Watching the latest business scandal lead the stock market to perdition or points south wouldn't be quite so painful if the American public had any assurance that something meaningful would be done about it.
Just a few hours after telecommunications giant WorldCom revealed that it had falsified its cash-flow numbers for more than a year, sending the financial community reeling, President Bush offered his take on the unfolding events:
“We've had too many cases of people abusing their responsibilities and people just need to know that the SEC is on it, our government is on it, and Arthur Andersen has been prosecuted. We will pursue, within our laws, those who are irresponsible.”
What Mr. Bush did not say is that federal and state laws and rules to protect our economic system against corporate pirates have been so weakened over two decades of deregulation that no one can say with real confidence that the current downward spiral can be halted without fundamental damage to the economy.
Some observers are likening the seemingly endless stream of business scandals to what was going on just prior to the 1929 stock market crash and the devastating economic depression of the 1930s. While that may be a bit of a stretch, more Americans than ever have a direct stake in the markets because of 401(k) accounts and other investments. Confidence is bound to be a casualty, along with our financial security.
While American consumers slept, the regulations that were intended to prevent another Great Depression have been steadily whittled away. Mr. Bush's Securities and Exchange Commission, for example, is headed by a lawyer who used to work for the accounting industry, including Arthur Andersen, WorldCom's former accountant. His recipe for reform is voluntary controls on accountants, overseen by ... the accounting industry.
At the same time, the payoff for financial shenanigans has overwhelmed whatever moral precepts may have deterred potentially wayward executives in the past.
WorldCom, which blamed its chief financial officer and fired him, is said to have used accounting gimmicks to hide expenses and inflate its cash flow for five consecutive quarters. Cash-flow numbers have been considered by analysts to be a reliable indicator of a business's health because they weren't easily manipulated. But not anymore.
The result is that a $1.4 billion profit reported for 2001 and $130 million more this year have vanished. The company's stock is virtually worthless, what buyer would take on WorldCom's $30 billion debt? Some 17,000 people, about 20 percent of the work force, will be losing their jobs soon.
WorldCom thus joins the lengthening list of corporate leviathans that have succumbed to wheeler-dealerism. Enron, Tyco International, Global Crossing, Adelphia Communications - it's a sorry group.
Maybe, as Sen. John McCain says, things will improve when people responsible for these debacles start going to jail.
The tide of deregulation that has swept the U.S. business scene over the past 20 years must be reversed. And the only way that will happen is if the American people demand that federal regulatory agencies be re-armed with the people and resources necessary to not only handcuff corporate outlaws but also to bolster their watchdog role and reduce the opportunities for cheating.
Nothing less than the integrity of our system of free enterprise is at stake.
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