A self-unmade man

Committed to the First Amendment
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In the blink of an eye and the flash of a badge, the first family of Coudersport, Pa., last week became the Bush administration's poster children for a new "get tough on corporate greed" campaign. The spectacle of public ruin was not a pretty sight from any vantage: an old man led away in handcuffs—his belt, tie and shoelaces stripped for fear of suicide—accused of destroying the company he built and taking stockholders and employees down with him.

Could the government have allowed the Rigas gang to turn themselves in, as the family had offered, and still made an example of them? Yes, but, in this climate, that was unlikely. Should the Rigases have been publicly arrested and cuffed? Yes. Recent events suggest that corporate America needs to see that a collar is a collar, whether yours is white or blue. The powerful video and photographic images may reassure the public that there is justice at work in corporate America.

We can't help seeing this as tragic. We don't think John Rigas is hiding a set of horns beneath that shock of white hair. Yes, his actions and those of his children smack of greed run amuck. But his offenses seem less the calculations of a Machiavelli than the tainted byproducts of a self-made billionaire and family running a public company as though it were a private fiefdom, compounded by the deceit that goes hand in hand with panic. But that's an explanation, not an excuse.

These are serious charges of banking and securities fraud on a massive scale, including falsifying documents, lying about earnings and raiding company coffers to pay personal debts. All precipitated, it would appear, by greed. When the Rigases began borrowing to buy their own stock, they were already worth $4 billion, almost all of it already in Adelphia. Now, of course, that—and more—is gone. By their actions, they have hurt not only themselves and their company, employees, stockholders and suppliers but also the entire cable industry.

There's no telling the damage done. In addition to severely depressing cable stock prices, the Rigases handed cable's opponents in Washington another weapon in their efforts to cap prices, force access and block mergers. The Consumers Union, for one, called for re-regulation only hours after the arrests. (Ironically for such crusaders, one likely consequence of this sad affair will be the gradual absorption of Adelphia's subscribers by other cable operators—a further concentration of the industry.)

More important, perhaps, the Rigases breached the trust between the cable industry and the lending community. The trust is vital because cable companies have to borrow more and more each year to keep going. Even MSOs with strong operating cash flow generally blow every penny on debt service, system rebuilds and digital set-tops. To keep expanding, the most highly regarded and conservative MSO, Cox, will have to borrow $1.9 billion. The same goes for Cablevision ($1.1 billion), Charter ($1.7 billion) and Insight ($76 million).

Equity markets have largely shut down for cable. Let's hope bank windows stay open.

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