When the Numbers Don’t Mean a Thing
Down in their holes, al-Queda fanatics couldn’t have schemed a better strategy to weaken our economy than the corporate finance and accounting scandals that rocked the country—and our 401(k)s—during the past year.
In purely monetary terms, corporate corruption actually took a heavier toll than 9/11.
So it was absolutely appropriate that Congress and the Bush administration declared the moral equivalent of war against the moral equivalent of a hostile attack. And it was absolutely astounding that the president turned right around and torpedoed that effort when hardly anyone was looking.
In August, with great fanfare, Bush signed a sweeping reform package designed to restore confidence in the integrity of corporate America in general and the stock market in particular. But, last week, while our national attention was diverted by the D.C. sniper, Bush gutted the funding increase he had just approved for the Securities and Exchange Commission.
The SEC is responsible for making sure corporations stick to the rules when it comes to honest accounting and financial reporting. As far back as the first Bush administration, SEC officials complained that their staffing was woefully inadequate to their increasingly complicated task. The long overdue budget increase was meant to help remedy that problem. Cutting the increase in half, as Bush did, is as unimaginable as chopping the FBI’s budget while asking it to increase its anti-terrorism efforts.
The administration claims that more money for the SEC isn’t available because it’s needed to combat terrorism. It’s funny, though, how selectively this alleged shortfall is invoked. There are billions and trillions available to make Bush’s top-bracket tax cut permanent and to pour into the “Star Wars” missile shield, which so far has worked only when the Pentagon rigs the tests. But we can’t afford another $300 million to guard against the proven threat of corporate corruption?
The Bush team’s credibility on this question is hurt by its track record. Even The Wall Street Journal, which sides with regulatory agencies about as often as Vanderbilt wins Southeastern Conference football games, editorialized that Harvey Pitt, Bush’s man at the SEC, was much too chummy with the accounting industry that he previously had served.
Before Bush’s axe fell last week, word came that Pitt—after intense lobbying by that same accounting industry—would not support one particularly respected candidate, John Biggs, to head the SEC’s newly created accounting oversight board. Instead, the nod went to William Webster, the former FBI director whose total lack of experience in this field raises suspicions that the administration wanted a toothless old watchdog who would never leave the porch.
Whatever the motivation, Bush’s actions sent an unambiguous signal to the accounting industry that the administration is not serious about either reform or enforcing the laws on the books. Don’t dare think that signal will go unnoticed.
Apologists argue that ending corporate corruption is no panacea for an ailing economy. Maybe, but that argument overlooks a critical point—one that is about neither politics nor party ideology. It’s about trust in the rule of law that is the foundation of our capitalist system.
Bush’s shortsighted action tells us, as shareholders in that system, that even if we invest carefully, we might lose our shirts again because we can’t trust the numbers in corporate reports. That lack of credibility has an impact on the willingness of ordinary investors to put money in the market. And that, in turn, affects the overall economy.
How much all this affects the administration’s policy depends, frankly, on how much hell you want to raise about it. We urge you to raise a lot.
E-mail Bush at president “Whose side are you on?”
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