FINANCIAL MARKETS NOSEDIVE: INVESTORS DISGUSTED BY CORPORATE MALFEASANCE

Ether Zone ^ | 7/12/02 | Carol Devine-Molin

[Gopblond]

To use a trite, but thoroughly apropos phrase, "fear and loathing" abound in this nation, pursuant to financial markets that have careened to new lows not seen since 1997. The plummeting Dow Jones, closing at 8813 on July 10th, is clearly predicated upon lack of confidence in our financial institutions, with a growing list of notable corporations already implicated including Enron, Global Crossings, Tyco, WorldCom, Halliburton, and Xerox, among others. Qwest Communications International is now the latest company under criminal investigation for having been linked to fraudulent accounting schemes and irregularities that inflated corporate revenues.

Some financial analysts are estimating that it may take as long as a year for "investor confidence" to significantly improve after a series of disappointments and uncertainties triggered by corporations that unconscionably "cooked the books". CEO's, CFO's and other company honchos, working in tandem with auditing firms, are at the crux of the financial malfeasance. Sadly, defrauded shareholders have suffered profound losses, in stark contrast to corporate bigwigs that have benefited from insider trading as part of "pump and dump" manipulations, selling off their stocks at tremendous profits and leaving the average shareholders with little. Pension funds have especially suffered throughout the nation, although some parties are now fighting back with lawsuits.

In an effort to stem the tide of growing scandal and reinvigorate the markets, President Bush gave a Wall Street address on July 9th, which outlined a stringent crackdown on these corporate thieves. And the President underscored, as he has done on prior occasions, that capitalism is dependent upon ethical players. He stated, "All investment is an act of faith, and faith is earned by integrity. In the long run, there is no capitalism without conscience, there is no wealth without character". Clearly, the public wants to see elitist heads roll due to unscrupulous behaviors, and the deleterious effects that white-collar criminals have had on both the financial markets and the average investor.

Essentially, the President urged that these Wall Street scoundrels be prosecuted and imprisoned, with the creation of new penalties that would greatly enhance oversight and accountability of corporations and auditing firms. On July 10th, the US Senate approved Bush's proposals for dealing with securities violations, including the doubling of prison sentences for mail and wire fraud, prison terms of 5-10 years for CEO's and CFO's that certify false financial reports, federal court orders freezing huge payments to executives, extending the time frame in which victims can bring civil action, and banning these white-collar perpetrators from attaining subsequent positions as corporate officers and directors.

Of course, the Democrats view this current tumult as the perfect opportunity to make political hay, squarely blaming the GOP for the current string of financial scandals. Senate Majority Leader Tom Daschle, House Minority Leader Richard Gephardt, Democratic National Committee Chairman Terry McAuliffe, Democratic Strategist James Carville and other party members were in full force, out and about the media, diligently casting aspersions upon President Bush and the Securities and Exchange Commission under his auspices. And the big hypocrite Terry McAuliffe should be particularly ashamed of himself, given that he parlayed about eighteen thousand dollars into three million via an insider trading deal at Global Crossings. The Liberal media refuses to cover this story adequately. Moreover, these Leftist partisans are ignoring the salient fact that the vast majority of the corporate criminality in question occurred during the 1990's, when their esteemed leader, Bill Clinton, was in office. It was Clinton who set the permissive and unsavory tone that enabled these excesses to flourish within the financial community.

And the ugly specter of double-standards and hypocrisy reign supreme with Senator Tom Daschle, as well. He is demanding that President Bush release all information pursuant to trumped-up "insider trading" allegations from 1990 that were thoroughly investigated by the SEC, and dismissed years ago. Interestingly, Daschle refuses to release his own tax returns, despite genuine concerns that his wife's successful lobbying career represents a considerable "conflict of interest" for him. Does the senator not directly benefit from monies generated by his wife, who admittedly lobbies House members? Daschle undoubtedly wields valuable influence with Democratic members of the House Of Representatives, just by virtue of his prestigious position as Senate Majority Leader that is sure to hold sway with other politicos of his same party.

And there is no denying that the Republicans have notable difficulties of their own related to today's thorny financial circumstances. The GOP is indeed vulnerable to Democratic attacks since the Republicans are closely tied with "Big Business" in the minds of voters, as pointed out by political consultant Dick Morris and others. The fact that Vice President Dick Cheney, former CEO of Halliburton, is being sued by Judicial Watch on behalf of the corporation's shareholders for alleged "fraudulent accounting practices" is of vital concern. Charges will have to be carefully vetted by oversight authorities to determine whether they have any merit.

Beyond the partisan blame-game, this nation has to concentrate on ameliorating the greater systemic problem in this nation -- loss of confidence in key institutions, both public and private -- the financial community, the FBI and the Catholic Church among them. And what is the basis of this lack of trust? Plain and simple, a moral crisis prevails in this nation. It does not bode well that 75% of college seniors, as per a recent Zogby poll, report that "professors teach there is no such thing as right and wrong in the literal sense" (Bill O'Reilly's 7/11/02 column, "Reaching Critical Mass"). We can't have our universities teaching our kids this twaddle. Our ethical problems and decadence as a culture are manifesting in so many ways (significant number of divorces, high crime rates, rampant child abuse and neglect, widespread addictions, soaring sex industry, etc.) that the pernicious effects can no longer be ignored. Society must usher in a new era of ethical standards and moral integrity so that America does not crumble from within. And don't scoff, maybe some good old fashioned religious and spiritual revivalism is in order.

[Doctor Stochastic]

When is the Bush administration going to do something about the economy? If they wait, it will look like a desperate attempt to salvage something out of the mid-term elections.

[steve50]

It already looks that way to me. The refusal to prosecute the Enron boys is laughable. I guess he's willing to lose the Senate and some House seats for Kenny Boy.

[SteamshipTime]

I agree with the author's sentiments, but the problem is far bigger than a mere decline in values. The root problem is a concerted government-sponsored effort to displace capital with debt and to establish and expand the permanent welfare/warfare state. Where government is limited to the protection of property rights and people have to trade in sound money, they have a lot less leeway in which to do bad instead of good.

[per loin]

Down about 140 now with a bit over an hour to go. Could be a wild hour.

[Dog Gone]

I didn't realize that the Administration has refused to prosecute anyone at Enron as a favor to Ken Lay. When exactly did they close down the investigation?

[steve50]

Close it down? A better question would be when did they start it. It's been 8 months or so, I guess no news is good news. Ashcroft and Tauzin seem to have done nothing, as far as I can see.

[jamaksin]

Sad part is that Grandmam and Grandpap will never recover their loses - and the CEO's/CFO's/ ... will skate!

Even the dim-0-crats get that.

No jail time soon (like last month) and the GOP can kiss the Congress goodbye for a very long time.

So much for GOP leadership ... and,yes, "power sharing" was such a great idea to begin with ...

[Alberta's Child]

If Grandma and Grandpa couldn't tolerate massive losses in their stock portfolio, then they shouldn't have been so heavily invested in the first place.

My guess is that people as dumb as that are already Democrats anyway.

[Dog Gone]

Tauzin doesn't have any prosecutorial powers. It's a Separation of Powers thingie. But the SEC and the Justice Department began their investigation fairly promptly. You might recall, if you were interested in being at all fair, that it caused a significant amount of shredding at an infamous accounting firm, something which makes evidence-gathering a little more difficult.

This has been a reality check. You may now return to your administration-bashing.

[Alberta's Child]

When is the Bush administration going to do something about the economy?

When you find out exactly what a U.S. President can "do" about an economy, let me know. I'm sure every company in the world would love to hire him to "do something" for themselves.

If a guy like Bill Clinton truly deserves credit for "presiding over" a strong economy, you have to wonder why he'll spend the rest of his life traveling around the world giving idiotic, infantile speeches that any high-schooler could prepare.

[Boonie Rat]

When is the Bush administration going to do something about the economy? 'scuse me. Is it a "libertarian with anarchist leanings" view that "the government" should be involved in the markets?!! According to that Constitution thingie, the government should not be involved in any way. Or did I miss sumptin'?

Boonie Rat

MACV SOCOM, PhuBai/Hue '65-'66

[Doctor Stochastic]

What I think should be the case is irrelevant. The Government is entwined in the economy completely. While the Government is running things, they have to take responsibility for what they are running. If the Government wishes to get out of the economy, good. If the Government wants to make rules and regulations and set interest rates, prices, tariffs, tax rates, hiring quotas, toilet capacity, automobile styles, etc., then the Government becomes the economy. The current system allows the Government to dictate economic policy and blame failures on the "market."

[Alberta's Child]

Did you have any ideas here?

If you take a look at 100 random economic indicators today, you'll probably find that the U.S. economy grades fairly well in 95 of them. The fact that the remaining 5 just happen to be the ones you see on the news or stock ticker may disturb you greatly, but I'm a little more realistic here.

[Doctor Stochastic]

I don't have many ideas.

With unemployment up, market (think 401k, retirement, etc.) the Treasury going into deficit, etc., a good show might be helpful.

Fire the T-Sec; make a couple of speeches against the "do-nothing Senate" pointing out that Daschle is blocking needed economic stimulus; get rid of the steel tariff; mostly use the "bully pulpit" as others have suggested.

[Alberta's Child]

I don't have many ideas.

I didn't think so. Most of your ideas are nothing more than symbolic gestures, mainly because the basis for this so-called decline isn't even understood by most people.

The worst development of the last ten years is the number of people who truly believe that the balance in their own 401(k) account is actually a relevant economic indicator. Do you know why consumer spending has remained stable even as the stock market has collapsed? Because most of the "gains" in the stock market were driven by people buying stocks in tax-deferred accounts that they couldn't touch for years anyway. People are still spending money today because they're still generating the same incomes they were generating five years ago.

[Doctor Stochastic]

This week's reports don't show consumer spending remaining stable. There are some weaknesses.

[Alberta's Child]

I understand that, but much of that tends to be overblown.

If I hear one more sob story about how "bad" things are from someone who drives a $40,000 SUV and just got back from a trip to Disney World, I think I'm going to be sick.

[Doctor Stochastic]

Well, you could try listening to some of the unemployed from Enron, Global Crossing, WorldCom, Global Crossing, Boeing, Global Crossing, etc.

The biggest problem (I think) is lack of confidence in the immediate future of the economy.

[Alberta's Child]

You can listen to all the unemployed on Wall Street, too. But you have to remember that Wall Street firms have simply cut back to their 1996 or 1997 employment levels. Most of the companies you mentioned weren't even on the map ten years ago, and those people still managed to earn a living.

In New York City, an area in the country that has one of the highest unemployment rates, a regional planning agency released a major study recently that indicated the biggest problem the region faces on an ongoing basis is a lack of qualified workers. I kid you not.

The biggest problem (I think) is lack of confidence in the immediate future of the economy.

That's certainly an issue, but it's also one that is not easy to quantify. Taking a person with $100 in his pocket and determine how he will spend it based on what he thinks might happen next yeat is not a terribly exact science.