What is Terrorism?; How Useful are Prospectuses?*

What is Terrorism?

Words matter … in their innuendos as well as in their dictionary definitions. The words uttered by world leaders matter more than others.

Directly after the Boston Marathon attack by two Muslim brothers on April 15, 2013, President Obama called it a “senseless bombing.” Although it clearly was an act of terrorism, he didn’t label it “a terrorist act.” He belatedly did so the following day. No new facts had come to light overnight. There was no question on April 15th that the bombing had been an act of terrorism. But he initially refrained from labeling it as such. He was much criticized, and rightly so. Some interpreted his failure to immediately condemn the attack as terrorism as betraying his support for Muslim causes.

How different is that from President Trump’s words and the resulting criticisms following the March 15, 2019 Christchurch attack?

Directly after the Christchurch attack on worshippers at a mosque, President Trump called it a “horrible massacre.” Although it was an act of terrorism, he didn’t label it “a terrorist act.” Additional facts, including the terrorist’s live-streaming of the massacre and publication of his extremist manifesto, haven’t led the President to clarify use of the terrorism label. He has been much criticized … but not for that. Instead, criticism has focused on how the President minimized the danger from similar White Nationalist terrorists: “I think it’s a small group of people who have very, very serious problems.”

Words matter. Among many effects, the wrong words alter people’s perceptions … and their focus. They can be divisive when they could and should be constructive. They can distract us from real threats and focus us on unreal ones.

Both the Boston Marathon bombing and the Christchurch massacre were terrorist acts. This was known and knowable from their beginnings. There is no question that Islamist extremists, of which there are many, benefited from the Boston Marathon bombing, and there’s no question that White Nationalist extremists, of which there also are many, benefited from the Christchurch attack.

Terrorism is defined as “the unlawful use of violence and intimidation, especially against civilians, in the pursuit of political aims.”

The goal of terrorism is to inspire terror. Both attacks were terrorist successes, spreading fear, dividing the terrorists’ opponents, misdirecting their anger, motivating them to fight among themselves and, as a consequence, sapping their focus and will. An essential role of a leader is to calm fears, not exacerbate them, uniting people against common threats. Terrorists, no matter the nature of their extremism – whether Islamic or White Nationalist or otherwise – use violence to pursue their political agendas. Both President Obama and President Trump failed as leaders in mislabeling the Boston Marathon bombing and the Christchurch massacre. President Trump doubled down on that failure by minimalizing the White Nationalist threat. Doing so serves terrorists’ purposes.

According to a recent paper cited by Thomas B. Edsall, a New York Times columnist, 42{29ea29b64b10057f61377b2c087cd5b7537a0cd24da4295a308b0bf589469f35} of the people in each of the Republican and Democratic Parties regard their opposition as “downright evil” … and almost 20{29ea29b64b10057f61377b2c087cd5b7537a0cd24da4295a308b0bf589469f35} believe that their opponents “lack the traits to be considered fully human – they behave like animals.” Let’s hope that those percentages are overstated. Nevertheless, the fact is that terrorists thrive on hatred. Hatred destabilizes. Hatred aids terrorist recruiting. Hatred feeds their actions. Successful leaders defang terrorists by restraining hatred.

The poor choice of words by both President Obama and President Trump did not serve the interests of the United States. Those words exacerbated divides among Americans. They allowed the dialogue to stray from a fight against terrorist extremism. Both Presidents therefore failed in their leadership roles. President Obama clarified his words the next day, calmed fears, and emphasized Islamic terrorism’s dangers. It would be best for President Trump to clarify his words, calm fears, and emphasize the danger of White Nationalist extremism. We would be a better nation and a better world for it.

Terrorism is immensely useful to leaders who lead by fear. That hasn’t been how leaders have led in America. It has been the way of Turkey’s President Recep Tayyip Erdogan. In campaign rallies over the past several days, he has used the Christchurch massacre to motivate his devout Islamic base. His speeches criticized New Zealand for sending troops to Turkey in the World War I Gallipoli campaign of more than 100 years ago, claiming NZ’s motive then was anti-Islam … and remains so: “This isn’t an individual act, this is organized.” To support his divisive agenda, President Erdogan has replayed the horribly vivid video of the massacre, adding that “[i]f New Zealand fails to hold the attacker accountable, one way or another we will hold him to account.” Although a hollow threat, it frames the demagogic mantra. It’s a potent reminder of the power of hatred.

How Useful are Prospectuses?

When you last received a Prospectus for a company (or a mutual fund) in which you’ve considered investing, did you read it? Or were you put off by its length and wordiness and therefore relied on your broker’s recommendation? If you read it, did you understand it? That’s what I thought.

I recently had the onerous task pleasure of reading the Lyft prospectus for its forthcoming IPO. I’ve also recently read several mutual fund prospectuses. The form and content of each are set by the SEC with a mandate to provide the retail public with “plain English” information. With all due respect, they don’t! weren’t particularly helpful to me – and I’m not a retail investor.

What Prospectuses are supposed to do is tell investors whether an investment is a good idea. To succeed in doing so, length matters, as does comprehensible financial information – that is, both the number and complexity of the words themselves and the presentation of the company’s financials should be understandable to a retail investor. That’s rarely the case.

What investors care about is whether a company (or fund) will make them money. With a few exceptions (based, for example, on environmental or political grounds), investors don’t care what a company (or fund) will be doing with their money. The SEC’s job is to ensure that investors get the company’s information in the simplest, yet most complete, form. That’s why the SEC specifies that Prospectuses make their disclosures in plain English; that’s why the font size can’t be too small (although it is small to accommodate every possible disclosure and marketing device without becoming the size of the Bible); and that’s why the format is standardized so that investors can both compare different investments and become comfortable knowing where each fact and disclosure can be found

The Lyft Prospectus tells us up front why we should invest: Lyft “[i]mprove[s] people’s lives with the world’s best transportation.” There it is. Lyft is top of the transportation business and, best of all, improves people’s lives. Similarly inspirational language follows telling us why now is the time to invest in Lyft: “It’s time to redesign our cities around people, not cars,” which is why “what Lyft is doing is most important to us, as well as to the cities and communities we serve, and it will always be our company’s North Star.” Wow! Investors of course understand that Prospectuses are selling documents. They have to be since the SEC doesn’t permit public offerings to be made other than by Prospectus. However, the Lyft Prospectus of necessity also is required to explain why Lyft is likely to make money for investors. However, figuring that out is not an easy task. The Lyft Prospectus contains 220 pages of sales and legal disclosures … plus 44 pages of financials … plus umpteen pages of Exhibits. An investor could well decide that it’s indecipherable, that making an informed investment decision is too much of a challenge, and ask his broker for a recommendation. That’s not how public offerings by Prospectus are supposed to work. Moreover, an observer reasonably can question how decipherable the Lyft Prospectus is even to highly sophisticated institutions. But then, those institutions make their investment decisions based on their exhaustive due diligence after months of observations. The result is not greater transparency for retail investors. Instead, investors have come to rely on experts brokers specialists to interpret Prospectuses and financials. The playing field for retail investors is not level.

The SEC decided many years ago that adding further requirements to Prospectus disclosures is not optimal. It accordingly issued rules intended to make Prospectuses more accessible, the plain English requirement perhaps being the most noticeable. But Prospectuses remain inaccessible to the majority of Americans. Greater simplicity and accessibility are the SEC’s mantra, but that mantra has not been successful. One suggestion is to require that public offerings be made through three separate documents delivered simultaneously to investors. The first would be a sales brochure in which the company can market to its heart’s content, emphasizing its mission, its good works, and how it will make America an even better place to live. A second brochure would contain base-line numbers and financial projections that a retail investor can understand and use to determine whether the investment is likely to be profitable, with an appendix containing detailed financial disclosures (intended primarily for institutional investors). The third document would provide all necessary and appropriate risk disclosures and legal cautionary statements. If this were the format, which one would you read (and leave the other two to be monitored by the SEC and securities lawyers)?

Finally (from a good friend)

The fact that there’s A Highway to Hell and only a Stairway to Heaven says a lot about anticipated traffic numbers.

Be careful when you follow the MASSES.… Sometimes the “M” is silent!

┬® Copyright 2019 by William Natbony. All rights reserved.

No Comments

Post A Comment