Posted on 07/23/2002 8:22:03 AM PDT by Stand Watch Listen
During the last couple of weeks we have been treated to an orgy of hand wringing on the subject of corporate corruption. We hear from Senators and Congressmen who have become overnight experts on accounting standards. Obviously when politicians talk this much about a subject it is because they believe there is political advantage. The Democrats have been trying in vain to turn the American people against President Bush but he has stubbornly held onto his popularity.
The latest attempt has been to blame Bush and Vice President Cheney for the latest reports of aggressive accounting gone badly. I have expressed my opinion on this subject. I have seen this behavior with my own eyes before George Bush (or Bill Clinton for that matter) became President. To some degree I am encouraged to see something that bothered me become recognized by others as a problem. However, nothing that I am seeing in this discussion gives me reason to believe we are moving in the right direction or that any changes that occur will be improvements.
The logic of the critics goes something like this. President Bush engaged in insider trading at Harken Energy 12 years ago and Vice President Cheney engaged in aggressive accounting at Halliburton in the late 1990s. As far as I know the President sold his stock in Harken Energy and failed to file one of his disclosures on a timely basis. The incident was investigated by the Securities and Exchange Commission without any finding of law breaking on the future President´s part. I have had enough experience with insider trading rules of publicly held companies to know that the rules are numerous and complicated. The failure to file a certain form is hardly a big deal if that is all that is involved.
At Halliburton, Mr. Cheney was the Chief Executive Officer. Under his reign the company was quite successful. When he left the company its stock was at a high point. That is not surprising since he left at the time he became a candidate for Vice President, in 2000, which was also the time of the high point for the stock market. Halliburton has suffered lately as a result of a lawsuit relating to asbestos. The lawsuit came as the result of an acquisition of a subsidiary that Mr. Cheney oversaw during his reign. In hindsight he can be accused of poor judgment. Poor judgment is not in and of itself a crime or a sign of corruption or of incompetence. In addition Halliburton apparently used some aggressive accounting in assuming it would be able to recover cost overruns in its government contracts.
As far as I know this is what Mr. Bush and Mr. Cheney is being accused of. The strained logic of the critics is that Cheney´s and Bush´s lack of ethics as businessmen before they entered the White House are responsible for the actions of Enron, Global Crossing, WorldCom, and the others that also took place before the current President took office. If that is the extent of the actions of these two men this line of attack is total nonsense. It may turn out that they are guilty of something but at this point there is no real evidence of it.
While I am bothered by the fact that sleazy politicians are throwing mud at men who appear to be much more honest than their accusers, there is something much worse at play. There is an attack on private enterprise, on free markets, on limited government, and basically on freedom itself.
Let´s start with the issue of expensing options which has become all the rage. Companies often issue stock options as incentives to employees to work for the benefit of the company rather than their own narrow interests. Since the employees will benefit from the success of the company they should look to more than just their paychecks while working. Since this is part of the employee´s (or Director´s) compensation it is not illogical to view the issuance of options as an expense of operations. Certainly legendary investor Warren Buffet feels strongly that this is the case.
There is also an argument against this treatment since the issuance of stock options does not lower the amount of money available to other shareholders. It does increase the number of shares, which has the effect of diluting the ownership of other shareholders. What has not been mentioned during this discussion is that publicly traded companies must disclose, in their financial statements, the effect that a decision to expense the granting of options would have had on the financial statements. While most people don´t read footnote disclosures of financial statements, the information is there for anybody who wants it. The companies also have to factor unexercised options into calculating the number of shares used in calculating earnings per share. So while there are good arguments on both sides of this issue the current system is hardly a huge issue.
The bigger issue is whether this issue, or any accounting issue, should be decided by the political process. Do we really want the people who vote pay raises for themselves in the middle of the night, who set up their own Bank which they widely and consistently bounced checks on, who largely succeed by lying to set accounting standards? Does anyone look forward to the day when Hillary Clinton sets up accounting standards to favor whichever corporation is contributing most heavily to her campaign? We could easily envision the Senator from Michigan setting up standards to favor the auto industry while the Representatives from California quietly set standards in favor of the semiconductor industry.
There is also a very disturbing anti capitalist, anti free market vein developing and being promoted by political demagogues. Obviously a great deal of money has been lost by investors in the last couple of years. Politicians, of course, will not tell the public that investors had unreasonable expectations during the nineties. They will not remind them that stocks advanced at a rate that is not sustainable. Senators will not tell their voters that they should not have capitalized companies that had no earnings at billions of dollars. Whose fault is it that investors paid $60 per share for The Street.Com when it had no prospects of earning a profit?
The Democrats want anger focused on corporate management. Class envy is their old stand by. They offer themselves as the solution to protect the people from the greedy capitalists. There are already a ton of regulations regarding publicly traded companies. I have not been convinced that enforcement of existing laws would not be adequate. I don´t buy the argument that Clinton´s sleaziness was a model for corporate corruption but I do find it ironic that the folks who chose to not enforce the law regarding Clinton´s perjury think that draconian measures against corporate management including many new laws is the answer.
The likely result of such action is that good people will chose not to go into corporate management. This might please politicians who think government should be the answer to all problems. It will weaken business in general and lower our standard of living. As talented and ambitious people eschew business the ability of our economy to produce things for us will decline. The government can pass all the prescription drug bills in the world, but how many drugs can they invent and manufacture.
The anti business culture is also starting to take hold. When is the last time somebody spoke out loud about privatizing social security? It is still a no brainer as an idea. Any person who invested the money that is set aside for social security, even in the most conservative fixed income investments, would still have a much better retirement than those who rely on social security. Of course the demagogues will say that people might have been suckered into putting their social security money into dot com companies. The system of privatized social security would probably have to limit the choices people have in investing their money to broad based stock funds to the extent that people chose to put their retirement funds into stocks. People within five years of retirement age might have to be limited to fixed income investments. Even this would be more of a political choice than an economic one. Still the result has been that free market advocates have been silenced on what should be a core issue.
While we have daily headlines and crying about Enron and WorldCom we hear little about the fraud and waste in government that we take for granted. We take it for granted that politicians are dishonest and corrupt. We assume that billions of dollars are wasted in government. We throw more and more money into public schools and see worse results. Where is the call for long prison sentences and fines for school administrators who misuse taxpayer money? Where is the call for any accountability on their parts? Why is there not even more discussion of school vouchers as a means of allowing poor people to escape from the miserable public schools they are offered?
The core issue comes down to whether we believe in freedom or want to sacrifice our freedom for supposed security. Do we trust politicians more than we trust ourselves? If we rely on government to “fix the problem” we have now, we will pay for the solution for years. There is every reason to believe the market will fix the problem if allowed to do so. Virtually every publicly traded company that had Arthur Anderson as its auditor has fired them. While the government is prosecuting the company, and perhaps deservedly so (although I would still prefer only prosecuting the individuals who actually committed crimes) it is the market place that is demanding honest financial statements. Publicly traded companies know that having Arthur Anderson as their auditors will result in their financial statements lacking credibility.
Stock investors will demand honest and conservative financial reports. They will sell the stock of companies that are unable to convince the investing public that their results are reliable. While the SEC has a role in policing the system it is still the case that the less they do the better off we will all be. If the system is allowed to correct its own excesses it will do so in a relatively short period of time and we will have the prosperity that comes with real freedom. If government comes in as the savior we can look forward to repressive governance of business substandard economic growth, and a general diminution of our freedoms. I vote for freedom. I know that I am more capable of deciding what I need than politicians are; I know that I care more about myself than they do, and I know that I will do a better job than they will. I also believe that most people are in the same position as me. I trust myself and I trust my fellow citizens more than I trust the government.
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?
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.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.