Jewish World Review July 26, 2002 / 17 Menachem-Av, 5762
http://www.NewsAndOpinion.com | The economic news tells us more about the foolishness and depravity of journalists and politicians than it does of the foolishness and depravity of business leaders.
In recent months, we have learned that stocks go down as well as up, and that greed is as intertwined with Wall Street as lies are with politics, publicity-seeking is with Hollywood. This was news only to those who were born yesterday.
Many Americans do not understand the difference between the stock market and the economy. The financiers and brokers on Wall Street are the lubricants of the great engine of commerce, but they are not the engine itself.
There is currently a profound - but not unprecedented - disconnect between the stock market and the economy. Stocks have been tumbling. But the economy this year has been growing at a solid, even an impressive, rate.
What has happened is that a stock market "bubble" has burst. Stock prices rose to dizzying heights, far above their underlying value. The bubble was driven by the greed and gullibility of us investors, who thought we could get rich quick without having to pay attention to price/earnings ratios.
This is hardly a new phenomenon. The best book ever written about investing is Charles MacKay's () Extraordinary Popular Delusions and the Madness of Crowds (), published in 1841. It describes the South Sea bubble, the tulip mania, and other precursors of the dot.com bubble.
As air began escaping from the bubble, firms like Enron and WorldCom cooked the books. So chastened investors have two reasons for being cautious: We don't know if all the air is out of the bubble yet, and we don't know if ceos are telling us the truth.
The corporate safeguards we rely upon to protect the interests of investors failed us. Accounting firms which act both as bookkeepers for and auditors of corporations acted more like employees than watchdogs. Boards of directors, which are supposed to monitor ceos, became their pets.
There were some, like Arthur Leavitt, head of the Securities and Exchange Commission during the Clinton administration, who warned of the dangers of these cozy arrangements. But neither President Clinton nor Republicans in Congress were much interested in fixing them.
Enron, WorldCom, Global Crossing, etc. are business scandals, not political ones. But journalists and Democrats are twisting the truth in their efforts to politicize them.
Journalists and Democrats argue President Bush is too cozy with big business to represent the public interest. Bush has a $14 million fortune he would not have amassed were he not the son of a famous and influential man. But how does that make him different from Sens. Ted Kennedy (D-Mass) or Jay Rockefeller (D-WVa), who inherited their money, or from Sen. John Kerry (D-Mass), who married it?
House Minority Leader Richard Gephardt (D-Mo) blames a 1995 bill liberalizing accounting rules for the accounting scandals. This is the fault of the Republicans, Gephardt said. But the author of the bill was Sen. Chris Dodd (D-Conn).
Senate Majority Leader Tom Daschle (D-SD) relies heavily for economic advice on Sen. Jon Corzine (D-NJ), former chairman of Goldman Sachs. The brokerage firm has been accused in two lawsuits of manipulating stock prices. Two of the most influential lobbyists in Washington are Linda Daschle, wife of Tom, and Anne Bingaman, wife of Jeff, chairman of the Senate Energy and Natural Resources Committee. Would these women be as rich as they are if their husbands weren't who they are? And why have Tom and Jeff never recused themselves from voting on bills their wives have lobbied for?
In 1997, the New York Times Co. engaged with Enron in a newsprint swap, the kind of "accounting shenanigans" it has been denouncing on its editorial page. Last year the Washington Post Co. boosted its reported income by $3.6 million by not counting stock options as cost of doing business, a practice, the Post said in an editorial in April, that "make(s) a mockery of corporate accounts."
We need to fix the problem, not the blame for it. There is plenty of that to go around.
Enjoy this writer's work? Why not sign-up for the daily JWR update. It's free. Just click here.
07/23/02: Iran's is on the verge of a social and political explosion. So why is media ignoring it?