Mick Weinstein The Week's Best Stock Blogs

The financial blogosphere lit up this week over three stories: yet another major fraud, this time at Indian outsourcer Satyam; health issues with Apple's CEO Steve Jobs; and the ongoing problem of assessing risk at financial firms -- which has become a national and global concern.

'Truth' in Sanskrit

On Tuesday, B. Ramalinga Raju, founder and chairman of large Indian outsourcer Satyam, resigned and admitted that over $1B of cash declared on Satyam's balance sheet as of September 30 was fictitious. The stock has collapsed, and the company -- whose name means 'truth' in Sanskrit -- is on the verge of collapse.

• Joe Wiesenthal at Clusterstock notes the parallel with Bernie Madoff, and wonders if the book-cooking goes far beyond the $1B Raju admitted: "Raju decided to 'come clean' directly about his fraud, rather than wait for someone else (like his sons) to do it for him. But remember, he's a fraudster, and as such can't be trusted. Like Madoff, he's lost any expectation of believability."

• Satyam's auditing firm PriceWaterhouseCooper is in hot water over Satyam. Jim Lipshaw at Legal Profession Blog: "It really is a mystery how somebody who is audited by PWC gins up a billion dollars in fake cash. My wife has been an inactive CPA since about 1983, and her comment this morning was: 'I haven't been on an audit in over 25 years, but I'd still know how to audit cash!'"

• Jae Jun takes a look at recent Satyam balance sheets: "I thought it would be interesting to see whether I could detect the fraud in the statements... I couldn't see much wrong with the numbers... The auditing company surely must have been part of this or the CEO is truly a smart guy."

• Rakesh Saxena warns that there are many more Satyams out there: "U.S. investors need to be more concerned about the real possibility that disclosure documents filed by a fair proportion of emerging market listings, traded in the U.S. or on domestic exchanges, are providing hopelessly inadequate (and misleading) trading guidance." (Saxena holds a short position in an emerging market ETF for this reason.)

• Anshu Sharma agrees this may expose a broader "faux capitalism" at Indian firms: "The sad reality is that this company is not alone. I suspect worse frauds by other Indian companies in the ‘Tier-2' category. Even Tier 1 companies like Reliance, DLF, and Unitech appear to have used tricks to inflate assets."

• TechDirt's Mike Masnik addresses the recurring concern this episode raises: "As with any downturn, it's no surprise that some of the scammers are being outed. It certainly doesn't mean that all companies are scamming, but it is a reminder that unless you're personally involved, it's pretty tough to take a company's word on what it's actually been doing with its money."

Meanwhile, BusinessWeek blogger Bruce Einhorn reports that Raju was missing as of Thursday: "The Indian media is reporting he might be in Dubai or Texas." Maybe Raju went to visit Jeff Skilling's lawyers in Houston.

Steve Jobs' health

On Monday, Apple CEO Steve Jobs disclosed in an open letter to the 'Apple Community' that he's in treatment for a hormone imbalance and will remain at Apple's helm through the course of his treatment.

• Henry Blodget notes that just three weeks ago Apple announced suddenly that Jobs would not be giving the keynote at MacWorld, but said nothing of this as a reason: "Fortunately, the news about Steve's health is not dire. But this doesn't excuse Apple's failure to be forthright about this critical issue. Apple shareholders have every right to be outraged about the way the company has handled this."

• Venture capitalist Fred Wilson decided to sell his Apple stock on this news: "As good as the company is, I just can't own a stock when I don't believe the company is being straight with investors."

• Kara Swisher has asserted for some time that Jobs' health is nobody's business but his own, and now comments: "It was posting the information about Jobs being on his deathbed that was wrong, and no amount of fobbing off blame on the source can fix that. All this could have been solved if Apple were more forthcoming, of course, but this is akin to wishing for a miracle cure."

• But Mathew Ingram demurs: "As John Byrne of Business Week noted on Twitter yesterday, there is a premium of anywhere from 15 to 25 per cent built into Apple's share price because Steve Jobs is the CEO. If he were to disappear, it would remove billions of dollars in market value overnight. If that doesn't qualify as a 'material fact,' then I don't know what does."

• On WSJ blogs, Marketbeat's David Gaffen names five reasons why concerns over Jobs persist, and DealJournal says it's time for Apple to present a succession plan.

In Search of a Riskometer

The New York Times' veteran, outstanding business reporter Joe Nocera had an important weekend piece on risk management at the big investment banks and its role in the ongoing financial meltdown. Nocera focuses on Value at Risk (VaR), a model that most institutions used to attempt to quantify the amount of risk in their positions, and profiles Nassim Nicholas Taleb, author of "The Black Swan," who has "crusaded against VaR for more than a decade." A few noteworthy responses from the blogosphere:

• The New Yorker's James Surowiecki: "In Nocera's take, Wall Street simply got careless and 'stopped looking for dragons,' at which point it was doomed." But Surowiecki has an even more disturbing suggestion about what was driving decision-makers at the big banks: "Even when people recognized the possibility of dragons, they decided it was in their short-term interests (even if it wasn't in the company's interests), to run the risk of getting incinerated anyway."

• Fund manager Eddy Elfenbein finds Taleb a "titanically overrated blowhard" and presents a position that's more or less in line with Nocera's -- don't blame NaR models, blame those who relied too heavily on them alone: "Risk models are perfectly fine to use as long as you're aware of the limitations. Every financial ratio or metric is like that. Just because it has some flaw is no reason to blame the movement of the economy on the misuse of math."

•But Yves Smith of Naked Capitalism believes Nocera's "woefully misleading" article "so badly misses the basics about VaR that it is hard to take it seriously, although many no doubt will." Smith aligns with Taleb in principle, claiming that NaR is fundamentally flawed, but "with the noisiest critic of VaR, Nassim Nicolas Taleb, dismissive and not prone to explanation, the defenders get far more air time and come off sounding far more reasonable."

• Finally, Jon Danielsson of the London School of Economics weighs in on the very concept of accurate measurement of risk in this area: "There is a widely held belief that financial risk is easily measured -- that we can stick some sort of riskometer deep into the bowels of the financial system and get an accurate measurement of the risk of complex financial instruments. Such misguided belief in this riskometer played a key role in getting the financial system into the mess it is in."