Its the 80s all over again
<a href="http://money.cnn.com/2002/06/25/news/worldcom/index.htm"; target="_blank">http://money.cnn.com/2002/06/25/news/worldcom/index.htm</a>;
First Enron (and Arthur Anderson) and now this.
What kind of corporate culture allow this? Doesn´t the owners care as long as the stock price is rising and by that not taking their responsibility seriously.
First Enron (and Arthur Anderson) and now this.
What kind of corporate culture allow this? Doesn´t the owners care as long as the stock price is rising and by that not taking their responsibility seriously.
Comments
Now we're going to hear stories about WorldCom employees whose 401Ks are now wiped out. People! Don't invest heavily in the company you work for! Some say that 10% of your money is the most you should invest in your empoyer. I wouldn't even invest that much but that's a decision for each person to make for his or herself. You already have more than enough exposure to your company's fortunes through your job. You shouldn't take on more risk. The first rule of financial planning is diversify. Investing is a long range thing. And to do it successfully you need to manage your risk. Putting too much of your money into your company is like playing Russian roulette. Don't do it.
Now, I can appreciate your struggle to sort through all the revisionist B.S. out there -- most popular media types and other Leftists would have you believe that the 80s was the "decade of greed." Absolute tripe.
A couple of other things:
1. There are lots of healthy firms out there who are doing fine.
2. Enron was engaged in a speculative business in the first place -- WorldCom is actually a LARGER scandal because they fudged CAPITAL EXPENDITURES. This is much more of a big deal. In other words, Enron wasn't a surprise.
3. The impact on investor confidence resulting from auditor scrutiny will hurt lots and lots of innocent and properly-run companies. Feeding the hysteria will put people out of work.
This is a serious issue. Please don't trivialize it with "80s" rhetoric.
"from auditor scrutiny" how can you possibly twist this around and make it an issue of the negative influence of regulation and much needed scrutiny?!?!?! <img src="graemlins/oyvey.gif" border="0" alt="[No]" />
If we hadn't had such stupidly low involvement by the SEC, because of years of deregulation at the behest (agressive lobbying) of the very buggers who are buggering us all, we probably wouldn't be having this kind of bald faced greedy criminal idiocy with real tragic side effects.
A proper amount of scrutiny by companies who cannot have their interests in conflict (as with the accounting firms allowed to also consult on finances) overseen by the SEC with tight regulations would be better for all of us in the long run .. .
as well as not allowing things like the false energy crisis to take place . . .
[ 06-27-2002: Message edited by: pfflam ]</p>
<strong>
"from auditor scrutiny" how can you possibly twist this around and make it an issue of the negative influence of regulation and much needed scrutiny?!?!?! <img src="graemlins/oyvey.gif" border="0" alt="[No]" />
If we hadn't had such stupidly low involvement by the SEC, because of years of deregulation at the behest (agressive lobbying) of the very buggers who are buggering us all, we probably wouldn't be having this kind of bald faced greedy criminal idiocy with real tragic side effects.
A proper amount of scrutiny by companies who cannot have their interests in conflict (as with the accounting firms allowed to also consult on finances) overseen by the SEC with tight regulations would be better for all of us in the long run .. .
as well as not allowing things like the false energy crisis to take place . . .
[ 06-27-2002: Message edited by: pfflam ]</strong><hr></blockquote>
Uh, I guess I should have been more clear. Scrutiny of the auditors is necessary, for criminal violations and in civil court as well.
I agree that the SEC bears some responsibility here. However, the fundamental problem of asking the SEC to be solely responsible for how auditors behave is that the SEC cannot be sued for malfeasance or dereliction of their oversight. If people lose money, the SEC cannot be expected to step in and take "responsibility" for losses. That's a fundamental problem of regulation -- their certification only goes so far. The auditing firms, however, CAN be sued and prosecuted for criminal fraud.
The only way the accounting system works is for private entities to step in and establish self-regulation and oversight. Why? Because the reputation of such entities, and their ability to step forward and take responsibility, is crucial to the system. That's something that the govt. absolutely cannot do. The govt. CAN encourage a level playing field and establish the parameters of fraud, but auditors must self-regulate. They MUST have something at stake, and the SEC has NOTHING (nothing, nothing, nothing) at stake. Without the "capital" which is risked when one risks the reputation of the firm (or the auditing industry), there will be no accountability.
As for damaging effects from this cr*p, if people "feel" that they can't trust auditors due to media hype about one firm, it will adversely impact healthy auditing firms and their clients. This phenomenon is called "contagion." It's been fairly common in the banking industry over the past several hundred years, and it will happen here if people punish ALL firms for the actions of Anderson.
<strong>
Now we're going to hear stories about WorldCom employees whose 401Ks are now wiped out. People! Don't invest heavily in the company you work for! </strong><hr></blockquote>
At this very moment, the company I work for by day is investigating the possibility of bidding to buy a local competitor whose (national) parent company is in bankruptcy.
This local competitor used to be employee-owned, until a couple of years ago when this big national company purchased them. All the employee owners were required to take "big national company" stock in exchange for their ownership interest in the local company, and they were required to hold it for one year. You would think that after that year was up (this happened 2-3 years ago), people would start to divest these shares and diversify their investment/retirement packages..... but in fact, what happened was that almost all of them kept all their money tied up in this big national company. It was apparently seen as a lack of loyalty, among these folks, to sell off after that one year moratorium was up.
So then the big national parent company went bankrupt, and all these guys have now lost huge money (in several cases, even long-time middle-managers lost seven figures, or close to it), when many of them could easily have avoided it or minimized thier losses with even a basic amount of prudence. It's exactly like Enron except that the corporate officers weren't encouraging people to buy/hold parent company stock -- the employees were doing it without encouragement, and it cost almost all of them their retirement. One thing you hear over and over is "diversify" and this is especially true when it comes to shares/options in one's own company, but it seems that many people ignore this advice.
Very sad!
Since many of the humongously inappropriate, wildly inflated salaries paid to top management is tied to stock options and other related "perks", then there is obviously a temptation for these people to get tempted by greed and cook the books on the grand scale; after all, they are but human. It also takes ruthless character types to reach these lofty positions in such large, dinosaur organizations, and one can guarantee that dishonesty is a prime mover in their methods, specially since the policing of this type of white collar crime is non-existent or *less than enthusiastic* and it is *so* easy to get away with it, knowing that even if found out, the chances are that they will not, go to jail. Period.
There's Enron, Andersen, Qwest, Worldcom, Kmart, even Martha Stewart...perhaps this is the tip of a huge festering iceberg of corporate slime. Perhaps the greater segment of the economy is based on organized criminality?
One thing for sure: When these cases get to court (that is if they ever get there) these high flying execs who appear to have authorized or committed fraud//deception/theft on a scale the size of the GNPs of some *nations* will get the equivalent of a slap on the wrist, such as a nominal fine. Remember the S&L scandal? Well those crooks were barely punished....well, the same will happen in these latest cases.
We may rattle on about getting tough on crime (HAHAHAHAHAAAAAA), but that little bit of rhetoric *never* applies to elitist corporate fraudsters and conmen. perhaps once in a while, some unfortunate suit gets publicly busted in the media, to "demonstrate to the public that the system is working". If one of us in here passed a $1000 bad check, we would get a heavier punishment than any of these wealthy elites is expected to cope with.
Business as usual.
[ 06-27-2002: Message edited by: Samantha Joanne Ollendale ]</p>
<strong>Perhaps the greater segment of the economy is based on organized criminality?</strong><hr></blockquote>
You sound a little paranoid with this kind of overheated rhetoric. I'm as outraged as the next guy at the abuses that are coming to light, but that doesn't change the fact that most companies -- and I mean small ones as well as large ones -- are law-abiding people trying to make an honest buck.
I agree that the SEC bears some responsibility here. <hr></blockquote>No, the problem is NOT with the SEC . . . that is the belief of the ideology which has led us to this obviouse problem. namely the missguided belief that "disinterested" parties could handle the responsibilities of auditing WHILE ALSO being allowed to consult for these firms that they are auditing in a growth/profits partnership relationship.
This has happened because of years of lobbying by you fanatic "anti-regulation" mobsters.
[quote] The only way the accounting system works is for private entities to step in and establish self-regulation and oversight.<hr></blockquote>This cannot happen in the manner it has...the last bastion for Public responsibility from within the business sector has, since the late eighties, spread itself out to include practices that are clearly in violation of the idea of disinterested, objective scrutiny. ALL of the major accounting firms felt it necessary to GROW by taking on financial practices that any sane person could see meant CONFLICT of INTERESTS.
Rather than just audit their clients accounts they were financially advising them, they were telling them how to cook the books, or were looking the other way... Because the LINE between where their responsibility lay as auditors and where it lay as advisors beccame blurry.... were they working for teh public or for the corporation that they were advising?!?!?!?
Blaming this somehow on the "media hype" focusing on one auditing firm is stupid . . . or are you actually as cyinical as I fear these CEOs and CFOs truly are?!?!
THere are a number of problems that need addressing immediately:
1. Regulation of stock options or fees charged for them.
2. Stricter regulations on what Accounting firms are actually allowed to do as far as their own practices and possible conflicts of interests
3. more, unencumbered power and funding to the SEC... remove the congressional power to fake support for the SEC while actually denying them funds through appropriations committees
4. Kill the myth that deregulation lead to more fluid business practices when, in reality, it only creates a climate of lies and greed.
5. Send people responsible to hard jail time where they will get buggered by big guys with tatoos... nit white collar resortys in the woods. No more letting these people off .. as in the past.
6. See it for what it is... crime, large scale with effects as real and harmful as assault and breaking and entering.
also, we must do away with the corporate purchased law of 'TORT reform . . . the public should not be hampered in their ability to demand accountability from the greedy corporate heads
. [quote] Originally posted by Samantha Joanne Ollendale:
Perhaps the greater segment of the economy is based on organized criminality?<hr></blockquote>She is right.
A system has coagulated that not only allows crime, but expects it as part of "aggressive" business models.
the bubble economy of the nineties was not just an empty bubble fueled by internet dreams it was fueled by wide spread lies in the vien of WorldCom and Enron. We will definitly see more of this... or we will se alot of sudden 'adjusting' of expectations as corporations struggle to backtrack over their cooked books.
clearrly it wasn't just a bubble but a bubble of lies as well.
Your misguided belief that the SEC (government) can fix this alone is a shame. There ARE standards in place, and they HAVE BEEN in place since the 1930s. And they've been enforced consistently. But it sounds good to say that somehow this trouble results from not having enough government. Makes it sound like there's a simple fix.
Until you understand the issues involved, you won't understand the potential solutions. Continuing to believe that this is somehow a widespread conspiracy and the fault of the Right will hamper your eventual recognition of the principles in action.
[quote] In 1993, the Financial Accounting Standards Board (FASB) proposed closing an accounting loophole that allowed companies to avoid recording stock options on their balance sheets. According to a Merrill Lynch study, expensing stock options would have slashed profits among leading high-tech companies by 60 percent on average. Corporate America aligned with the accounting industry to fight the FASB proposal, with the result that in 1994, the Senate, led by Senator Joseph Lieberman (D-Conn.), passed a non-binding resolution condemning the proposal by a vote of 88-to-9.
<hr></blockquote>
and on the cunsulting situation< from an interview with Arther Leavit: [quote] n April 2000, you proposed reforming the accounting industry. What happened? What was the industry's reaction?
The number of cases of financial fraud that we were seeing at the commission had absolutely exploded. Managed earnings became the regular way of going rather than the exception. So I went to the leaders of the Big Five accounting firms and I said that we have got to change the rules, and that means the conflicts that exist have got to be eliminated.
Two of the firms, Ernst & Young and PriceWaterhouse, said that they would try to work with us on trying to change those rules. Three of the firms -- KPMG, Deloitte, and Arthur Andersen -- at a private meeting that we had, said, "We're going to war with you. This will kill our business. We're going to fight you tooth and nail. We'll fight you in the Congress and we'll fight you in the courts." ...
[The industry] hired no fewer than seven lobbying firms to represent them on the Hill. I spent probably over half my time in my final months at the SEC on Capitol Hill, responding to queries from members of Congress, talking to congressional committees, trying to explain why this is a matter of national economic interest. ...
<hr></blockquote>
then if you add to these issues the lack of the ability to sue for damages by members of the public (TORT reform) then you basically have a deregulated environment where the interests of the one body which is supposed to stop bad financial practices from happening is too busy creating the loopholes and debt 'erasures' through their "consulting" to actually make any calls when they should be judging teh books properly.
Don't pretend to be 'in the know' finboy, its from the likes of you that this 'knowledge' has allowed rampant missmanagement to reach criminal proportions. open your eyes.
As for TORT REFORM, there is nothing keeping individuals from suing corporations and individual directors and accounting firms for fraud. It happens EVERY DAY. Attorneys LINE UP to enter class action suits against corporations at the slightest indication of wrongdoing. But I agree with you, tort reform is a good idea -- if we could eliminate the frivolous suits (such as Apple dealt with) we'd be able (as a society) to better focus on prosecution of cases such as WorldCom and Enron.
<strong>No the problem is with the LACK of government involvement because the regulatory process has been denied the appropriate channels because of rapid anti-government interest groups who mistakenly see better business through corporate rule and anarchy</strong><hr></blockquote>It's reassuring to see that Bush seems really upset . . . Hmmm...
- T.I.
hey people wake up!! what's happened is because of the rabid deregulation over the last 30 years . . . we should be angry that coporations are dying because they cann't be trusted to monitor themselves . . . but some of us knew that all along . . . where greed is allowed to go, it will!
Its amazing to watch on all the financial TV shows all of the corporate spokesmen and politicians saying, like sheep, . . " certainly there could not have been SEC rules or regulations which would have been able to stop this. No what we need is just to patrol ourselves . . like we have been doing" I swear to god that's what these idiots are saying . . all over the media.
like they will be good boys next time around . . or its really just a few bad apples . . . but it isn't.... its many things and amoung them it's the lack of clear delineated lines of where your interest lies and what your job is . . . if you are an auditor, that's what you do, NOT consult for the firms that you audit, not tell the firms how to hide what you are supposed to be keeping tabs on.
then Bush trying to brace a dam with his thumb:
[quote] "I'm not concerned about the fundamentals of our economy. I think they are very strong," Mr Bush said. <hr></blockquote>Its not true, it is, to quote the BBC: "as Nomura economist Anais Faraj puts it, the scandal comes as a timely reminder that "Enronitis" was a systemic problem - not a case of a one-off "rotten apple".
we should be very afraid right now because the worst may not have been seen yet . . .
[ 06-29-2002: Message edited by: pfflam ]</p>
<strong>...we should be very afraid right now because the worst may not have been seen yet . . .</strong><hr></blockquote>Of that I am convinced.
I heard some financial anylist japping away on T.V. yesterday that the Xerox affair is not as bad as was originally thought, the sum involved is "only" $2bn. Well, that's all right then. Sheesh...
- T.I.
thought I would try to not let these good points made in this thread go by so fast.
<a href="http://www.whitehouse.gov/news/releases/2002/06/20020628-5.html"; target="_blank">http://www.whitehouse.gov/news/releases/2002/06/20020628-5.html</a>;
Bush rattled on about WorldCom a little, although it sounded about as insincere as the john telling the hooker that he loved her while they had sex. But what's his view on the Enron scandal? After all, arch corporate-crook Ken Lay and his cronies were instrumental in helping Bush select his cabinet. They are that close. On that issue, in fact the entire Enron scandal, the media have fallen predictably silent.
The media seems awfully silent about a lot of things lately. There HAS to be more to this and what Bush knows than whats out there. Since much of the media here has a liberal bias I'm surprised at how lazy they are..........................................
<a href="http://www.nytimes.com/2002/07/08/opinion/08MCCA.html"; target="_blank">well.. ou'll need registration so I'll post it</a>
The Free Market Needs New Rules
By JOHN McCAIN
ASHINGTON
In a string of corporate failures and scandals from Enron to WorldCom, we have seen the first principles of free markets ? transparency and trust ? fall victim to corporate opportunists exploiting a climate of lax regulation. I have long opposed unnecessary regulation of business activity, mindful that the heavy hand of government can discourage innovation. But in the current climate only a restoration of the system of checks and balances that once protected the American investor ? and that has seriously deteriorated over the past 10 years ? can restore the confidence that makes financial markets work.
Congress and the president must move quickly to frame legislation and reform corporate governance and government oversight. And I would add one more suggestion: they should ask for the resignation of Harvey Pitt, chairman of the Securities and Exchange Commission. While Mr. Pitt may be a fine man, he has appeared slow and tepid in addressing accounting abuses, and concerns remain that he has not distanced himself enough from former clients.
The need for government action and oversight is clear. Corporations fabricated revenues, disguised expenses and established off-balance-sheet partnerships to mask liabilities and inflate profits. Executives maximized their compensation with stock option plans that burdened their companies with huge costs hidden from investors. Venerable accounting firms, having looked the other way as companies cooked the books, shredded documents to hide their misdeeds. Although American tax policy encouraged them to do so, corporations that move their legal headquarters offshore to avoid taxes appear conspicuously ungrateful to the country whose young men and women are risking their lives today to defend them.
Reforms must ensure a complete separation of the auditing and consulting services provided by an accounting firm; a firm that audits a company must be prohibited from providing any consulting service ? ever ? to that company. Legislation sponsored by Senator Paul Sarbanes would create an Accounting Oversight Board to establish and enforce the standards for audits of publicly traded companies. But this oversight board should be completely independent from the industry, financed either as part of the S.E.C. or a separate agency.
Stock options, while a legitimate and valuable form of employee compensation, must be identified as an operating expense in a public company's financial reports. Top executives should be precluded from selling their own holdings of company stock while serving in that company. Executives should be allowed to exercise their options, but their net gain after tax should be held in company stock until 90 days after they leave the company.
Executives should be required to return all compensation directly derived from proven misconduct. Also, a corporate compensation committee should be made up of members of the board who have no material relationship with the company or personal relationship with its management. Indeed, the entire board should be similarly independent, with the exception of the chief executive.
Top executives should be required to certify personally that the company's public financial reports are accurate and that all information material to the financial health of the company has been disclosed. If their certification is false, they should go to jail.
Government should remove egregious conflicts of interest in "full-service" financial institutions. Investment services, including research, should be separated from lending, underwriting and securities trading.
Even as we take these and other necessary measures, asking for the resignation of Mr. Pitt would help show the public our seriousness. During his first 10 months as S.E.C. chairman, he did not participate in 29 of the commission's votes, most of which involved his former clients. To address corporate misconduct, he seems to prefer industry self-policing to necessary lawmaking. Government's demands for corporate accountability are only credible if government executives are held accountable as well.
What is at risk is the trust that investors, employees and all Americans have in our markets and, by extension, in the country's future. To love the free market is to loathe the scandalous behavior of those who have betrayed the values of openness that lie at the heart of a healthy and prosperous capitalist system.
John McCain, a Republican, is a senator from Arizona.