Dow drops to 5 year low after speech
 

The White House 'finally' decided to address rampant accounting scandels created when the Clinton administration was not permitted to address the problem (blame the Republican party leadership, Sen Tauzin (R-LA, Sen Lieberman (D-CT) among others who threatened to cut off all spending if reasons for scandel were addressed). The Dow Jones rose 35 points in expectation that the President finally will address the problem he had ignored for so long. As of today, the Dow has since dropped 400 points mostly, according to most business reporters, because of a pathetic speech by the President. He did not confront the problem.

How many scandels does it take to get this President's attention? Waste Management, Sunbeam, Tyco, Adelphia, Global Crossing, Enron, the CA energy crisis created by accounting scandel of energy trading companies, Xerox, Haliburton ... How many did he ignore before he finally decided maybe there is a problem in the same corporate America that contributed most to his campaign funds? Even Sen John McCain (R-AZ) has cited the President for too little too late.

It is what the President did not say that are so much part of the problem - resulting is a dropping Dow.

First, he did not challenge those in Congress who encouraged (after campaign contributions) this fraud that Arthur Levitt (Clinton's SEC commmissoner) was complaining about so loudly.

Second, he said that corporate executives should maybe serve a maximum sentence of only 10 years instead of the current max of 5. He provided no means for those prosecutions to be conducted - which is the real problem. Take the Arthur Andersen trial where the jury could not even agree with prosecution arguments that David Duncan of Andersen ordered massive shredding of Enron documents. Laws make it almost impossible to convict for intentional destroying of the evidence? Yes. Only because the bottom line was so obvious, the jury finally achieved consensus by constructing its own theory centered what was deleted from a Mr Duncan internal memo.

How are any companies to be convicted if even Arthur Andersen's massive document shredding, to hide their criminal intent, cannot be prosecuted. This is what George Jr would have you forget when instead he raises possible jail time to a trivial 10 years. George Jr calls that tough and hopes you don't see what prosecutors have been complaining about for years. Fraud is almost legal because it is so difficult to prosecute. It is why most prosecutions are plea bargined into trival sentences - such as the ones for Milkin, Boskey, et al.

Third, the accounting industry claims it is not required to find fraud. They claim disclosure of fraud is the responsibility of the audited company - not the auditors. This, BTW, has always been the contention of my MBA friends from (what was then) the big seven. They claim an auditor cannot uncover intentional fraud and therefore should not be held accountable when they fail to do so. But if they suspect the books are not valid - simple to do by statistical sampling - then they don't have to put their stamp of approval on the audit. This, they counter, would result in loss of business. Too bad. What is more important? The credibility of the audit or a loss of some companies that manipulate books by making them unnecessarily complex?

If they are using complex accounting, then either they fix their accounting, or not be approved by the auditors. No big deal IF we hold the auditors responsible for their own work. But the President does not want to do that.

George Jr did not provide prosecutors with tools to enforce existing laws - something they desperately want. George Jr did not call for accountants to be responsible for their audits - to not sign off on books they suspect are tainted.

Then there is Point Four - the most damning. Most of those cooked books are proper according to the industry's own standards. The accounting industry does not have to answer to any other powers. Any industry that cannot police itself must be regulated by governement. Like it or not, those are the lessons of history. However George Jr refused to require the industry subscribe to an independent standards board. Instead, the foxes are allowed to continue writing their own regulations - which is the biggest problem. George Jr also ignored that problem.

One reasons why overseas companies do not have all these cooked books problems is that their audits must be based upon the IASB standards - an international standard for accounting that does not permit, for example, stock option problems so prevelant in US accounting practices.

Point Four is the killer. George Jr made no effort to address the biggest problem with corporate accounting - standards written by an industry more concerned about their own business than the credibility of their product - the audit. The foxes run the henhouse - write accounting rules as they feel are acceptable. Point four alone is the biggest problem with the accounting industry - that were some of George Jr's bigger campaign contributors. Accountants should have been held responsible for any audit they sign off on. Accounting standards must be set by a board indepenent of the industry - an industry that has claimed for over 30 years that it need not be held responsible for their audits. And laws to make corruption prosecutions possible must be enacted. Geroge Jr called for none of this in his pathetic speech on Wall Street yesterday.

BTW, this is the same President who said it is safe to invest Social Security in the stockmarket. Do we now forget what he said?

Those who perform real prosecutions of fraud, such as New York's prosecutors,find it incredulous that George Jr said nothing to address the corporate scandels - after staying quiet for so long.

In the mean time, two more cooked books have been exposed. First is Qwest - rather a surprise. But the White House has apparently run out of terrorist threats to mask another corporate scandle. VP Cheney and his company were sued today for cooking Haliburton's books. Maybe that is why George Jr's speech was so soft on and helpful to corporate book cookers. His own people AND his campaign contributors are both suspects.

I agree that GWB didn't go far enough, and so do investors (obviously). But let's keep things in perspective. Are stocks a good place to put your retirement funds?

http://cellar.org/2002/dj.gif

This graph includes yesterday's drop. Doesn't include today's, which looks like another barn burner. But even if the Dow loses a THIRD of its value as of now, it will only be back to 1997 level.

Now, I think the idea of moving SS simply into index funds in the stock market is drop-dead dumb. I'd rather give the people the ability to move their money however they like. Even the ones who are going to put all their money into electric pen sharpeners and whatnot.

I also think that putting the entire scandal on Bush is wrong. Obviously the "bubble" happened on Clinton's watch. If one honestly believed that the President can do much at all about the economy, then we'd have to point out that CEOs were doing most of their scandalous tinkering during the previous administration. The current scandals are about things put on the wrong side of the books five years ago. We'd all have to agree that about half of the "Clinton economy" was a sham.

But I don't think the pres can do all that much about the economy. I think the natural business cycle just happens and whomever is in office during a boom should count themselves lucky.

Hey looky that: as I was writing that screed, the Dow rose 100 points.

I'm going to use that as evidence that I'm right?

You're right UT...the stock market shouldn't be tied to a president's success or failure. But we know that inevitably it will be...Dubya's dad is a perfect example. And one of the polls I've seen shows Dubya's handling of the economy at a 55% approval rating right now.

And why? Probably because most folks aren't intelligent enough on how our economy really works. Granted, there are some folks that are influential in how the economy plays (Greenspan, the Secretaries of Commerce, Treasury, Agriculture, etc.), but there are so many factors to consider that it seems impossible to point the finger at one source. For that matter, blaming the current situation solely on companies like Enron, Global Crossing, WorldCom, etc. seems silly.

It's all about the mindfuck. I don't want to deny the Stock Market the importance that it plays in our economy, but it's so amped on the psychology of all the players involved in trading, analyzing, etc. Let the market ride its highs and lows as it should...the results of the past 20 years speak for themselves...and it can't be due to just sheer hype.

Putting SS funds where they get a better return is not even relevant. The government needs SS funds to raid for cash - to keep the government running - to play cash flow games. Investing SS funds in the stock market is pushed by those who would count on public ignorance to appear politically superior at the expense of America's future.

It is quite foolish to blame the Clinton Administration for something they saw coming, and yelled loudly about avoiding. Posted were the people first responsible for this mess - those who threatened to gut the SEC if it addressed the problem we now have. Nowhere were Clinton nor George Jr initially blamed. Listed for blame were:
However after Sunbeam and Waste Management, it was clear that fraud in accounting was suspect and not being prosecuted. I may have reposted an article about it just after the Sunbeam scandel and before Bush was elected - including discussions of the various accounting standards boards. We had facts that something was askew back then. Arthur Levitt of the Clinton Administration was shouting so loud that the above Congressmen, et al threatened him to quiet him.

However George Jr stayed silent when in power, stayed silent even after Enron, and stayed silent when it was apparent that even Cheney would be suspect for cooking books. He stayed silent because addressing the problem would have caused problems for so many of his friends - who ARE the problem. George Jr stayed silent and did nothing to address a problem that he could have confronted long ago when the CA energy problem existed. But in each case, they were major campaign contributors to George Jr. Best stay silent about those who legally bribe the government.

George Jr all but still remained silent. His speech was about protecting the guilty by inaction. He deceives a naive public to think he is finally addressing the problem when in reality he still ignores reasons for the problem.

George Jr is not the original reason for the problem. George Jr simply contributes to the problem - as his speech only demonstrates. A problem that Clinton's people tried to solve but instead were threatened.

Ironic that George Jr protects by inaction those who commit outright fraud in corporate America and protects those who would be bankrupted because they stifle innovation. These are classic actions of an MBA mentality. It just absolutely amazes me how this man can continue to operate contrary to interests of America - and not be condemned for his hypocracy. It demonstrates power of the 'bully pulpit'.

Just out of curiosity tw, did Clinton or his friends ever do anything wrong?

For that matter, have Dubya or his friends ever done anything right?

Ummm... Nothing that rings a bell.

Well, I guess I thought the same thing about Clinton for those awful eight years, so I can't say I don't know how you feel.

But it sure is more fun to have a good president than having to be righteously indignant all the time. Requires less energy, too :)

Hell, I'd settle for being left alone...

I'm curious, what do you think W has done right? I don't believe that our current polical system can allow for a good president. Maybe Jesse Ventura will run...

Fat chance. He got his feelings hurt in Minnesota...no way he could handle a national press.

yeah, I think the Rock or Hulk Hogan would have a better chance anyway...

Come on warch...I know you just LOVED Ventura. ;)

What 'cha gonna do Osama when these 54-inch pythons run wild over yoooooou?

or...

The Rock thinks that terrorists are candy-asses, and will layeth the smackdown upon them.

(The Rock's not old enough yet though. He just turned 30. Gotta be 35.)

The whole reacting-to-9/11 thing. I shudder to think of what Gore would (or wouldn't) have done.

And although I agree to an extent that our political system discourages good leaders, we are obviously talking about two separate things if you think Jesse Ventura is a good example of that.

Clinton's first two years were just terrible. It took him time to get his staff together and functional. I never did vote for Clinton. But then Clinton's first two years were not as bad as George Jr.

George Jr promised to be a man of consensus. It was said that much of what he did in TX was in concert with the TX Democratic party. However, and so far, he has done anything but that. He has been adversarial and confrontational. Christie Whitman is told what the EPA will decide. The China Spy Plane incident demonstrated who really runs the henhouse. Colin Powell appears to be running a rear guard action as right wing extremist dictate policies that in some case, the entire G-8 and entire UN Security Council disagree with - and rightly so.

The Economist recently did a piece on Tony Blair, George Jr's closest international ally. Blair's own domestic popularity and EU influence are both being undermined by his association with George Jr. Our other closest friends are talking among themselves in worry about a less responsible 800 pound gorilla that now act unilaterally - without even consulting its closest friends.

In April 2001, the 2002 budget as submitted, reduced the SEC staff when it was long obvious even during in the Clinton Administration that SEC needed massively more staff, money, and enforcment power. Even worse, turnover in the SEC is so high that the entire staff is virtually gone within three years.

Even worse is Harvey Pitts (SEC Commissioner) response. He wants a trivial $100 million for staff overtime - the number of companies now in SEC investigation is a continuous, weekly wave. Even Cheney's Haliburton is under investigation. But the SEC commissioner sees no conflict of interest in investigating the man who hired him. Almost as if the SEC commissioner was told at the White House what the SEC needs do. Decisions based first upon what is written in the political bible - facts of the problem be damned.

Clinton badly mishandled early government direction changes such as health insurance and gays in military. But Clinton at least did not try to gut basic government services when those services were most required and did not massively increase government spending in wild and unnecessary functions. Clinton did not submit outright budget lies such as a massively reorganized Homeland Security office that would cost $0 - classic MBA thinking to make the books look as the top man wants them to look - reality be damned.

George Jr has also demonstrated two poor years. Only his radical extremist supporters would have said otherwise. The question is whether he can rein in his extrmists and move forward with what government really needs to address - domestic issues being number 1. George Jr has a fear of doing anything Clinton - therefore will not say "Its the economy stupid".

So far, George Jr's agenda has been only to do everything different from Clinton - facts and issues be damned. As a result, other nations are now openly grumbling that they must do something about an irresponsible and unconstrained 800 Lbs gorrilla that threatens to make life difficult for all. Those nations are suppose to be America's closest friends.

Rather scary how this administration is meddling in the politics and policies of virtually every nation in Central Asia and Middle East. This warmongering attitude - to see enemies everywere - are what got us into VietNam. That would not be so bad except that George Jr and his adminstration do so without any apparent foresight as to the dangers they expose us to. Just the planning for an unjustified attack on Iraq demonstrates how naive this adminstration is about getting into quicksand - without any real agenda and by outrightly ignoring the lessons of history.

George Jr has had a terrible two years. Like Clinton, he could reform. However George Jr's future plans are only for things that will make things worse. Unjustified attacks on other nations. The destruction of government budget surpluses so quickly. Even a pathetic response to widespread corporate corruption. These are not things a president does today to say next year that he has improved America. When it comes to major Presidental functions, this president has yet so accomplish anything positive. The massive budget deficit created so quickly in combination with mythical budget control on spending suggest things have only started to get worse. In thirty years, no President, except Nixon, has ever earned so little respect so quickly.

You thought he did a good job with 9-11? Now I'm really intrigued, in what aspects?

My comments on Ventura have more to do with comment on a political system in with pro wrestlers are able to capitalize on their fame enough to gain office. As well as the fact that most of those guys are more popular amoung many americans than any politcal leaders.

The market rose 35 points last weekin expectation of a speech on Wall Street by George Jr. His speech was so pathetic that the market immediately dropped that day and every day since to finish the worst week since 11 Sept. This week, it continued that down attitude until, after droppng the Dow another 400 points in one day, analysts decided it was bargin hunting time. Still the market dropped today. Then Greespan gave a speech.

Greenspan talked responsibly noting that economic fundamentals are solid and that corporate problems are directly traceable to top management. He said that a responsible CEO wants solid, consistent, boring, spread sheets so that he can learn what did and did not work inside his company. Irresponsible CEOs instead only want to look good to the public. This is what Wall Street wants to hear - not the nonsense in speeches from a President who was also investigated for insider trading when George Sr was president.

One of the stupid ideas by George Jr is a fraud task force in the Justice Department. Bull. That is what the SEC is for. However for some reason (maybe because of past investigations of George Jr), George Jr refuses to empower the SEC. Harvey Pitts is clearly demonstrating the White House line that the SEC needs no enforcement or investigative powers and money. And yet that is exactly what the Clinton White House and current Congress both deem necessary. What makes George Jr so obstinate?

At least Greenspan is saying what mustbe said. Markets respond positively to honest talk. George Jr is operating consistently. Clinton wanted to fix the problem using the SEC - using what the SEC was setup and designed to do. But George JR instead created more bureacracy elsewhere. Just so we don't do what Clinton recommended? Why does this president so fear Clinton? Or is he more driven by his 'previous insider trading' mentality to properly fund the SEC?

...and even after Greenspan, the market wound up down on the day.

I wouldn't put too much blame on the speeches. These days the market is going down when somebody sneezes.

The market reacts to bad news by dropping, and to good news by either dropping or doing nothing. I think some aerosol Prozac on the trading floors is called for.

It's called a correction.

People have suddenly realized that stocks aren't a lottery, they're a way of participating in the profitablility of a company, and that for the game to work the company needs to actually be profitable. Until the boards and stockholders start rewarding management for actual success instead of falling for smoke and mirrors and handing out golden parachutes, we're not going to see many truly profitable companies.

There's no point in paying a premium to be a part of the lottery anymore, so now the stocks are seeking price levels that their true values will support.

Down another 200 as of 1 pm monday. When is the White House going to admit that there may be a problem on our hands???

Who says there is necessarily a problem? If anything, the problem appears to be psychological on the part of the traders.

The fundamentals of the economy seem solid, so this could still be part of the correction.

Bush's mantra I know, but if greed is you fundamental aren't these scandals just a logical outcome, rather than an anomoly?

It's not just Bush's mantra, though he was spot on yesterday.

I'm afraid I don't understand what you were saying in the portion I italicized. As a whole, I would say that greed should be expected out of some businesses. Unfortunately, the ones that have been caught recently are big guns.

An invested public whose confidence in how government is handling widespread corporate fraud suddenly turned into a herd mentality of theater goers who discovered fire existed behind the smoke - despite what management (government) kept saying.

Months ago, it was clear that fire was not isolated to a broom closet. Government said nothing. OK. Economic fundamentals are still good - although not great.. Air is still breathable. Investors either withdrew to cash or sat to wait out the event. However, so many falsified spread sheets in cooperation with at least four of the big five accounting firms; then Enron. Clearly government was going to do something. Investors still waited.

George Jr finally defined a government's response to widespread corruption. He endorsed a policy of business as usual - do nothing - protect top executives. That did it. Investors began running for the door when it became obvious that George Jr would deny a fire even if his own arm was burning.

The Economist, a conservative publication, summarizes best:
That was last week. Earlier this week, George Jr gave another speech. The market dropped another 200+ points in direct response.

It is irrelevant whether the economy is sluggish, in recession, or recovering. Investors are saying, in large numbers, that government response is favoring people who are the problem. George Jr's solutions ignore reasons for this problem - many of whom are his biggest campaign contributors.

Fundamental to the problem is an accounting industry that sets their own stanadards: GAAP -via their own FASB. The accounting industry does not even have to be responsible for their own work! Such problems are not widespread in the IASB which sets international standards for accounting. For all the worry that corrupt accounting practices are worldwide - where is the evidence? Evidence is in waves only in US corporations, many using practices deemed acceptable by GAAP, intentionally deceive their investors and even their own Board of Directors for self serving interests of management.

As if it was not bad enough, Harvey Pitts of the SEC appears disinterested in addressing widespread corporate fraud causing demands for his resignation. Will that happen? If yes, it will occur months later when all this quiets down. However, based upon George Jr's own response (actually no response), it appears unlikely - which was just another reason for stockmarket downturn.

Today something happened. The market went up with first indications that government might do something to address the problem. Investors are so disappointed with George Jr's response that a few pieces of good news caused the highest one day upturn in the market in 15 years - and the second highest point gain ever on the DOW.

First, congressional Republicans finally decided to side with inverstors rather than with corporate corruption. The House and Senate agreed in committee on a bill to address some problems. Incomplete but at least it was something from a Republican dominated government that outrightly lied - foolishly said last Monday that everything will get better now that Worldcom declared bankruptcy. We still have more bad news coming, but at least someone in government thinks better of honesty in American accounting practices. Congressional Republicans have stopped protecting criminal actions - and demanded some responsibility from corporate management. The laws in that bill are really trivial - do very little to address the problem. But congressional Republicans conceded because most of America (according to polls) is saying what is in this post - address corporate corruption now.

Second, in Congressional testimony today, it appears that Citigroup and J.P. Morgan Chase were not intentionally involved in the Enron coverup. Another reason for an upturn.

Third, evidence is starting to emerge that some companies such as ExxonMobil have been honest in their bookkeeping and that 3M is even being profitable - more good news.

Fourth - a coup de grace. Adelphia executives who stole $millions, maybe with cooperation of their accounting firm, were hauled off in handcuffs. Those handcuffs pictured on screens all through Wall Street that finally said, "maybe somebody in government *does* care to address corruption even if the president and his SEC Chairman do not".

Those who said, "It's called a correction" were only fooling themselves. If the market needed correction, it would not have been so much so fast. If it was only a correction, then a little good news about government responding to outright corporate fraud would not have created this 15 year record gain. Two glaring reasons why calling it a correction was rediculous. The market is so frustrated with government's response to outright corruption that only minor good news resulted in an almost 500 point gain in only one day! It demonstrates how 'out of touch' investors consider government in general and the George Jr administration in particular. This downturn is directly traceable to government's no response to standardized corruption - including by some of its own people. (Testimony earlier this week said Cheney clear knew every detail of accounting fraud in Haliburton.)

As Sycamore noted, economic fundamentals are not bad AND are slowly improving. There was no reason for a correction this fast and this deep based upon market prices or the economy. A market meltdown and corresponding one day gain demonstrate that the reason for a bad market is the administration's and Republican party's response to obvious and widespread corruption. Making a little effort to address corruption nearly set records on Wall Street. Investors are that starved for any government reponse to the problem.

Don't get cocky. There are probably more down days ahead. Today's news was really minor and mostly psychological. When the market realizes that, it will slip back some. More bad corporate news may be forthcoming. The market may rattle about at its lows at least for a week - maybe more. But at least someone in government wants to hold corporate criminals responsible - something that was not apparent last week by everything that George Jr said.

Warren Buffet talks honest:
Buffet was talking honestly. So was Dick Cheney before we discovered the books in Haliburton had been cooked. In discussing his firm's accountants - Arthur Andersen:
America may have rediscovered the purpose of accounting that the FASB seems to have forgotten - The Economist of 2 May 2002: