![]() |
![]() | #1 |
Moderator Join Date: 10 2001 Location: Yerevan
Posts: 5,466
Blog Entries: 1 Downloads: 1 Uploads: 0
Reputation: 110 | 5 | ![]()
Gary North's REALITY CHECK Issue 153 June 27, 2002 ROTTEN TO THE CORE The latest Wall Street disaster, WorldCom, became an instant Evening News scandal. From the economic summit in Canada, the President of the United States called it "outrageous" and pledged that the government would bring to justice the perpetrators of corrupt business practices. No reporter or commentator added, "Just like the government brought bin Laden to justice." Bringing people to justice is easier said than done. Trying to do it will create side-effects. (Side-effect [noun]: "an effect that the action-taker doesn't plan for or like.") So, WorldCom and Arthur Anderson did the dance of the decimal points. They somehow mistook a $1.5 billion loss for a $1.5 billion profit. They just sort of forgot that increasing corporate debt by a few billion dollars isn't the same as making a profit of a few billion. Who did they think they were, Social Security Trust Fund administrators, where a $20 trillion unfunded liability is never put on the official accounting books, where the "trust fund" is filled with unmarketable government bonds, where a $100 billion annual increase in the liability (cash accounting, not accrual) to future retirees in what is called an off-budget government program is counted as income in the government's on-budget accounts, and is used to reduce the official debt in the Federal budget? The government must bring these miscreants to justice! What happened at WorldCom was business as usual. But we are asked by TV's talking heads to believe that it's unusual. As usual. The United States Government sets the example for the business world. The voting public takes the following information for granted in those rare instances when a government press release like the following makes it to page 4 of the local newspaper. Rep. Stephen Horn, a Republican House member, in 1999 (when a Democrat was in the White House) issued a press release. He is chairman of the House Committee on Government Reform. ("Government reform" is an oxymoron for real morons.) He offered these choice tidbits: Agriculture -- In FY 1997, the department erroneously issued about $1 billion in food stamp overpayments, amounting to approximately 5 percent of the entire food stamp program. (GAO Report) Defense -- The department spent nearly $40 billion on programs for 15 overseas telecommunications systems that cannot be fully used because the department failed to obtain proper certifications and approvals from the host-nations, according to a 1999 inspector general audit. (DOD OIG Report) In September 1997, the Defense Department's inventory contained $11 billion worth of unneeded equipment. (GAO Report) Over the last three years, the Department of the Navy wrote off $3 billion of inventory lost in transit. (GAO Report) During a five-year period, defense contractors voluntarily returned $4.6 billion in overpayments the department failed to detect. (GAO Report) The Defense Department spent an estimated $54 million on newly developed indoor firing ranges that are not being used. (DOD OIG Report) Education -- In FY 1997, the Federal Government spent more than $3.3 billion in loan guarantees for defaulted student loans, according to a GAO audit. In addition, the department had over-paid 102,000 students Pell grants totaling $109 million. The audit also found that 1,200 students falsely claimed veteran status to increase their eligibility to the program, costing taxpayers $1.9 million. (GAO Report) http://www.house.gov/reform/gmit/press/p991190.htm And so on, year after year, decade after decade. It never changes. Nobody bats an eye. "Who cares? It's only tax money. There's more where that came from!" The statistical difference between the U.S. government and WorldCom is this: when WorldCom did it, the news finally became public, long after WorldCom's share price went from $60 to less than $1. The stock market told investors, day by day, year by year, that something was rotten at WorldCom. All the way down, the economic experts could have done some digging and found out what was wrong. They didn't. Now they howl about the awfulness of it all, how there is corruption in high places. The corruption is in higher places than WorldCom's corporate offices, and lower, too. The corruption is basic to the government, and it is basic to the hearts of the voters, who use government coercion to steal from each other to fund their government welfare benefits, including lifetime retirement and free medical care. They scream "foul play!" only when it turns out that they, not the guy behind the tree, is required to pay for these benefits. This screaming has only just begun. It will not end for a generation. Corruption is universal. Our society has become rotten. We have corrupted ourselves, and we have voted out of office any politician who dared to tell us what the system has become. We have voted for politicians who campaign for office on the basis of how much money they will take from rival voters and hand to their constituents. This is considered normal. A national politician, such as Ron Paul, who identifies the rot for what it is, and refuses to vote for any program that is not authorized by the U.S. Constitution, is regarded by the press as an ideological crackpot, a man so out of touch with modern times that he actually votes to uphold the provisions of the Constitution that he took an oath to uphold. Obviously, he is a nut case. After all, all those other politicians took the same oath, and they vote for these wealth-redistribution schemes. And then, when the rot is occasionally exposed on Wall Street, the reporters go to the Head Accountant in Charge to ask him what he thinks of all of this, who tells them it's outrageous. It isn't outrageous. It's business as usual. HOW BAD IS IT? For several years, I have exchanged e-mails with a man who runs the Central Fund of Canada, a small investment company that invests solely in gold bullion and silver bullion. Its share price is up this year, as you might imagine. He has been in the fund management business for something like 40 years. He has warned me repeatedly about the accounting practices that govern funds and publicly traded companies. He told me at least two years ago that today's practices would have landed the accountants and fund managers in prison back when he started out. Well, it may land some of them in prison this time. One or two of them. Mid-level guys. As examples. Arthur Anderson is dead and gone. The Big Five accounting firms are now Big Four. Arthur Anderson's partners are in disgrace. Arthur Anderson was WorldCom's accounting firm. Also Enron's. Also Global Crossing's. But no one complained about Arthur Anderson until after Enron had gone bust. No one noticed. Why not? BECAUSE THESE ACCOUNTING PRACTICES ARE UNIVERSAL ON WALL STREET! They are not an aberration. They are business as usual. This is what nobody in charge wants to admit, or even speculate about. President Bush yesterday went on about "the many fine companies in America" and how the American economy is doing fine. Sure it is. No problem. Those crashing sounds are just irrelevant background noise. Eight months ago, Arthur Anderson was seen as the premier accounting form in America, yet it validated practices that are now generally regarded by the public as corrupt. The company was in bed -- at high prices -- with at least some corrupt business partners, and now bits and pieces of a massive, multi-billion dollar fraud is exposed. Nobody wants to admit that Arthur Anderson was not an aberration, for it was a representative firm. It was untouchable. Now it's gone, along with three of its biggest clients. Note: it had more than three clients. I keep waiting for the WALL STREET JOURNAL or BARRON'S to publish a list of all of Arthur Anderson's clients in 2000-2001 that are listed on the New York Stock Exchange. Let me know when you see it. The market has now imposed negative sanctions, though not soon enough. Can you imagine some Arthur Anderson partner at a dinner party in New York City? Somebody asks him what he does for a living. "I'm retired." "What did you do?" He grows nervous. "I was an accountant." He hopes it will end here. "Really? For what company?" He grows evasive. "Oh, I worked for several." He hopes the questioning will end. Then the guy next to the questioner says, "Lay off, Charlie. The guy was a partner at Arthur Anderson." If there were a futures market for Arthur Anderson partners' dinner invitations, I would recommend selling short. These men invested their careers and lives in a company that was the most arrogant accounting firm on earth. Today, they are seen as corrupt men. Their busted firm is seen as the incarnation of phony bookkeeping. The market caught up with them. Some accountants may go to jail, but not the top dogs. The sacrificial lambs will be the mid-level guys, not the partners. But the partners will not escape unscathed. They will spend the rest of their lives wondering how they were such fools. They will spend the rest of their lives either in denial or regret. The government will now move in and start passing laws to tighten up the accounting industry. This will lead to higher prices, more red tape, and the usual inefficiencies associated with government regulation. It's as if the politicians had never passed law after law, created layer upon layer of bureaucracy. "What? You mean something is rotten on Wall Street? This looks like a job for government reform!" Reform by the guys who took corporate money from these outfits in order to get elected. The system was rotten all the way up the chart of the Dow Jones Industrial Average. Hardly anybody uttered a word of warning. When the stock market is rising, only crackpots and worrywarts and old-fashioned analysts sound the alarm, and they are dismissed by the reigning experts as people of the "old era." Old-fashioned analysts look at a price/earnings ratio of 40 and conclude that a bubble is in progress, that the P/E ratio is historically at 15. They keep saying this, but the market keeps going up anyway. So does the money supply, which lies at the heart of the stock market bubble. The experts reassure doubters that everything is just fine. Then comes Enron. Then Global Crossing. And now WorldCom. These were corporate giants that have now destroyed trillions of dollars of investors' dreams. Gary Winnich of Global Crossing sold his shares for $750 million, but nobody asked the obvious question: "Why?" Investors get nothing, but he retires with three-quarters of a billion dollars. Nice work if you can get it. Last night, I watched Susie Gharib, the co-anchor of the Nightly Business Report, a position she shares with Paul Kangas. Her frantic, emotion-filled questioning of the daily "showcase them and forget them" expert indicated that she suffers from either a type-A behavior disorder or fear. She kept asking leading questions: "Do you think this is the bottom?" How should he know? So, he wisely answered: "Well, I hope so." "Shouldn't the Fed lower interest rates?" "Well, the federal funds rate is at the lowest level in decades." This went on for several minutes. It was obvious that she had no clue as to the magnitude of the tidal wave facing the stock market. She has spent her career with a P/E ratio of 40. She doesn't understand that bubbles eventually burst. She owes her audience to bubble-riders. Pop the bubble, and there won't be many viewers. Hardly anybody wants to spend time listening to bad news about his busted investment portfolio. On the show's Website, Ms. Gharib is described as follows: Winner of the coveted Gracie Allen award for Best Anchor, Gharib is known for her incisive, but personable interviews with corporate America's movers and shakers, a who's who of Wall Street and Washington, and the world's business leaders. She joined Nightly Business Report on May 1, 1998. http://www.nbr.com/whoswho.htm Are they kidding me? The Gracie Allen award? George Burns' straight lady, who made a comedic career of asking the craziest, off-the-wall questions in recorded history? Now that I think of it, Gracie Allen is exactly the person we need today. I can almost see her asking Kenneth Lay about accounting. I can hear her asking Gary Winnich about building asset value. Gracie, where are you now that we need you? We are entering the Gracie Allen era of stock market investing. The whole financial world could be her straight man. "Say good night, Gracie." "Good night, George."
__________________ --------------- Արատտայի ու Խալդեյի հովանավոր . ![]() |
![]() |
![]() | #3 |
Профессор Join Date: 01 2002 Location: New York, USA
Posts: 2,938
Downloads: 0 Uploads: 0
Reputation: 0 | 0 | ![]()
My 2 cents Well, now I believe this is just American way of conducting business... Things as business ethics are just fairy tale created by the corporate sharks themselves for the idiot's from the other countries to believe that honesty means anything at Wall Street. Examples are numberless... |
![]() |
Sponsored Links |
![]() |
Thread Tools | |
|
На правах рекламы: | |
![]() | |