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Jewish World Review July 11, 2002 / 2 Menachem-Av, 5762

Cal Thomas

Cal Thomas
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Consumer Reports

The Politicians Are Coming: Lock Up Your Portfolios!

http://www.NewsAndOpinion.com | There's nothing scarier than a politician in heat, especially in an election year. As The Wall Street Journal rightly editorialized Wednesday as Democrats and Republicans pontificated about corporate wrongdoing: "Everything you're hearing now from Washington is aimed at winning the November elections, not calming financial markets."

Democrats believe they've found the issue for which they've been desperately searching to bring down President Bush's high approval ratings. Democrats will haul out their familiar class-warfare weapons when, in fact, many of those who have profited from the surging economy of the past two decades are first-time small investors who are Democrats.

Republicans will try to prove they are not the party of big business (as if there's something wrong with that considering the profits made by wise Democrat and Republican investors). Both parties will attempt to show voters they are doing something when, in fact, doing something, if it is the wrong thing, might be worse than doing nothing at all.

Capitalism is a delicate balancing act, and, like a gyroscope, which guides a large spacecraft (or missile) to a desired target, even the slightest error can throw it off course and bring disastrous results.

In his speech Tuesday (July 9) in New York, President Bush sounded the right themes, stressing the need for more character in business leaders and high standards of business ethics, as well as tougher penalties for those who have neither character nor ethics and violate the law.

The most important approach is to establish the framework for reducing malfeasance before it occurs. Democrats would establish another government regulatory agency that would do more to strangle the capitalistic goose and make it unable to lay as many golden eggs. Republicans support a bill, passed by the House in April with overwhelming bipartisan support, that would create significant reforms, along with those already proposed by the Securities and Exchange Commission, to improve accounting practices and lessen the likelihood that corporate books could be cooked in the future.

An excellent critique of Republican and Democrat proposals to address the current business turmoil has been prepared by David C. John of The Heritage Foundation (www.heritage.org/staff/john.html). John is supportive of the House bill (H.R. 3763) because, "rather than seeking to provide a statutory answer for every problem, it recognizes that this is a job for experts and gives the SEC the authority necessary to prevent future abuses. The bill creates Public Regulatory Organizations (PROs), privately organized entities that would review audits and auditors and take disciplinary action when necessary. Any disciplinary actions would be reported immediately to the SEC. No publicly audited company could submit required financial statements to the SEC unless its accountants are in good standing with a PRO."

In addition to the House bill, the SEC has proposed some good reforms, which include a requirement that CEOs personally vouch for company financial statements. As a major disincentive against book cooking, the SEC wants to forbid corporate officers from being allowed to profit from false financial statements.

The Democrat-controlled Senate, which has its share of Republican and Democrat members with questionable ethical backgrounds, proposes a new federal agency with unlimited powers to regulate accounting firms (Public Accounting Reform and Investor Protection Act-S. 2673).

Attempting to design federal laws that would adequately regulate a rapidly changing economy would produce economic side effects that might prove worse than the disease. In the financial world, one size does not fit all and trying to squeeze all businesses into a single mold would harm business and, thus, the economy. No bill is better than the Senate proposal, but the House measure, coupled with the proposed SEC reforms, would address the current outrages without rendering the economic goose infertile.

The temptation of some greedy CEOs is personal enrichment. But the temptation of many politicians is political survival. The former can be dealt with in the ways mentioned above. But giving politicians free reign to "fix" the excesses of a few, as significant as they are, would send the wrong messages to business and to the nation's investors.

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JWR contributor Cal Thomas is the author of, among others, The Wit and Wisdom of Cal Thomas Comment by clicking here.

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