<<ENRON 'GROTESQUE' ( Buffet rips Corporate America for its' corruption--max)
Buffett and Munger were more vocal on the matter of Enron Corp., the collapsed energy trader, and other woes besetting American business.
"Enron was the most disgusting example of a business culture gone wrong," said Munger, while Buffett called the firm's behavior "grotesque."
Neither showed much sympathy for Arthur Andersen, Enron's auditor, while they also criticized Wall Street investment banks, blamed by some for fueling the Enron debacle. "Can it be sold?" is the only question banks consider now when dealing with stocks, Buffett said, with no regard for investors.
Both relaunched their familiar tirade against stock option accounting, saying options should be treated as an expense, just as other types of compensation are. When they are not, it only hurts shareholders by diluting the value of their shares.
"It's shameful," said Buffett, whose previous attempts to raise the issue with regulators and lawmakers have been unsuccessful. "CEOs have their hands on the switch," Buffett said. "They get what they want every year; consultants just fan the flames."
CROOKS?
Asked about the apparent spread of corporate fraud in the light of recent meltdowns, Buffett said he and Munger had so far avoided being fooled, but he had seen plenty of frauds in public U.S. companies.
"Many of the crooks look like crooks," said Buffett. "Wall Street loves them as long as they are pushing out securities."
Looking out for who uses EBITDA numbers is a good start in spotting frauds, Buffett said, referring to a style of financial reporting made popular by lossmaking Internet firms, which discounts interest, tax, depreciation, amortization and other one-time items from results. "They are either conning you, or themselves," Buffett said.
Buffett predicted that derivatives -- a major business for Enron -- would also trip up other firms in the future. "There's no place with as much potential for phony numbers as derivatives," said Buffett. Munger went further: "To say derivative accounting in America is in the sewer is an insult to sewage."
Buffett's reinsurer, General Re, is currently unwinding its derivatives unit, taking some losses.
BUFFETT'S SECRET (for whole press release)http://www.siliconinvestor.com/headlines/financial/20020504/442120.html |
