Posted on 07/24/2002 7:44:25 AM PDT by RCW2001
GERALD F. SEIB, and
Wednesday, July 24, 2002
©2002 Associated Press
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/news/archive/2002/07/24/financial1034EDT0072.DTL
(07-24) 07:34 PDT (AP) --
WASHINGTON -- High-profile companies go bust. Business leaders fall into disrepute. The stock market crumbles. Finally, the political system convulses, rewriting the rules the corporate world must follow.
All that happened to the U.S. in the early 1930s, when a shattered economy, a devastated stock market and revulsion toward the business class produced sweeping changes in the way business and finance were conducted.
Now America faces the possibility of a similar wave of reform, if the economy sours and the political winds shift. Today's economic woes hardly rival those of the 1930s, and Congress's rush to clamp down on corporate misconduct is mild compared with the legislative earthquake that shook the business world then. But the country is beginning to reappraise the celebration of free-market forces that marked the 1990s. And early political tremors of public opinion hint at greater fallout to come.
A new Wall Street Journal/NBC News poll shows that, for the first time since George W. Bush took office, a plurality of Americans -- 42 percent -- believe the country is headed in the wrong direction. Fully 70 percent don't trust the word of brokers and corporations. One-third say they have "hardly any confidence" in big-company executives -- the highest proportion in more than three decades. Confidence in Congress is plummeting, too. Just 34 percent approve of lawmakers' performance, down from 54 percent in January.
Political momentum to restrain government regulation is waning. As they await the government's response to a wave of business scandals, six in 10 Americans say they are worried regulators won't go far enough.
AFL-CIO President John Sweeney calls this the best chance in years "to fundamentally change the way corporate America works." And free-market apostles, ascendant since Ronald Reagan's presidency, fear that even a Republican White House may join a populist stampede. If that happens, "they're going to have a depression on their hands," warns author George Gilder, whose 1981 book, "Wealth and Poverty," is still popular with many conservatives. "If Bush becomes part of the echo chamber, he's going to destroy his party."
The 2002 market meltdown could turn into a historic turning point in American politics and regulation if two significant changes occur.
First, the current crisis of confidence in business and markets would have to turn into a broader economic decline. When Franklin Roosevelt embarked on the New Deal, one in four Americans was out of work, four times today's unemployment rate. The spread of stock ownership means Main Street is feeling Wall Street's pain, but so far, that pain has produced public anger -- not desperation.
Second, the economic shock would have to realign the nation's even balance of political power to give politicians the clear mandate for change that President Roosevelt and his Democratic Party felt. That hasn't happened yet, the new poll shows. Mr. Bush continues to enjoy a robust 67 percent approval rating, and his party is still holding its own in the battle for control of Congress in the November elections. Some 36 percent of Americans say they plan to vote Democrat for the House, while 34 percent plan to vote Republican. That is only a slight change since January, favoring the Democrats.
But sweeping political change doesn't come overnight, as the 1920s and 1930s show. The country knew it was in deep trouble after the stock market crashed in 1929. The Democratic Party gained 53 seats in the House elections in 1930, but Republicans narrowly retained control of the chamber. The GOP also maintained a one-seat edge in the Senate, while Republican President Herbert Hoover looked ahead to the last two years of his White House term.
The political tidal wave didn't hit until 1932, three years after the start of the economic shock. Republicans lost 101 more seats in the House, which as a result, tilted toward the Democrats by a 313-117 margin. The GOP also lost 12 more Senate seats and became a distinct minority there, too. FDR completed the Democratic sweep with his 1932 landslide.
That new political alignment produced, in rapid order, the Securities and Exchange Commission, the Glass-Steagall Act separating the banking and investment businesses, the Utility Holding Company Act restricting the centralization of utility control, and reform of the Federal Reserve. It was the most sweeping change ever in the way America does business, and it created the regulatory framework that still governs business today.
It's that framework that lawmakers are now adjusting in the accounting-reform bill before Congress. "Our crisis isn't of the same dimension" as in the 1930s, says Sen. Jon Corzine, a former co-chairman of Goldman Sachs. But the accounting-reform bill likely to pass Congress next month is "probably as important a piece of legislation for America and the regulatory structure as any since then," adds the New Jersey Democrat. It plugs what he considers the most significant hole left in the 1930s legislation by establishing clear standards and oversight for the accounting industry.
Along with tougher enforcement of existing laws, that step may satisfy for now the public's desire for action. By a 63 percent-33 percent margin, Americans say the president and Congress should focus on prosecuting corporate wrongdoers rather than passing new laws.
But lawmakers may not stop there. Next on the agenda for debate: overhauling pension laws to improve protections for workers. Falling down the priority list, meanwhile, are earlier White House priorities such as partial privatization of Social Security, for which support has fallen along with the sliding Dow Jones Industrial Average.
"We're entering the sort of adjustment in the business-political relationship that comes with a major market downturn," says Kevin Phillips, a scholar of that relationship and author of a new book on the history of American wealth. Whether that adjustment turns into wholesale re-engineering remains an open question.
The first test comes in November, when control of Congress will be decided. Democrats hope to hold their 50-49 edge in the Senate and take control of the House from Republicans by gaining six seats there. If the Democrats succeed, they will be in position to challenge Mr. Bush for control of the economic agenda and set the terms of debate for the 2004 presidential contest.
A Democratic takeover would produce a dramatically different approach, in tone and substance, to the relationship between government and business. The new chairman of the House Energy and Commerce Committee would likely be Rep. John Dingell of Michigan, who supports a national health-insurance program. He is currently campaigning as a staunch foe of corporate misbehavior. The new chairman of the House Financial Services Committee would be Rep. Barney Frank of Massachusetts, who backs reregulation of the cable-television industry. The new chairman of the House Ways and Means Committee would be Rep. Charles Rangel of New York, who has proposed amending the U.S. Constitution to guarantee every American "a right to a home."
For the first time since the early days of Bill Clinton's presidency, activists on the political left say they are on the verge of converting public discontent into vigorous support for activist government. "The disgrace of corporate capitalism is an opportunity to dethrone the role of the market generally," Robert Kuttner writes in the current issue of the liberal American Prospect magazine.
Conservatives who rose to political and intellectual dominance when Mr. Reagan replaced Jimmy Carter say that is precisely the wrong prescription. What the U.S. economy needs, insists Mr. Gilder, is less regulation rather than more, especially in the troubled telecommunications sector. But eroding confidence in American business has, at least temporarily, made that a losing argument.
As a result, says independent Rep. Bernie Sanders of Vermont, the only Democratic Socialist in Congress, the political equation on issues such as trade expansion, the environment and health care has been altered. "People's faith in the ruling class in this country has been shattered," he declares.
Or at least shaken. The Journal/NBC poll shows that 71 percent of Americans believe that profit-hungry businesses cut corners on service and overcharge customers. Amid the economic boom two years ago, a plurality said businesses treat consumers fairly. Six in 10 call corporate wrongdoing "a widespread problem" in "a system that is failing." By a 49 percent-40 percent margin, Americans say the stock market is "no longer a fair and open way to invest one's money."
That unease runs deep enough to extend to Republican lawmakers who themselves have come from the business world. "There's no question that a (business) culture developed, probably over a 20-year period, that was very unhealthy," says GOP Sen. Chuck Hagel of Nebraska, a former telecommunications entrepreneur. "That culture was, `If it's not illegal, it's probably OK.' "
Even so, Mr. Hagel, a potential GOP presidential candidate in 2008, thinks the combination of congressional reform of corporate governance and self-regulation by financial markets can restore public confidence before the fallout becomes too great. "The American people will be conditioned for a generation from what we've learned," he predicts -- but not inclined to turn the economy or politics upside down.
Some believe the proliferation of stock ownership that has spread the pain of the current downturn could also act as a buffer against overreaction to revelations of business misconduct. "In earlier periods of American history, it would have been a much bigger deal," notes Walter Dean Burnham, a scholar of political realignments at the University of Texas. Without far more provocation, the U.S. middle class today is literally too invested in the economic system to support its upheaval.
Mr. Phillips notes an additional "X factor" that didn't exist in President Hoover's day: the power of the Fed. Before Depression-era reforms, the Federal Reserve had only limited ability to modulate economic and market swings -- and, indirectly, the political reaction to them. Now, he observes, the Fed has the power to smooth out bumps by making interest-rate cuts. The Fed hasn't cut rates in months, but it still has a bit more maneuvering room to do so if the stock market's slide pulls the economy down with it.
The current market crisis could turn into a much broader economic and political problem, says Sen. Corzine, if the "reverse wealth effect" of declining market investments begins to seriously contract consumer spending. "I don't think we're over the edge," he adds, "but we're on the precipice."
Provisions in bills expected to become law:
* Create government board to oversee corporate audits, discipline auditors
* Limit auditors' consulting work
* Require CEOs, CFOs to certify accuracy of financial reports
* Force CEOs to give up gains from stock options, bonuses based on false reporting
* Fine and imprison executives who lie to SEC
* Make easier criminal prosecution of executives who destroy evidence or defraud investors, and lengthen maximum jail terms
* Require executives to disclose stock sales within two days. Ban personal loans to top executives of public companies
* Require shareholder approval of option plans
* Boost SEC budget 66 percent, to $776 million for fiscal 2003
* Require that they have majority of independent directors
* Make mandatory that audit committee approves auditors, auditor-consulting contracts, 401(k) plans
* Allow workers to diversify 401(k) plans away from company stock holdings after being at a firm for three years
* Require SEC to make rules on analyst conflicts of interest
Source: WSJ research
©2002 Associated Press
Glass-Steagall fixed a problem that now, economists almost universally agree, did not exist. It separated "banking and investment" functions under the assumptions that banks were pumping depositor money into the stock market, which weakened the banks. One small problem: all the research we have now shows that the STRONGEST banks were the ones with "securities affiliates" and the weakest ones were the banks WITHOUT! Thanks Congress. Thanks FDR.
FDIC. Long thought by old timers to have "rescued the banking system" along with FDR's "bank holiday," deposit insurance, base on all the evidence we NOW have, was the WEAKEST type of banking "reform" available. In the 1920s, every state that had mandatory bank deposit insurance had horrible bank collapses. Where were banks strong? Where they had branch banking rules that allowed banks to branch, thus diversify risk. But the government did NOT legislate national branch banking, and hasn't done so to this day. That reform alone would have greatly strengthened the system. Instead, a mutant step-child of FDIC, FSLIC, played a key role in the 1970s-1980s S&L collapse by posing a "moral hazard." The S&Ls, due to REGULATION, were already in trouble, but managers and owners, assuring themselves that the depositors were "protected" by the FSLIC, took huge risks in an effort to right their sinking ships. Deposit insurance alone, certainly, was not to blame, but it was a BIGGER cause than people know.
How about "reforms" in the labor market, where the stupid "minimum wage" law virtually ENDED employment growth that had started to take place in 1934-1935? Studies now show that it alone perpetuated the Great Depression. More reforms like that?
The last thing we need to do is to treat this like a new "New Deal." That was the biggest economic disaster in our history, and the Great Depression was almost 100% the result of dumb government policies, from the Fed to Hoover to (most importantly) FDR.
Back then we were a MORAL people as a whole. Today ? Revolution and civil war would engulf this country like an FAE explosion.
By a 63 percent-33 percent margin, Americans say the president and Congress should focus on prosecuting corporate wrongdoers rather than passing new laws.
People are becoming acutely aware that their tax dollars are being used to create more and more new laws instead of protecting citizens.
As long as State and Federal governments continue to extort income-tax from the productive working class and creative business community the parasitical-politicians and self-serving bureaucrats will never run out of ways to spend that money to the net harm of the working class, the business community and society in general. If it's not the Democrats it's the Republicans -- usually both.
As Mr. Brown used to joking say to us neighborhood kids, "Which do you want, a fat lip or a busted eyebrow." That was not lost on me. From Democrats you get one, from Republicans you get the other. Voting for the lesser of evils still begets evil.
The Genie is Out of the Bottle
Congress has created so many laws that virtually every person is assured of breaking more than just traffic laws. Surely with all this supposed lawlessness people and society should have long ago run head long into destruction. But it has not.
Instead, people and society have progressively prospered. Doing so despite politicians creating on average, 3,000 new laws each year which self-serving alphabet-agency bureaucrats implement/utilize to justify their usurped power and unearned paychecks. They both proclaim from on high -- with complicit endorsement from the media and academia -- that all those laws are "must-have" laws to thwart people and society from running headlong into self-destruction.
Again, despite not having this year's 3,000 must-have laws people and society increased prosperity for years and decades prior. How can it be that suddenly the people and the society they form has managed to be so prosperous for so long but suddenly they will run such great risk of destroying their self-created prosperity? Three hindered new laws each year is overkill, but 3,000 is, well, it's insane.
The government is the all time champion of cooking the books and it has the gall to point fingers at the whole business community because of a few bad apples. The entire business community and employees that support it should stand tall against a government feigning to protect the little guy from organizations that cook their books.
If there was ever a prime example of the fox guarding the hen house it is the government claiming to protect the little guy from organizations that cook their books. President Bush will have to militarily smash down terrorism. For that is his job. It's not the President's, congress' or the government's job to manipulate the economy.
The business community with their employees will have to stand tall against the PC-status-quo fox -- self-proclaimed authorities claiming/feigning they'll use the government to protect the little guy and a complicit media and academia that supports them; for they are all the fox -- to regain their rightful place as the champions of honest business that has always increased the well-being of people.
The government, having already manipulated the economy to almost no-end, President Bush can play the unbeatable five-ace hand of replacing the threat-of-force IRS and graduated income tax with a don't-pay-the-tax-if-you-don't-want-to consumption tax. For example, implement the proposed national retail sales tax (NRST). Not only would that win votes for Bush and republicans in congress it would boom the economy.
Where will it lead?
War of Two Worlds
Value Creators versus Value Destroyers
Politics is not the solution. It's the problem!
The first thing civilization must have is business/science. It's what the family needs so that its members can live creative, productive, happy lives. Business/science can survive, even thrive without government/bureaucracy.
Government/bureaucracy cannot survive without business/science. In general, business/science and family is the host and government/bureaucracy is a parasite.
Aside from that, keep valid government services that protect individual rights and property. Military defense, FBI, CIA, police and courts. With the rest of government striped away those few valid services would be several fold more efficient and effective than they are today.
Underwriters Laboratory is a private sector business that has to compete in a capitalist market. Underwriters laboratory is a good example of success where government fails.
Any government agency that is a value to the people and society -- which there are but a few -- could better serve the people by being in the private sector where competition demands maximum performance.
Wake up! They are the parasites. We are the host. We don't need them. They need us.
* * *
After all, in calling for the resignation of Securities and Exchange Commissioner Harvey Pitt, McCain declares, “Government’s demands for corporate accountability are only credible if government executives are held accountable as well." Does that mean U.S. senators? Congress, Accounting, and the Free Market (McCain is grandstanding again)
"Too often, we have cooked the books, exploited off-balance sheet accounting, fudged budget numbers and failed to disclose fully the nation's assets and liabilities. If we in Washington are to have credibility in the public eye as we address the corporate accounting mess, we must reform our own fiscal practices," said McCain. Social Security Called A Bigger Fraud Than Corporate Scandals
Prove it first. It's not like it's a new discovery or problem. It's a seventy-year-old problem. It's just that now politicians and bureaucrats have trapped themselves and the general public is becoming increasingly aware. They've been caught and McCain is getting interview time to peddle gussied-up compassionate government.
"Allowing Americans to invest responsibly a small part of their payroll taxes will not only save Social Security, but will provide them with greater retirement income than those who no or will soon depend on Social Security checks," said McCain. Social Security Called A Bigger Fraud Than Corporate Scandals
Notice McCain so readily self-proclaims himself and government the authority to allow Americans to invest part of their own money. But he has a condition; it most be done responsibly. And who decides what is responsible? Certainly not the all-time champion, cook-the-books bureaucrats and snake-oil-salesmen politicians.
They -- self-proclaimed authorities -- are running citizens and society headlong into destruction.
We're still enjoying the benefits of the contruction of the Great Hydroelectric Dams that were built during this period. And the CCC built some really nice state parks in Pennsylvania.
Time to increase tariffs and build some infrastructure.
Put America back to work again CREATING wealth, not merely consumeing and squandering wealth in the "service" sector.
A Democratic takeover would produce a dramatically different approach, in tone and substance, to the relationship between government and business. The new chairman of the House Energy and Commerce Committee would likely be Rep. John Dingell of Michigan, who supports a national health-insurance program. He is currently campaigning as a staunch foe of corporate misbehavior. The new chairman of the House Financial Services Committee would be Rep. Barney Frank of Massachusetts, who backs reregulation of the cable-television industry. The new chairman of the House Ways and Means Committee would be Rep. Charles Rangel of New York, who has proposed amending the U.S. Constitution to guarantee every American "a right to a home."
And that's just Dingell, Frank and Rangel in the House...time to get to work on "getting the vote out"!!
Business leaders have led the way in setting a darwininan 'market economy' as panacea. But Elections come in a Democracy because we are a 'political' economy and not a pure market force dictatorship. This means that the results of our economic system are juried and approved by a majority of voters at election time.
I started school in NYC in the 30s and you guys have no idea of the euphoria that swept the neighborhoods with Roosevelt. As a kid I remember the sounds of 'Happy Days are Here Again' and the posting of the NRA Blue Eagle signs everywhere restored confidence in the economy.
In that election, the voters took the ball from business and handed it to government. Yes, then Government grew and stole the ball. FDR turned into a manipulator and dictatorially swept into office for an unprecedented four times.
So what is the message for the GOP? Grab the ball from business before the Democrats do. COME UP WITH A PLAN TO REDUCE UNCERTAINTY BEFORE THE DEMOCRATS DO. Uncertainty will be the death of the GOP. Jawboning won't cut it. The 'long run' ends on election day.
No, tariff revenues can be used to offset a reduction in the corporate income tax:
A Proposal to Abolish the Corporate Income Tax
Voila! The return of the American wealth-creating dynamo!
Oh yah, tarrifs are great. Like Hawley Smoot, which virtually EVERY economist now agrees basically caused the market crash in 1929 and made the Depression MUCH worse. How much worse? Well, recent studies---TWO of them by different economists---agree that HS probably took a good five percent off GNP. Yah, that is really "creating wealth." With wealth creation like that, we would look like Albania soon. Dream on, bud.
Sounds like you resent the nation presenting the opportunity to perform "an honest day's work for an honest day's pay."
Guess you'd prefer the soup-kitchen & bread-line handouts that were the alternative back then.
Back then we were a MORAL people as a whole. Today ? Revolution and civil war would engulf this country like an FAE explosion
"Our Constitution was made for a moral and religious people. It is wholly inadequate for the government of any other." John Adams, 1798
Upon further review - Smoot-Hawley was passed in June 1930, hardly before the market crash.
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