The newspaper that George Bush read on Wednesday morning, while he was in Calgary, Canada, blared the latest accounting news from Wall Street: WorldCom overstated its profits by $3.8 billion and will likely go bankrupt.
Bush’s response was to demand a full investigation and promise to "hold people accountable." Why? The revelations of accounting irregularities hurt "not only shareholders but employees as well."
On those grounds, there should be a full investigation by the government of every company that goes belly up. And what’s to investigate? Thousands of companies cooked their books during the boom, just as the federal government did. The economy was awash in money of the Fed’s creation, and niceties like accounting were regarded as medieval concerns.
The history of money mania is a history of companies that people once believed to be unstoppable generators of wealth, suddenly collapsing into a heap. This is how the sword of the market economy deals with enterprises and investors who come to believe they are above economic law. There is nothing surprising about this for anyone who knows something about the history of economics and credit.
But, now Bush wants an investigation followed by swift justice, here and nowhere else. What a contrast with his attitude toward September 11, where terrorist actions hurt quite a number of people, and not just by diminishing their stock portfolio. Just as Arthur Andersen was supposed to police the likes of Enron and WorldCom, the federal government claims to be the guardian of our shores.
Yet he and his administration have systematically resisted every attempt to find out precisely what the government knew about 9-11, when it knew it, what it did in response, why the pilots were not allowed to protect themselves, to say nothing of the myriad irregularities and unnecessary deaths in the subsequent war.
So Bush is all for deep investigations into matters that do not impinge on his own leadership but passionately against any investigations that do involve his own actions and his own administration. Actually, if he were a responsible chief executive, the reverse would be true: he would favor a thorough investigation into 9-11 but otherwise leave the free market, and possibly civil procedures, to punish WorldCom.
By reversing the correct standard of judgment, Bush stokes the media frenzy to distract from the failures of government by heaping massive anger and blame on corporate America, which, we are encouraged to believe, consists mostly of liars, cheats, grafters, and inside traders.
In fact, most of these companies were just products of their time, defined by a Wall Street awash in credit expansion. The beauty of the market economy is its ability to check dishonesty — a trait that doesn’t exist in the public sector.
If Bush is so hot to investigate the financial markets, perhaps he should get curious about what factors and forces led investors to believe that stock prices could soar to the moon even though the fundamentals were absent. If he looked closely enough, he would discover that the Federal Reserve itself, with its money machine, plunge-protection crew, and guarantees for the financial system, was the main culprit. The Fed is the reason people were willing to suspend disbelief from 1995 through 1999.
Another line of inquiry would be to investigate the role that the oil industry played in rooting for the overthrow of the Taliban in Afghanistan, owing to its failure to promise protection services for Western pipelines coming from the Caspian Sea. He might also look into the war profiteers who are making billions, as documented in the May 13, 2002, issue of US News and World Report.
Instead, it looks like we are headed for a repeat of the Enron spectacle, in which the biggest gang of crooks and cheats in the world — the US Congress and the executive branch — put CEOs and managers from the private sector on the stand and demand that they explain why they haven’t been entirely forthcoming in their accounting practices.
This from a government guilty of accounting scams like Social Security, where the fraud runs into the many trillions. Bush himself is urging the Congress to massively increase the debt limit to accommodate the largest explosion in federal spending since LBJ. To the feds, $3.8 billion is chump change.
Daydreaming here: perhaps the investors of America should hold their own show trial in which the US government and the Federal Reserve are grilled. They could start with the dirty bomber of boom and bust, Alan Greenspan.