Close the curtain on economic horror show

August 09, 2002|By Molly Ivins

AUSTIN, Texas -- Let's review what we got with the Sarbanes bill, so proudly declared by President Bush (who opposed the entire package until a few weeks ago) to be "the most far-reaching reform of American business practices since the time of Franklin Delano Roosevelt."

This bill, which would never have seen the light of day had the stock market not tanked, fixes one of the Three Little Horrors that set up Enron Economics.

Good on Senator Sarbanes and all who toiled with him to pass it. Lord knows, many years at the Texas Legislature have taught me how hard it is to pass a bill supported by no special interest, but only in the public interest. Practically a miracle. Righteous hosannas to all.

But it still fixes only one of the Little Horrors and touches neither of the two Big Ones. Hearing Mr. Bush claim "the era of low standards and false profits is over" was painful. No, it's not. (I guess that makes Mr. Bush a false prophet himself.) The Little Horrors were small only in the amount of attention they got, not in the effects they have had. Starting sequentially, they were:

1994, the Senate, at the urging of heavy contributors in the securities, high-tech and accounting industries, persuades the Financial Accounting Standards Board NOT to rule that stock options must be treated as a company expense. This leads directly to the explosion in executive compensation and gives executives a big incentive to inflate their stock prices.

1995, the Private Securities Litigation Reform Act, part of Newt Gingrich's Contract On America, is passed over President Clinton's veto. It limits the right of investors to sue, exempts accounting firms from charges of aiding and abetting in cases of fraud, and allows CEOs to make ridiculous earnings claims.

1999 and 2000, Arthur Leavitt's proposal to separate the auditing and consulting functions of accounting firms goes down disgracefully after the financial industry spends millions.

What the Sarbanes bill fixes is the last of the three horrors -- separating the auditing and consulting functions. The need is painfully obvious after the Enron-Arthur Andersen debacle, but even this step will depend on whether the Securities and Exchange Commission, now chaired by Harvey Pitt, who has spent nearly his entire career as the paid champion of the accounting industry, will appoint a decent "independent board" to oversee the accountants.

Now let's go back to Little Horror Numero Two: aiding and abetting. Those of you who can stand to read the financial pages are still finding daily reports of just how pervasive the corruption has become. Both bankers and brokers were in bed with Enron in the most questionable set of dealings imaginable. Been wondering who was in on all those secret offshore, off-balance-sheet partnerships of Enron's? Try 96 executives of Merrill Lynch, which was one of Enron's investment bankers. And when the investigators turn over more rocks, they're going to find more bankers.

Now let's move on to the Two Big Horrors: telecommunications deregulation in 1996 and banking deregulation in 1999 -- the latter a bill sponsored and passed by our very own, very special Sen. Phil Gramm, the gentleman from Odessa (that's an old Texas expression that means something else). The reason these two are of special interest is that they have not yet done all the damage they will do. There is still time to correct them. There is still time to prevent greater disasters.

The 1996 Telecommunications Act may actually be the single worst piece of legislation passed during the entire Newt Gingrich era. It was written by lobbyists for telecom, and lobbyists for telecom bought it through Congress.

Sen. John McCain, who to his eternal credit voted against the bill, tried to salvage one good thing out of the whole deal -- a pledge from the industry to wire schools and libraries for computers, gratis. One of the people who pushed hard for that little saving grace was then-Vice President Al Gore.

Lo and behold, less than three years later, the telecom industry reneged on wiring schools, listing the expense -- which it had promised to underwrite -- on its bills and calling it "the Gore tax." I have never met Mr. McCain in my whole life, but he called me one day in 1999 -- after I had written an angry column about the industry's "Gore tax" ploy -- and said: "This is John McCain. You were right. I was wrong." And then he hung up.

Ah, but worse, far worse, is Mr. Gramm's 1999 banking deregulation act. After reporting on a financial news channel last week that both Citigroup and JP Morgan Chase are up to their ears in the Enron debacle, some cheerful blonde piped up, "But of course, Citigroup will never be allowed to fail, because Citigroup is Too Big to Fail."

As we often say in Texas when confronted with the improbable, "No doo-doo?"

Molly Ivins is a columnist for the Fort Worth Star-Telegram.

Columnist Jules Witcover is on vacation.

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