he has since become more humble and less judgmental)

As MicroStrategy’s share price catapulted ever higher, Saylor became fixated by it, checking several times a day. He knew precisely where the stock had to go for him to be a billionaire, or 10-billionaire. Saylor looked to investors not just for money but for a kind of intellectual ratification. He believed in the stock market’s “qualitative ability” to anoint visionaries. “In the marketplace, Nasdaq is the god,” Saylor said.

On the days his stock fell, Saylor was more prone to piqueish fits of micro-management. One day in December 1999, Joe Payne, MicroStrategy’s vice president of marketing, was flying out of Dulles International Airport on a family vacation when he received a call from Saylor on his cell phone. “You’re causing corporate death,” Saylor said acidly and asked why a press release announcing a new partnership agreement had not been issued. Payne explained that the new partner was not ready to announce the agreement.

“Well,” Saylor said, “it’s causing corporate death. The stock is down today. And the reason the stock is down today is because we haven’t gotten that press release out.”

When the stock rose, Saylor was not good at the practiced indifference that CEOs are supposed to evince, especially in front of their employees. Instead, he would casually walk around the office talking about how many paper millions he’d just made as he ate lunch.

There was an honest ebullience about him that was at once crass and refreshing. On MicroStrategy’s annual staff cruise in January 2000, shares rose 19 percent in a single day, and all 1,600 employees were in the Cayman Islands! “We should go on cruises more often,” joked Saylor, who made nearly a billion dollars that day, the dot-com fantasy in a nutshell.

Except that Saylor despised the notion that MicroStrategy was comparable to some dot-com-lately, like he was some newly minted MBA starring in an online toy store. This, he felt, ignored his company’s 11-year track record, its profits, his huge vision. His was not an “Internet company,” he said, it was an “intelligence company.”

“In defense of those who were appealing to Michael’s egomania, he was several cuts above the dot-commers,” Bisnow said. “He had a very solid business software company. And he had these incredible gifts. He could have been someone very memorable, for reasons other than why he ultimately will be.”

Seizing a Halo

MicroStrategy could have continued as just a “very solid business software company.” But that would not have made Saylor memorable, much less historic. So it became clear to Saylor that for the recognition he felt he deserved, he had to be part of Wall Street’s love affair with the Internet. “We were second-class citizens here,” Saylor recalled of MicroStrategy’s status as a mere “software” company. “And time was running out. We needed to get into that halo box.”

This meant trumpeting how his company would thrive in the online world, how Internet and wireless networks could spread freshly mined information “everywhere.” He launched a subsidiary, Strategy.com, that delivered information not to businesses but directly to consumers: weather updates, traffic reports, sports scores via phone, Internet or wireless tools.

Of course it was just a start in the context of the larger dream Saylor was peddling: One day soon, he promised, people would have devices in their ears that would tell them how to avoid clogged highways or incompetent heart surgeons or dangerous neighborhoods. Such intelligence would circulate “everywhere,” cleansing waste, inefficiency and risk from our networked ecosystem. It sounded slightly nutty, but when Saylor was preaching, it could sound oddly imminent, too.

On Jan. 27, 2000, MicroStrategy announced that its revenue for 1999 would be $205.3 million, nearly double the previous year’s. Saylor announced the company’s 16th consecutive quarter of revenue growth and a profit of $3.8 million. The new numbers solidified his cachet as an Internet visionary who could actually make money. He was profiled on “60 Minutes,” in Time and Newsweek (headline: “Caesar and Edison and . . . Saylor?”), and the framed press clippings he hung in his basement began to trail up the staircase and into the first floor of his house.

Shares of MicroStrategy jumped from $225 to $246 on March 7. The price continued upward as Saylor, Mark Lynch and Nick Weir, the head of Strategy.com, began their roadshow in Europe. Investors in London, Geneva and Paris begged to buy the increasingly pricey shares. The stock closed that Thursday, March 9, at $283.

On Friday, Saylor, Lynch and Weir flew back to Washington, with plans to begin the U.S. leg of the roadshow on Monday. On the people mover at Dulles, they checked messages and learned that shares of MicroStrategy had jumped another 30 points. The stock closed that day at $313 after hitting $333 in the early afternoon. Saylor had made another $1.3 billion while he crossed the Atlantic. He was now worth $13.6 billion.

“Do you ever get the feeling things are going just a little bit too well?” Saylor said to Weir as Saylor stepped into his waiting limousine.

“Yes,” Weir said, “and it scares the hell out of me.”

Staff researcher Richard Drezen contributed to this report.

Next: Damage control.

Go check out http://www.buzme.com

Greg: lensch [at] bt [dot] com Brick: brickler [at] bt [dot] com

-Ian.

At 08:08 AM 14/12/99 -0600, you wrote:>Ian,
>
>How are things going? Where are you located these days? What the hell
>happened to the Stars?
>
>Seriously, I was wondering if you have Greg Lensch or Chris Brickler’s
>e-mail addresses. I was looking to get in touch with them before the
>Holidays. Keep in touch.
>
>Jim
>
>—–Original Message—–
>From: Ian Andrew Bell [mailto:ian [at] buzme [dot] com]
>Sent: Tuesday, December 14, 1999 3:34 AM
>To: foib [at] egroups [dot] com
>Subject: @F: [Stock Market] The Great Humiliator Strikes Again.
>
>
>Adam’s always worth forwarding due to his useful but infrequent tirades
>about the impending burst of what shall heretofore be known as “The Bubble”
>(see below).
>
>But First! Here’s my unintentional tirade:
>
>Bill Joy’s article last month on the same subject said it best.. The stock
>market is merely an abstraction of a monetary system that has become merely
>an abstraction of wealth itself. Wealth “creation” has become simply a
>process of “creation”, and not redistribution.
>
>It feeds upon itself. The U.S. Treasury prints more money, which
>underwrites insane growth on the public exchanges, which spawns more
>companies, which create more wealth, which drives the GDP higher, which
>makes the money more valuable, which allows the U.S. Treasury to print more
>money. Can anyone see the flaw?
>
>Oh yeah… That’s right. Now Boeing couldn’t sell a 747 if their life
>depended upon it. Why would any airline buy domestically when they can
>take their AmeriBucks (make that AmeriDebt) and buy an A320 for
>$4.54?? Fuck it. Take all of those machinists and teach ’em to make web
>pages!
>
>I think we should prepare for the US to return to another late 1970s market
>protectionist phase. As their wealth grows higher and the dollar grows
>stronger the WTO will self-destruct (WHOOPS, already happened) and the US
>will start to throw up translucent barriers in the form of subsidies which
>will, of course, raise the national debt.
>
>AND THEN, and only then, will a recession tighten the sphincters of Joe Q.
>Investor and cause a nice hefty crash in the market (by which time I will
>have sold my CSCO shares and retired to Anguilla). Should take another
>couple of years. Good thing there’s an election coming up in the US —
>that preserves the collective delusions for at least a year!
>
>
>-Ian.
>
> >Date: Mon, 13 Dec 1999 22:05:09 -0800 (PST)
> >From: Adam Rifkin -4K
> >Subject: [Stock Market] The Great Humiliator Strikes Again.
> >
> >I just wanted a sample of this newsletter pickled in space and time so
> >we can one day go back and grin about it as indicative of an era. I
> >wonder how many person-hours this year were wasted thinking about stock
> >prices (and, was it more or less than the amount of person-hours lost
> >due to Microsoft product-induced crashes and/or features?). It’s ironic
> >that technology has created productivity efficiencies and, since nature
> >abhors a vacuum, that extra free time is now spent figuring out ways to
> >make money off the very technology that gives us the extra free time.
> >
> >Even Rohit is wasting brain cells following crummy stocks under the
> >assumption that a PE less than 6 is a good thing from an old dead white
> >guy (e.g., Fisher/Graham) viewpoint, rather than seeing that number for
> >what it really is: an indication that no Big Money wants to touch this
> >stock. Price to earnings ratios have shifted from a measure of a
> >company’s value to a gauge of a stock’s relative popularity. Kids
> >frantically buying and selling Pokemon cards on eBay are training for
> >life in a debt-driven consumption society, in which pieces of paper with
> >cool-sounding names on them have become consumer goods in and of
> >themselves. [One ongoing joke is that Amazon isn’t in the book business
> >or even the e-commerce business; rather, it is simply in the business of
> >selling stock, having perfected the business model that in turn launched
> >a thousand ships in search of the next great river through which the
> >money will flow. Vulture capitalists will turn down projects that seek
> >to change the world in favor of projects that endeavor to be
> >buzzword-compliant, to involve people who have played this shell game
> >before, and to go out of their way to tickle the fancies of the greater
> >Fools. The magic number that makes a VC’s eyes light up like a pinball
> >machine still seems to be Dr. Evil’s favorite: “one beeelyun dollars”. :]
> >
> >I do wonder how many people expecting the market to do such-and-such
> >[remember a FoRKer’s prediction less than a year ago that after the Dow
> >hit 9600, it would then do an about-face and return to 6400?] will be
> >disappointed when it does precisely the opposite. Great Humiliator,
> >indeed! Here, I’ll let you know EXACTLY when the bubble is going to
> >burst: 364 days after *I* take a job with any company that is paying me
> >mainly in stock options [me to potential employer: “Err, can I get those
> >options as puts instead of calls, please?” :]. The reason of course
> >being that everyone BUT me (and possibly Rohit?) has profitted
> >handsomely from the stock compensation packages of the 1990’s, so in
> >essence we represent the absolute last ones into the pool. So the rest
> >of you can breathe easy that you’re safe for at least another year, give
> >or take the post-January liquidity dry-up and the potential havoc it may
> >or may not be planning to wreak on the otherwise slap-happy drunken orgy
> >that is 1999’s Nasdaq. [Talk about a self-recursive bubblehater’s worst
> >nightmare: the NYSE and Nasdaq taking THEMSELVES public next year?! Oh,
> >the humanity!] By the way, before you ask: yes, I am fully invested.
> >But no, it’s not enough money to make a lick of difference one way or
> >t’other. — A.
> >
> > > The Option Investor Newsletter Monday 12-13-99
> > > Posted online for subscribers at http://www.optioninvestor.com
> > > Also provided as a service to The Online Investor Advantage
> >
> > > Published three times weekly, Sunday, Tuesday, Thursday evenings
> > > ************************************************************
> > > MARKET WRAP (view in courier font for table alignment)
> > > ************************************************************
> > > 12-13-99 High Low Volume Advance Decline
> > > DOW 11192.59 – 32.11 11250.39 11162.31 977,610k 1,230 1,847
> > > Nasdaq 3658.41 + 37.93 3668.16 3597.98 1,584,533k 2,038 2,163
> > > S&P-100 763.13 – 0.36 767.21 759.00 Totals 3,268 4,010
> > > S&P-500 1415.22 – 1.82 1421.58 1410.10 44.9% 55.1%
> > > $RUT 470.39 + 3.67 470.39 466.33
> > > $TRAN 2895.98 + 21.04 2912.53 2873.67
> > > VIX 23.60 + 0.71 23.85 22.16
> > > Put/Call Ratio .40
> > > *************************************************************
> >
> > > The Great Humiliator strikes again!
> >
> > > What is The Great Humiliator? It’s a nickname for the markets
> > > coined by Ken Fisher, one of the longest running columnists in
> > > Forbes Magazine, and son of the legendary investor, Phil Fisher.
> > > Here it is in his own words from an issue of Forbes Magazine:
> >
> > > “Well, the market’s prime goal is always to embarrass as many
> > > people as possible. It can probably best do that now by rising
> > > smartly for several years, surprising and convincing everyone
> > > that we really are in a new era and stocks can never again fall
> > > big. For the Great Humiliator to fulfill its goal, it must
> > > simply move in ways that surprise. A 1998 bear market won’t
> > > surprise half the forecasters. A modest rise won’t surprise many
> > > folks either. But three more years of up market is inconceivable
> > > to almost everyone I hear or read. So, to me, it’s most likely.
> > > Folks forget, and I’ve used this many times over the years: The
> > > stock market simply does not fall in the third year of a
> > > President’s term. The third year is 1999. The fourth year of a
> > > President’s term is almost as consistent historically. So, if,
> > > as I suspect, 1998 rewards, the Great Humiliator is set for a
> > > three-year run that will surprise everyone.”
> >
> > > Prescient? You bet, since he penned these words nearly two years
> > > ago in the January 12, 1998 issue. Even now, nobody expects this
> > > market to go higher. You can’t open a trade publication or turn
> > > on airwaves without hearing someone say how “overbought” the
> > > “inflated” “bubble” is getting. Compared to what?
> >
> > > Briefing.com notes in a recent article that stocks have already
> > > gone through three phases. In the first phase from 1760-1960’s,
> > > we actually bought stock for appreciation based on increasing
> > > dividends. In the second phase from the 1960’s to the 1990’s, we
> > > turned to earnings growth as the key to appreciation. From 1995
> > > to October 1999, revenue growth was the key to picking a winner.
> > > Now, there appears to be a new “paradigm” (tongue and cheek, of
> > > course) that dictates we should buy because the price is rising!
> > > Dividends, earnings, and revenue have all been replaced by simply
> > > price. Need evidence? Briefing.com also notes, “after all, 289
> > > stocks have doubled in the last four weeks. Nearly half, 128 of
> > > them, have negative revenue growth rates! But they have rising
> > > stock prices.” (!!!)
> >
> > > Lots of investors have hit that wall of amazement too. For the
> > > last two months, they (us too) have been waiting for the elusive
> > > pullback to bring things back into kilter (relatively speaking).
> > > What’s the reason for “waiting”? Not to hunker down and wait out
> > > the impending gloomy storm to come, but so we can buy into the
> > > rally on a dip! Therein lies the key. The waiting pre-supposes
> > > we all have cash to put to work; not just us, but the money
> > > managers and institutions as well. That is in fact the case.
> > > Plenty of money is still looking for a home thanks to the robust
> > > economy. This two-month rally is all about liquidity! As long
> > > as we keep seeing the “buy the dip” mentality, upward progress
> > > should continue in the indices, especially the tech heavy NASDAQ.
> >
> > > Now don’t take this the wrong way. We are not saying to mortgage
> > > the estate, back up the truck, and buy all you can. There will
> > > be corrections along the way since nothing goes up (or down) in a
> > > straight line. The market internals certainly tell a negative
> > > story. While a rising tide may float all boats, some recent
> > > floaters were taking on lots of water. Here’s a list of today’s
> > > big point losers. Red Hat (-26.56); Whittman Hart (on merger
> > > news with USWB, -24.75); VA Linux (-19.06); Andover Net (-15.50);
> > > Akamai (-15); Juniper (-14.38); i2 technologies (-13.69);
> > > Commerce One (-12.38); JDS Uniphase (-10.19); Brocade (-6.38).
> > > Big point gainers were led by none other than Qualcomm (+26.06)
> > > on a spectacular breakout with volume (5.9 mln shares) that
> > > finally (after three anemic weeks) exceeded the ADV (5.7 mln
> > > shares) and Foundry Networks (+26.25). They were closely
> > > followed by Broadvision (+22.63), Internet Capital Group
> > > (+22.50), E.piphany (+19.88), CMGI (+17.56 – earnings Wednesday),
> > > Inktomi (+10.50), and Sycamore Networks (+10.38). You can see,
> > > there’s a lot of volatility in backing up the truck for high
> > > flyers. We must still pick our plays carefully since the rallies
> > > are relegated to the top tier in a few select categories, the
> > > categories of which are under rotation almost weekly. Based on
> > > the above, looks like the Linux crowd moved to Internet backbone
> > > issues – a fickle bunch we are.
> >
> > > And so it appears that the humiliation will continue.
> >
> > > So what exactly happened today? Lets start with the DJIA. Xerox
> > > warned investors after the close last Friday that they would miss
> > > $0.67 estimated earnings by 40%, citing product mix, currency
> > > exchange loss, Brazilian weakness, and other company specific
> > > items. XRX actually closed up today at $21.13 from a low on
> > > Friday of $19, but their problems are far from over and will
> > > likely continue into the next two quarters. Thankfully, the
> > > problems were just company specific and didn’t rub off on the
> > > rest of the markets. Retailers though came to life on news that
> > > last week’s sales (brick’s and mortar and e-tailers) were
> > > substantially ahead of sales at the same time last year. You
> > > might have already guessed that Wal-Mart (+4.62, 67.88) and Home
> > > Depot (+3.75, 92.75) went on to set new all time highs today.
> > > The whole index didn’t fare as well. The DJIA closed down 32
> > > points at 11,192. If it weren’t for a bunch of “sell on close”
> > > orders hitting the floor in the last 7 minutes of trading, the
> > > DJIA would have closed in the “plus” column. Pharmaceuticals is
> > > one of the sectors losing the most ground today on fears that
> > > their pipelines would come up a bit empty. About those negative
> > > internals we spoke of earlier? Decliners outpaced advancers 3:2,
> > > with 472 new lows stomping on 87 new highs. 551 mln shares
> > > traded down, while just 389 mln traded up. Volume was a hefty
> > > 977 mln shares, which tells us there was still a whole lotta
> > > buyin’ goin’ on, despite the loss.
> >
> > > All gloom and doom? Cheer up! Even the all encompassing Russell
> > > 2000 was up today (+3.67 to 470.39). That indicator represents a
> > > composite of 2000 stocks indicating the even some of the small-
> > > caps are moving. The good news is that the NASDAQ did even
> > > better.
> >
> > > With the NASDAQ 100 undergoing revision on December 20, there
> > > will be some new winners added to the index, while others will
> > > get the boot. Wouldn’t it be great to know who the additions are
> > > and maybe plan some plays around them? You are in luck! The
> > > following are the new additions: MEDI, DISH, MFNX, PMCS, ADLAC,
> > > ITWO, BVSN, NTAP, LGTO, NXLK, SDLI, AMCC, NSOL, and QLGC. Those
> > > to be de-listed are ANDW, ADSK, CBRL, CATP, EFII, FAST, FHCC,
> > > LNCR, MUEI, RTRSY, RXSD, ROST, STEI, TECO, and WTHG. Before you
> > > execute a trade, do your homework. They may not all go up due to
> > > their size or further revision to the list. In a strange twist,
> > > though not unexpected in a market where only price seems to
> > > matter, most of those to be de-listed moved up today.
> >
> > > In addition to the proposed NASDAQ 100 revisions, INTC showed up
> > > on the radar today because Prudential downgraded the issue to an
> > > Accumulate from a Strong Buy and moved the price target down from
> > > $90 to $84. You think Intel got a major haircut on the news?
> > > Nope, it was up today by $1.81 and also (fortunately) didn’t rub
> > > off on the rest of the market. In the continuing saga of “Tale
> > > of Two Markets”, 11 issues finished up compared to 10 down. New
> > > highs beat new lows 301 to 143, while up volume was nearly twice
> > > the down volume with almost 1.6 bln shares traded.
> >
> > > What happens for the rest of the week? The CPI figures will be
> > > released tomorrow, wherein the expectation is for a .2% rise.
> > > Retail sales will also be posted tomorrow. The expectation is
> > > for a .5% increase, and only .4% excluding autos. Perhaps the
> > > fear of what these numbers will contain drove some into the “sell
> > > on close” mode on the NYSE. We think the figures will be benign
> > > and a real non-event. Nonetheless, we need to pay attention to
> > > them for indications of the market’s reaction. One hiccup could
> > > be the catalyst for a downdraft. Wednesday, we have the Business
> > > Inventories and Industrial Production figures, followed on
> > > Thursday by initial jobless claims. Oracle and Best Buy report
> > > earnings tomorrow, followed by CMGI (split candidate) on
> > > Wednesday. Be aware of sympathy plays in either direction. The
> > > big message? Based on previous valuations, the market is itching
> > > for a correction. However, based on current liquidity, as long
> > > as you choose your plays carefully, the winners should continue
> > > to be met with buying activity on any dips. Yes, a reversal will
> > > happen sometime, but we don’t know when, and intend to take
> > > advantage of the opportunity this narrow market has given us.
> > > Use volume, coupled with support and resistance as your guide,
> > > and remember to sell too soon. (Whew! We got through this
> > > without saying “new record for the NASDAQ”.)
> >
> > > Buzz Lynn
> > > Research Analyst
> >
> > > ***********
> > > STOCK NEWS
> > > ***********
> >
> > > The Fabulous Fabs
> > > By S.P. Brown
> >
> > > Focusing on core competencies and outsourcing everything else
> > > seems to be the rage in business management these days. More
> > > and more companies are taking a critical look at their business
> > > operations and coming to the conclusion that not everything has
> > > to be done in-house.
> >
> > > The semiconductor sector, in particular, has embraced this
> > > growing trend towards outsourcing non-core activities. Some of
> > > the more well-known names in the semiconductor sector, names
> > > like PMC-Sierra (PMCS) and Rambus (RMBS), operate today under
> > > what is known as a “fabless business model.” In other words,
> > > they outsource their chip fabrication operations to third party
> > > vendors and focus on product design and marketing instead.
> >
> > > These fabless operators have garnered a lot of Wall Street
> > > attention this year. So much so, that many of these lean-
> > > running fabless semiconductor companies are trading near their
> > > all-time highs.
> >
> > > But while many people have focused on the advantages of those
> > > companies that outsource their semiconductor manufacturing,
> > > fewer have focused on the companies that actually do the
> > > fabricating. After all, someone still has to put the chips
> > > together.
> >
> > > That’s quickly changing. The fabs, those companies that
> > > actually manufacture the chips, are emerging as a very strong
> > > growth industry within the semiconductor sector. The market
> > > leaders in this industry are Taiwan Semiconductor (TSM), United
> > > Microelectronics, and Chartered Semiconductor (CHRT). All are
> > > located in Southeast Asia, which should come as no surprise
> > > given the regions comparative labor-cost advantage to the rest
> > > of the world.
> >
> > > It’s easy to see why demand for the fab companies’ services are
> > > growing strong. For a new semiconductor company, the option of
> > > purchasing or building a multi-billion dollar fabrication
> > > facility usually isn’t an option at all; the cost is too
> > > prohibitive.
> >
> > > What’s more, with the growth in specialized applications on a
> > > chip, no single semiconductor company can provide an all-
> > > encompassing product line. For example, integrated circuits
> > > for digital handsets, the DSPs, are enormously different than
> > > those used in a personal computer.
> >
> > > This is were the fabs step in. With their manufacturing
> > > expertise, these companies have emerged as a reliable and cost
> > > effective alternative to in-house manufacturing.
> >
> > > There services are limited to the fabless companies, either.
> > > Motorola (MOT) announced that while they are currently
> > > outsourcing about 5 percent of semiconductor production, they
> > > expect to increase that number to 50 percent over the next few
> > > years. MOT has realized that their core strength is in design
> > > and marketing rather than manufacturing. So rather than spend
> > > the money required to upgrade their existing facilities, they
> > > would rather spend that money on research and development.
> >
> > > Of course, a good thing rarely goes unnoticed for long by Wall
> > > Street’s omniscient glare. The stocks for the two leading
> > > publicly-traded fabs, TSM and CHRT, have outperformed the
> > > broader market this year. TSM is up 230 percent year-to-date
> > > versus the S&P 500’s relatively languid year-to-date run of 15
> > > percent, while CHRT, which began trading on 10/29/99, is up 60
> > > percent.
> >
> > > With overall market growth forecasts being as bullish as they
> > > are – the semiconductor market is expected to grow at a 20
> > > percent annual clip through 2001 – companies like TSM and CHRT
> > > stand to benefit tremendously from the growing trend towards
> > > fabrication outsourcing.
> >
> > > ****************
> > > PLAY OF THE DAY
> > > ****************
> >
> > > GE – General Electric $148.81 +1.81 (+1.81 this wk.)(+11.69)
> >
> > > One of the most profitable companies in the world, General
> > > Electric has been able to make money in all kinds of different
> > > industries. The company is engaged in developing, marketing
> > > and manufacturing of a wide variety of products involved in
> > > generation, transmission, distribution and utilization of
> > > electricity and other goods. It produces aircraft engines,
> > > transportation equipment such as locomotives, appliances (both
> > > kitchen and laundry equipment), lighting, generators and
> > > turbines, nuclear reactors, medical imaging equipment, and
> > > plastics. GE is also a large player in the financial services
> > > field as well as information services. With ownership of NBC,
> > > General Electric is one of the largest broadcasters in the
> > > world. With this diversity and reach, it is no wonder
> > > they count their profits in the billions.
> >
> > > GE is the largest capitalized stock on the U.S. exchanges.
> > > Because of this fact it is a very widely held stock. This fact
> > > is important to understanding why GE’s stock might be a strong
> > > performer in the next couple of weeks. The biggest news item
> > > influencing our decision to profile GE has not been announced
> > > yet. The Board of Directors are meeting on December 17th. It
> > > is widely anticipated that GE executives will spread a little
> > > holiday cheer by announcing the first split of the company’s
> > > stock over two years. GE shareholders have had an excellent
> > > year. A stock split would be the star on top of the Christmas
> > > tree. The main question that remains is whether the Board will
> > > decide to split 2:1 or 3:1. GE typically has announced good
> > > news in December. The shares of GE have done very well this
> > > year, trading over 50 points higher than last January’s low of
> > > $94. Because of this we anticipate very little selling pressure
> > > on the stock for the rest of December. Why take a profit and
> > > pay tax on it in April when you can wait till next year to take
> > > a profit and delay paying taxes until April of 2001? Technically,
> > > GE had an excellent week. Since July, GE’s stock has broken
> > > above six double tops. The stock is in a very strong up trend,
> > > and on Thursday it broke into new high ground again. With the
> > > lack of overhead resistance and possible good news coming we
> > > feel GE has a chance to continue rising. Support is at the
> > > recent breakout point of $141. A more cautious investor may
> > > try and wait to see if there is any market weakness next week
> > > and attempt to add a call position at the support point. More
> > > aggressive investors can buy calls on any strength.
> >
> > > From the NBC news desk, well actually from many sources, GE
> > > announced that it had received a $1.98 billion Air Force engine
> > > contract on Tuesday. Also in the news, GE was named the world’s
> > > most respected company for the second straight year in a
> > > worldwide survey of chief executive officers conducted for the
> > > Financial Times. GE Chief Executive Officer Jack Welch, who
> > > probably voted for himself and his company, was selected as the
> > > world’s most respected business leader in the survey. Further
> > > proof that GE is perhaps the most ubiquitous company in the
> > > world, last week the National Christmas tree was lit up with
> > > 70,000 GE lights.
> > >
> > > BUY CALL JAN-140 GE-AH OIV64 at $12.13 SL= 9.50
> > > BUY CALL JAN-145*GE-AI OIY25 at $ 8.88 SL= 6.75
> > > BUY CALL JAN-150 GE-AU OIf05 at $ 6.38 SL= 4.25
> >
> > > SELL PUT DEC-140 GE-XH OI349 at $ 0.54 SL= 0.00
> > > (See risks of selling puts in play legend)
> >
> > > Picked on Dec 9th at $143.56 P/E = 47
> > > Change since picked +5.25 52-week high=$149.25
> > > Analysts Ratings 9-10-1-0-0 52-week low =$ 86.19
> > > Last earnings 10/99 est= 0.79 actual= 0.80
> > > Next earnings 01-20 est= 0.92 versus= 0.80
> > > Average Daily Volume = 4.99 mln
> > > Chart = http://quote.yahoo.com/q?s=GE&d=3m
> >
> > > *******************
> > > FREE TRIAL READERS
> > > *******************
> >
> > > If you like the results you have been receiving we
> > > would welcome you as a permanent subscriber.
> >
> > > The monthly subscription price is 39.95. The quarterly
> > > price is 99.95 which is $20 off the monthly rate.
> >
> > > We would like to have you as a subscriber. You may
> > > subscribe at any time but your subscription will not
> > > start until your free trial is over.
> >
> > > To subscribe you may go to our website at
> >
> > > www.optioninvestor.com
> >
> > > and click on “subscribe” to use our secure credit
> > > card server or you may simply send an email to
> >
> > > “subscribe [at] optioninvestor [dot] com”
> >
> > > with your credit card information,(number, exp date, name)
> > > or you may call us at 303-797-0200 and give us the
> > > information over the phone.
> >
> > > You may also fax the information to: 303-797-1333
> >
> > > ***********
> > > DISCLAIMER
> > > ***********
> >
> > > This newsletter is a publication dedicated to the education
> > > of options traders. The newsletter is an information service
> > > only. The information provided herein is not to be construed
> > > as an offer to buy or sell securities of any kind. The
> > > newsletter picks are not to be considered a recommendation
> > > of any stock or option but an information resource to aid the
> > > investor in making an informed decision regarding trading in
> > > options. It is possible at this or some subsequent date, the
> > > editor and staff of The Option Investor Newsletter may own,
> > > buy or sell securities presented. All investors should consult
> > > a qualified professional before trading in any security. The
> > > information provided has been obtained from sources deemed
> > > reliable but is not guaranteed as to accuracy or completeness.
> > > The newsletter staff makes every effort to provide timely
> > > information to its subscribers but cannot guarantee specific
> > > delivery times due to factors beyond our control.
> >
> >—-
> >adam [at] 4k-associates [dot] com
> >
> >My friend says we’re like the dinosaurs, and here we are doing ourselves
> >in faster than they ever did.
> > — Porno for Pyros, “Pets”
>
>

But First! Here’s my unintentional tirade:

Bill Joy’s article last month on the same subject said it best.. The stock market is merely an abstraction of a monetary system that has become merely an abstraction of wealth itself. Wealth “creation” has become simply a process of “creation”, and not redistribution.

It feeds upon itself. The U.S. Treasury prints more money, which underwrites insane growth on the public exchanges, which spawns more companies, which create more wealth, which drives the GDP higher, which makes the money more valuable, which allows the U.S. Treasury to print more money. Can anyone see the flaw?

Oh yeah… That’s right. Now Boeing couldn’t sell a 747 if their life depended upon it. Why would any airline buy domestically when they can take their AmeriBucks (make that AmeriDebt) and buy an A320 for $4.54?? Fuck it. Take all of those machinists and teach ’em to make web pages!

I think we should prepare for the US to return to another late 1970s market protectionist phase. As their wealth grows higher and the dollar grows stronger the WTO will self-destruct (WHOOPS, already happened) and the US will start to throw up translucent barriers in the form of subsidies which will, of course, raise the national debt.

AND THEN, and only then, will a recession tighten the sphincters of Joe Q. Investor and cause a nice hefty crash in the market (by which time I will have sold my CSCO shares and retired to Anguilla). Should take another couple of years. Good thing there’s an election coming up in the US — that preserves the collective delusions for at least a year!

-Ian.

>Date: Mon, 13 Dec 1999 22:05:09 -0800 (PST)
>From: Adam Rifkin -4K
>Subject: [Stock Market] The Great Humiliator Strikes Again.
>
>I just wanted a sample of this newsletter pickled in space and time so
>we can one day go back and grin about it as indicative of an era. I
>wonder how many person-hours this year were wasted thinking about stock
>prices (and, was it more or less than the amount of person-hours lost
>due to Microsoft product-induced crashes and/or features?). It’s ironic
>that technology has created productivity efficiencies and, since nature
>abhors a vacuum, that extra free time is now spent figuring out ways to
>make money off the very technology that gives us the extra free time.
>
>Even Rohit is wasting brain cells following crummy stocks under the
>assumption that a PE less than 6 is a good thing from an old dead white
>guy (e.g., Fisher/Graham) viewpoint, rather than seeing that number for
>what it really is: an indication that no Big Money wants to touch this
>stock. Price to earnings ratios have shifted from a measure of a
>company’s value to a gauge of a stock’s relative popularity. Kids
>frantically buying and selling Pokemon cards on eBay are training for
>life in a debt-driven consumption society, in which pieces of paper with
>cool-sounding names on them have become consumer goods in and of
>themselves. [One ongoing joke is that Amazon isn’t in the book business
>or even the e-commerce business; rather, it is simply in the business of
>selling stock, having perfected the business model that in turn launched
>a thousand ships in search of the next great river through which the
>money will flow. Vulture capitalists will turn down projects that seek
>to change the world in favor of projects that endeavor to be
>buzzword-compliant, to involve people who have played this shell game
>before, and to go out of their way to tickle the fancies of the greater
>Fools. The magic number that makes a VC’s eyes light up like a pinball
>machine still seems to be Dr. Evil’s favorite: “one beeelyun dollars”. :]
>
>I do wonder how many people expecting the market to do such-and-such
>[remember a FoRKer’s prediction less than a year ago that after the Dow
>hit 9600, it would then do an about-face and return to 6400?] will be
>disappointed when it does precisely the opposite. Great Humiliator,
>indeed! Here, I’ll let you know EXACTLY when the bubble is going to
>burst: 364 days after *I* take a job with any company that is paying me
>mainly in stock options [me to potential employer: “Err, can I get those
>options as puts instead of calls, please?” :]. The reason of course
>being that everyone BUT me (and possibly Rohit?) has profitted
>handsomely from the stock compensation packages of the 1990’s, so in
>essence we represent the absolute last ones into the pool. So the rest
>of you can breathe easy that you’re safe for at least another year, give
>or take the post-January liquidity dry-up and the potential havoc it may
>or may not be planning to wreak on the otherwise slap-happy drunken orgy
>that is 1999’s Nasdaq. [Talk about a self-recursive bubblehater’s worst
>nightmare: the NYSE and Nasdaq taking THEMSELVES public next year?! Oh,
>the humanity!] By the way, before you ask: yes, I am fully invested.
>But no, it’s not enough money to make a lick of difference one way or
>t’other. — A.
>
> > The Option Investor Newsletter Monday 12-13-99
> > Posted online for subscribers at http://www.optioninvestor.com
> > Also provided as a service to The Online Investor Advantage
>
> > Published three times weekly, Sunday, Tuesday, Thursday evenings
> > ************************************************************
> > MARKET WRAP (view in courier font for table alignment)
> > ************************************************************
> > 12-13-99 High Low Volume Advance Decline
> > DOW 11192.59 – 32.11 11250.39 11162.31 977,610k 1,230 1,847
> > Nasdaq 3658.41 + 37.93 3668.16 3597.98 1,584,533k 2,038 2,163
> > S&P-100 763.13 – 0.36 767.21 759.00 Totals 3,268 4,010
> > S&P-500 1415.22 – 1.82 1421.58 1410.10 44.9% 55.1%
> > $RUT 470.39 + 3.67 470.39 466.33
> > $TRAN 2895.98 + 21.04 2912.53 2873.67
> > VIX 23.60 + 0.71 23.85 22.16
> > Put/Call Ratio .40
> > *************************************************************
>
> > The Great Humiliator strikes again!
>
> > What is The Great Humiliator? It’s a nickname for the markets
> > coined by Ken Fisher, one of the longest running columnists in
> > Forbes Magazine, and son of the legendary investor, Phil Fisher.
> > Here it is in his own words from an issue of Forbes Magazine:
>
> > “Well, the market’s prime goal is always to embarrass as many
> > people as possible. It can probably best do that now by rising
> > smartly for several years, surprising and convincing everyone
> > that we really are in a new era and stocks can never again fall
> > big. For the Great Humiliator to fulfill its goal, it must
> > simply move in ways that surprise. A 1998 bear market won’t
> > surprise half the forecasters. A modest rise won’t surprise many
> > folks either. But three more years of up market is inconceivable
> > to almost everyone I hear or read. So, to me, it’s most likely.
> > Folks forget, and I’ve used this many times over the years: The
> > stock market simply does not fall in the third year of a
> > President’s term. The third year is 1999. The fourth year of a
> > President’s term is almost as consistent historically. So, if,
> > as I suspect, 1998 rewards, the Great Humiliator is set for a
> > three-year run that will surprise everyone.”
>
> > Prescient? You bet, since he penned these words nearly two years
> > ago in the January 12, 1998 issue. Even now, nobody expects this
> > market to go higher. You can’t open a trade publication or turn
> > on airwaves without hearing someone say how “overbought” the
> > “inflated” “bubble” is getting. Compared to what?
>
> > Briefing.com notes in a recent article that stocks have already
> > gone through three phases. In the first phase from 1760-1960’s,
> > we actually bought stock for appreciation based on increasing
> > dividends. In the second phase from the 1960’s to the 1990’s, we
> > turned to earnings growth as the key to appreciation. From 1995
> > to October 1999, revenue growth was the key to picking a winner.
> > Now, there appears to be a new “paradigm” (tongue and cheek, of
> > course) that dictates we should buy because the price is rising!
> > Dividends, earnings, and revenue have all been replaced by simply
> > price. Need evidence? Briefing.com also notes, “after all, 289
> > stocks have doubled in the last four weeks. Nearly half, 128 of
> > them, have negative revenue growth rates! But they have rising
> > stock prices.” (!!!)
>
> > Lots of investors have hit that wall of amazement too. For the
> > last two months, they (us too) have been waiting for the elusive
> > pullback to bring things back into kilter (relatively speaking).
> > What’s the reason for “waiting”? Not to hunker down and wait out
> > the impending gloomy storm to come, but so we can buy into the
> > rally on a dip! Therein lies the key. The waiting pre-supposes
> > we all have cash to put to work; not just us, but the money
> > managers and institutions as well. That is in fact the case.
> > Plenty of money is still looking for a home thanks to the robust
> > economy. This two-month rally is all about liquidity! As long
> > as we keep seeing the “buy the dip” mentality, upward progress
> > should continue in the indices, especially the tech heavy NASDAQ.
>
> > Now don’t take this the wrong way. We are not saying to mortgage
> > the estate, back up the truck, and buy all you can. There will
> > be corrections along the way since nothing goes up (or down) in a
> > straight line. The market internals certainly tell a negative
> > story. While a rising tide may float all boats, some recent
> > floaters were taking on lots of water. Here’s a list of today’s
> > big point losers. Red Hat (-26.56); Whittman Hart (on merger
> > news with USWB, -24.75); VA Linux (-19.06); Andover Net (-15.50);
> > Akamai (-15); Juniper (-14.38); i2 technologies (-13.69);
> > Commerce One (-12.38); JDS Uniphase (-10.19); Brocade (-6.38).
> > Big point gainers were led by none other than Qualcomm (+26.06)
> > on a spectacular breakout with volume (5.9 mln shares) that
> > finally (after three anemic weeks) exceeded the ADV (5.7 mln
> > shares) and Foundry Networks (+26.25). They were closely
> > followed by Broadvision (+22.63), Internet Capital Group
> > (+22.50), E.piphany (+19.88), CMGI (+17.56 – earnings Wednesday),
> > Inktomi (+10.50), and Sycamore Networks (+10.38). You can see,
> > there’s a lot of volatility in backing up the truck for high
> > flyers. We must still pick our plays carefully since the rallies
> > are relegated to the top tier in a few select categories, the
> > categories of which are under rotation almost weekly. Based on
> > the above, looks like the Linux crowd moved to Internet backbone
> > issues – a fickle bunch we are.
>
> > And so it appears that the humiliation will continue.
>
> > So what exactly happened today? Lets start with the DJIA. Xerox
> > warned investors after the close last Friday that they would miss
> > $0.67 estimated earnings by 40%, citing product mix, currency
> > exchange loss, Brazilian weakness, and other company specific
> > items. XRX actually closed up today at $21.13 from a low on
> > Friday of $19, but their problems are far from over and will
> > likely continue into the next two quarters. Thankfully, the
> > problems were just company specific and didn’t rub off on the
> > rest of the markets. Retailers though came to life on news that
> > last week’s sales (brick’s and mortar and e-tailers) were
> > substantially ahead of sales at the same time last year. You
> > might have already guessed that Wal-Mart (+4.62, 67.88) and Home
> > Depot (+3.75, 92.75) went on to set new all time highs today.
> > The whole index didn’t fare as well. The DJIA closed down 32
> > points at 11,192. If it weren’t for a bunch of “sell on close”
> > orders hitting the floor in the last 7 minutes of trading, the
> > DJIA would have closed in the “plus” column. Pharmaceuticals is
> > one of the sectors losing the most ground today on fears that
> > their pipelines would come up a bit empty. About those negative
> > internals we spoke of earlier? Decliners outpaced advancers 3:2,
> > with 472 new lows stomping on 87 new highs. 551 mln shares
> > traded down, while just 389 mln traded up. Volume was a hefty
> > 977 mln shares, which tells us there was still a whole lotta
> > buyin’ goin’ on, despite the loss.
>
> > All gloom and doom? Cheer up! Even the all encompassing Russell
> > 2000 was up today (+3.67 to 470.39). That indicator represents a
> > composite of 2000 stocks indicating the even some of the small-
> > caps are moving. The good news is that the NASDAQ did even
> > better.
>
> > With the NASDAQ 100 undergoing revision on December 20, there
> > will be some new winners added to the index, while others will
> > get the boot. Wouldn’t it be great to know who the additions are
> > and maybe plan some plays around them? You are in luck! The
> > following are the new additions: MEDI, DISH, MFNX, PMCS, ADLAC,
> > ITWO, BVSN, NTAP, LGTO, NXLK, SDLI, AMCC, NSOL, and QLGC. Those
> > to be de-listed are ANDW, ADSK, CBRL, CATP, EFII, FAST, FHCC,
> > LNCR, MUEI, RTRSY, RXSD, ROST, STEI, TECO, and WTHG. Before you
> > execute a trade, do your homework. They may not all go up due to
> > their size or further revision to the list. In a strange twist,
> > though not unexpected in a market where only price seems to
> > matter, most of those to be de-listed moved up today.
>
> > In addition to the proposed NASDAQ 100 revisions, INTC showed up
> > on the radar today because Prudential downgraded the issue to an
> > Accumulate from a Strong Buy and moved the price target down from
> > $90 to $84. You think Intel got a major haircut on the news?
> > Nope, it was up today by $1.81 and also (fortunately) didn’t rub
> > off on the rest of the market. In the continuing saga of “Tale
> > of Two Markets”, 11 issues finished up compared to 10 down. New
> > highs beat new lows 301 to 143, while up volume was nearly twice
> > the down volume with almost 1.6 bln shares traded.
>
> > What happens for the rest of the week? The CPI figures will be
> > released tomorrow, wherein the expectation is for a .2% rise.
> > Retail sales will also be posted tomorrow. The expectation is
> > for a .5% increase, and only .4% excluding autos. Perhaps the
> > fear of what these numbers will contain drove some into the “sell
> > on close” mode on the NYSE. We think the figures will be benign
> > and a real non-event. Nonetheless, we need to pay attention to
> > them for indications of the market’s reaction. One hiccup could
> > be the catalyst for a downdraft. Wednesday, we have the Business
> > Inventories and Industrial Production figures, followed on
> > Thursday by initial jobless claims. Oracle and Best Buy report
> > earnings tomorrow, followed by CMGI (split candidate) on
> > Wednesday. Be aware of sympathy plays in either direction. The
> > big message? Based on previous valuations, the market is itching
> > for a correction. However, based on current liquidity, as long
> > as you choose your plays carefully, the winners should continue
> > to be met with buying activity on any dips. Yes, a reversal will
> > happen sometime, but we don’t know when, and intend to take
> > advantage of the opportunity this narrow market has given us.
> > Use volume, coupled with support and resistance as your guide,
> > and remember to sell too soon. (Whew! We got through this
> > without saying “new record for the NASDAQ”.)
>
> > Buzz Lynn
> > Research Analyst
>
> > ***********
> > STOCK NEWS
> > ***********
>
> > The Fabulous Fabs
> > By S.P. Brown
>
> > Focusing on core competencies and outsourcing everything else
> > seems to be the rage in business management these days. More
> > and more companies are taking a critical look at their business
> > operations and coming to the conclusion that not everything has
> > to be done in-house.
>
> > The semiconductor sector, in particular, has embraced this
> > growing trend towards outsourcing non-core activities. Some of
> > the more well-known names in the semiconductor sector, names
> > like PMC-Sierra (PMCS) and Rambus (RMBS), operate today under
> > what is known as a “fabless business model.” In other words,
> > they outsource their chip fabrication operations to third party
> > vendors and focus on product design and marketing instead.
>
> > These fabless operators have garnered a lot of Wall Street
> > attention this year. So much so, that many of these lean-
> > running fabless semiconductor companies are trading near their
> > all-time highs.
>
> > But while many people have focused on the advantages of those
> > companies that outsource their semiconductor manufacturing,
> > fewer have focused on the companies that actually do the
> > fabricating. After all, someone still has to put the chips
> > together.
>
> > That’s quickly changing. The fabs, those companies that
> > actually manufacture the chips, are emerging as a very strong
> > growth industry within the semiconductor sector. The market
> > leaders in this industry are Taiwan Semiconductor (TSM), United
> > Microelectronics, and Chartered Semiconductor (CHRT). All are
> > located in Southeast Asia, which should come as no surprise
> > given the regions comparative labor-cost advantage to the rest
> > of the world.
>
> > It’s easy to see why demand for the fab companies’ services are
> > growing strong. For a new semiconductor company, the option of
> > purchasing or building a multi-billion dollar fabrication
> > facility usually isn’t an option at all; the cost is too
> > prohibitive.
>
> > What’s more, with the growth in specialized applications on a
> > chip, no single semiconductor company can provide an all-
> > encompassing product line. For example, integrated circuits
> > for digital handsets, the DSPs, are enormously different than
> > those used in a personal computer.
>
> > This is were the fabs step in. With their manufacturing
> > expertise, these companies have emerged as a reliable and cost
> > effective alternative to in-house manufacturing.
>
> > There services are limited to the fabless companies, either.
> > Motorola (MOT) announced that while they are currently
> > outsourcing about 5 percent of semiconductor production, they
> > expect to increase that number to 50 percent over the next few
> > years. MOT has realized that their core strength is in design
> > and marketing rather than manufacturing. So rather than spend
> > the money required to upgrade their existing facilities, they
> > would rather spend that money on research and development.
>
> > Of course, a good thing rarely goes unnoticed for long by Wall
> > Street’s omniscient glare. The stocks for the two leading
> > publicly-traded fabs, TSM and CHRT, have outperformed the
> > broader market this year. TSM is up 230 percent year-to-date
> > versus the S&P 500’s relatively languid year-to-date run of 15
> > percent, while CHRT, which began trading on 10/29/99, is up 60
> > percent.
>
> > With overall market growth forecasts being as bullish as they
> > are – the semiconductor market is expected to grow at a 20
> > percent annual clip through 2001 – companies like TSM and CHRT
> > stand to benefit tremendously from the growing trend towards
> > fabrication outsourcing.
>
> > ****************
> > PLAY OF THE DAY
> > ****************
>
> > GE – General Electric $148.81 +1.81 (+1.81 this wk.)(+11.69)
>
> > One of the most profitable companies in the world, General
> > Electric has been able to make money in all kinds of different
> > industries. The company is engaged in developing, marketing
> > and manufacturing of a wide variety of products involved in
> > generation, transmission, distribution and utilization of
> > electricity and other goods. It produces aircraft engines,
> > transportation equipment such as locomotives, appliances (both
> > kitchen and laundry equipment), lighting, generators and
> > turbines, nuclear reactors, medical imaging equipment, and
> > plastics. GE is also a large player in the financial services
> > field as well as information services. With ownership of NBC,
> > General Electric is one of the largest broadcasters in the
> > world. With this diversity and reach, it is no wonder
> > they count their profits in the billions.
>
> > GE is the largest capitalized stock on the U.S. exchanges.
> > Because of this fact it is a very widely held stock. This fact
> > is important to understanding why GE’s stock might be a strong
> > performer in the next couple of weeks. The biggest news item
> > influencing our decision to profile GE has not been announced
> > yet. The Board of Directors are meeting on December 17th. It
> > is widely anticipated that GE executives will spread a little
> > holiday cheer by announcing the first split of the company’s
> > stock over two years. GE shareholders have had an excellent
> > year. A stock split would be the star on top of the Christmas
> > tree. The main question that remains is whether the Board will
> > decide to split 2:1 or 3:1. GE typically has announced good
> > news in December. The shares of GE have done very well this
> > year, trading over 50 points higher than last January’s low of
> > $94. Because of this we anticipate very little selling pressure
> > on the stock for the rest of December. Why take a profit and
> > pay tax on it in April when you can wait till next year to take
> > a profit and delay paying taxes until April of 2001? Technically,
> > GE had an excellent week. Since July, GE’s stock has broken
> > above six double tops. The stock is in a very strong up trend,
> > and on Thursday it broke into new high ground again. With the
> > lack of overhead resistance and possible good news coming we
> > feel GE has a chance to continue rising. Support is at the
> > recent breakout point of $141. A more cautious investor may
> > try and wait to see if there is any market weakness next week
> > and attempt to add a call position at the support point. More
> > aggressive investors can buy calls on any strength.
>
> > From the NBC news desk, well actually from many sources, GE
> > announced that it had received a $1.98 billion Air Force engine
> > contract on Tuesday. Also in the news, GE was named the world’s
> > most respected company for the second straight year in a
> > worldwide survey of chief executive officers conducted for the
> > Financial Times. GE Chief Executive Officer Jack Welch, who
> > probably voted for himself and his company, was selected as the
> > world’s most respected business leader in the survey. Further
> > proof that GE is perhaps the most ubiquitous company in the
> > world, last week the National Christmas tree was lit up with
> > 70,000 GE lights.
> >
> > BUY CALL JAN-140 GE-AH OIV64 at $12.13 SL= 9.50
> > BUY CALL JAN-145*GE-AI OIY25 at $ 8.88 SL= 6.75
> > BUY CALL JAN-150 GE-AU OIf05 at $ 6.38 SL= 4.25
>
> > SELL PUT DEC-140 GE-XH OI349 at $ 0.54 SL= 0.00
> > (See risks of selling puts in play legend)
>
> > Picked on Dec 9th at $143.56 P/E = 47
> > Change since picked +5.25 52-week high=$149.25
> > Analysts Ratings 9-10-1-0-0 52-week low =$ 86.19
> > Last earnings 10/99 est= 0.79 actual= 0.80
> > Next earnings 01-20 est= 0.92 versus= 0.80
> > Average Daily Volume = 4.99 mln
> > Chart = http://quote.yahoo.com/q?s=GE&d=3m
>
> > *******************
> > FREE TRIAL READERS
> > *******************
>
> > If you like the results you have been receiving we
> > would welcome you as a permanent subscriber.
>
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> > price is 99.95 which is $20 off the monthly rate.
>
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>
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>
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>
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>
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>
> > ***********
> > DISCLAIMER
> > ***********
>
> > This newsletter is a publication dedicated to the education
> > of options traders. The newsletter is an information service
> > only. The information provided herein is not to be construed
> > as an offer to buy or sell securities of any kind. The
> > newsletter picks are not to be considered a recommendation
> > of any stock or option but an information resource to aid the
> > investor in making an informed decision regarding trading in
> > options. It is possible at this or some subsequent date, the
> > editor and staff of The Option Investor Newsletter may own,
> > buy or sell securities presented. All investors should consult
> > a qualified professional before trading in any security. The
> > information provided has been obtained from sources deemed
> > reliable but is not guaranteed as to accuracy or completeness.
> > The newsletter staff makes every effort to provide timely
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>
>—-
>adam [at] 4k-associates [dot] com
>
>My friend says we’re like the dinosaurs, and here we are doing ourselves
>in faster than they ever did.
> — Porno for Pyros, “Pets”