Dow drops to 5 year low after speech

[tw]

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.