Why Is Washington Ignoring The Warning Signs Of Economic Devastation?
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Hindsight -- it's all the rage in Washington. But though the story of the missed terror warning signals is eating up all the headlines, there is another story of warning signs being ignored by our elected officials that's getting hardly any ink at all, even though these signs are multiplying at an alarming rate.
Here are a few of them: in the last two years, 433 public companies -- including Enron, Global Crossing, and Kmart -- have declared bankruptcy. Two million Americans have lost their jobs. Four trillion dollars in market value has been lost on Wall Street. And each day brings a fresh, stomach-turning revelation of the rampant corruption infecting corporate America. Despite these ominous flashing red lights, it now appears almost certain that no real reform legislation will come out of Congress before the November elections.
Think of that. After the outrage generated by Enron, Arthur Andersen, Merrill Lynch, and all the other corporate scumbags undermining the modern private enterprise system, the end result will be a continuation of the rotten status quo. And that means fresh disasters down the road. Yet we have the information to, as the phrase of the moment goes, "to connect the dots" right now.
It's a textbook case of special interests triumphing over the public interest. In other words, unless you're reading this in your executive boardroom, you've lost again. In this case, the biggest winners are those veteran Washington arm-twisters, the powerful -- and very well-funded -- accounting and financial services lobbies. That's right, the same folks who helped bring us this mess by relentlessly chipping away at the rules and regulations governing their industries are now ensuring that any efforts to clean things up will be thwarted. And lest we forget, the problem is that much of what is being done isn't illegal but should be. Otherwise, the manic appetite for profits will continue to inspire Wall Street's rats to squeeze through every loophole.
The latest example of their sinister handiwork is the sudden shelving of Sen. Paul Sarbanes' accounting reform bill, a muscular measure that would strengthen the SEC, restrict accounting firms' ability to double-dip as consultants and auditors for the same client, and impose stringent conflict of interest rules on the investment banking world. Instead, the bill is in a deep coma and not expected to survive, having been pummeled within an inch of its legislative life by a goon squad made up of finance lobbyists and their No. 1 Senate enforcer, Phil Gramm.
First, the lobbyists brought out the rhetorical brass knuckles, issuing an "Action Alert" that Sarbanes' bill would result in a "de facto government takeover" of the accounting profession and "serious, harmful consequences for capital markets and American business." The warning on a pack of cigarettes is less alarmist. Then Gramm pulled out his copy of Robert's Rules of Parliamentary Obstruction and went to work, pressing Chairman Sarbanes to hold more hearings on the bill -- even though the Banking Committee had already held 10 hearings on the matter since Feb. 12 -- and offering 41 last minute amendments. Fellow Republican committee members added another 82 amendments for good measure -- a few extra kicks in the gut of the lifeless bill.
It was democracy at its worst. The full court pressure worked. Sarbanes put the bill on ice and retreated to lick his wounds. When I called for his reaction, I was told he wasn't talking to the press. Why not? He should be speaking out to anyone who will listen and hitting the talk shows with his condemnation of those knee-capping his efforts. Where is his indignation over Gramm's bullyboy tactics?
It should come as no surprise that, according to the Center for Responsive Politics, the accounting industry has already doled out $5.2 million in 2002 campaign contributions -- with $293,196 of that going to 16 of the 21 members of the Senate Banking Committee, including $37,500 to Gramm, and another $52,497 to Mike Enzi, who have cosponsored a highly diluted, industry-approved, next-to-useless alternative to the Sarbanes bill.
It was this generous spreading of financial manure that doomed an earlier effort, led by then SEC Chairman Arthur Levitt, to bar accounting firms from serving as both incorruptible auditor and smarmy sales help for the same company. Had Levitt's measure passed, it very well could have removed the tempting apple that Enron used to corrupt Arthur Andersen. And by the way, it's not just Republicans dancing to the accountants' tune. Sen. Chuck Schumer, the senior Democratic senator from New York, and among those who spearheaded the opposition to Levitt's proposal, has received $438,431 from accounting firms since 1989.
It was this financial industry lobbying muscle that over the last decade pushed through legislation gutting so many of the regulations designed to bring accountability to our complex free market system: the Private Securities Litigation Reform Act, which made it much harder for investors to win lawsuits against corporations; the Financial Modernization Act, which demolished the barriers that had kept investment banks out of commercial banking since the Great Depression; and the Commodity Futures Modernization Act, which gave us unregulated trading of derivatives and made the Enron debacle possible.
Meanwhile the White House seems less than eager to put a reform bill on the president's desk. Apparently, the post-Enron panic that inspired the president to propose a 10-point plan that included a reform of accounting standards has subsided. Or maybe the administration's current do-nothing posture has something to do with the embarrassing revelation this week that the SEC has begun an investigation into whether Halliburton, under Dick Cheney, used questionable accounting practices to pump up its bottom line.
"Once the excitement and the glares fade," accounting industry lobbyist John Hunnicutt said of reform efforts on the Hill, "people really start to think about it." Translation: he and his friends are keeping all their fingers and toes crossed that, "once the excitement and the glares fade," people will forget about the lies, the fraud, the cooked books, the document shredding and just lose interest.
It looks like they just might get their wish. "It is unlikely," Sen. Jon Corzine, a Banking Committee member championing reform, said this week, "that we will get strong reform unless there is a new event that captures the public imagination." You mean the largest corporate bankruptcy in history and the parade of corruption that has followed weren't big enough?
That's like saying that Sept. 11 wasn't enough -- that we have to wait for the next horrific attack before we get serious about taking on terrorism (which, unfortunately, seems also to be the case).
Do we have to wait for another 433 companies to go belly up, and two million more Americans to lose their jobs, before our leaders heed the warning signals and make passing the post-Enron reforms a top priority? How about a little foresight to go along with the heaping helping of hindsight Washington is serving up?