7/7/02 NYT piece -- Shocked by Scandals ? These Are Nothing !
(Sorry if already posted. I just read this thing right now. Jon).
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Shocked by Scandals? These Are Nothing!
July 7, 2002
By DANIEL AKST
A lot has been written lately about the collapse of
corporate credibility, and no wonder. We've had the dot-com
meltdown, accounting scandals and allegations of
law-breaking by high-profile executives. Even Martha
Stewart has been the subject of an insider-trading
investigation.
But is all this really so shocking? Have there never before
been greedy businesses ready to prey on the credulous? Did
investors just a short time ago not fight for the
opportunity to throw their money at companies with no
plausible business plans except to do something - anything
- on the Internet? Exactly what part of this is shocking?
And to whom?
For anyone still reeling from the recent disclosures about
Enron, Tyco International and WorldCom, among others, I
have some news: Business has always been this way. In fact,
the business landscape of the past was marked by a range of
nefarious doings that would make the relatively coddled
investors of today blanch.
Where do you want to begin? With the way Native Americans
were alternately swindled and bullied off their land? With
the slaves who worked on the plantations? Or, more
recently, with the robber barons who built the great
industries of the 19th century through monopoly and
manipulation? Do you think that some of their names are
associated only with philanthropy?
The fact is, Wall Street is probably more forthright today
than ever before. For the most of the 19th century and
early in the 20th, some people "could cause the price of a
stock to rise or fall by as much as 50 percent in a
session," wrote Robert Sobel, the historian, in "Inside
Wall Street: Continuity and Change in the Financial
District" (Beard Group, 2000). Some, he said, could create
pools of millions of dollars in cash and "then push a
favorite stock up or down, getting out when the goal was
accomplished."
Ulysses S. Grant lost his fortune to a Wall Street crook.
In the 1930's, the Swedish entrepreneur Ivar Krueger, who
controlled two-thirds of the global industry for kitchen
matches, turned out to be a scoundrel, and Richard Whitney,
who had been president of the New York Stock Exchange, went
to prison for financial wrongdoing.
You say you thought all that was a thing of the distant
past? Then you may not be old enough to remember the Equity
Funding scandal of the 1970's. But if you remember the
1980's, the name Penn Square Bank may ring bells. The
failure of that obscure Oklahoma institution in a cloud of
mismanagement and fraud shook the foundations of the
banking system.
But of course, Penn Square was only the beginning. The
1980's may be better known for Michael R. Milken, Ivan F.
Boesky, Martin A. Siegel and Dennis B. Levine, to say
nothing of lesser figures like Barry Minkow, the teenage
entrepreneur in Los Angeles who created a substantial
public company out of literally nothing.
The current round of scandals pales in comparison. For good
or ill, Mr. Milken's activities made it possible for almost
anyone to take over almost anyone else, altering the
business landscape. The resulting stock volatility helped
fuel an elaborate insider trading network - let's not
forget that Rudolph W. Giuliani made his name prosecuting
this stuff - and corporate raiders regularly extracted
greenmail to leave a company alone. Some companies kept
takeover specialists on retainer just to inoculate
themselves in case anyone tried to use these same
specialists against them. As for stock market declines,
have we already forgotten the crash of 1987?
This is to say nothing of the staggering cost of the
savings-and-loan crisis. Although fraud played a relatively
small role, mismanagement was rampant - and cost taxpayers
hundreds of billions of dollars in depositor bailouts.
Today, people are saying they are shocked that securities
analysts recommended stocks they didn't appear to believe
in. How many "sell" recommendations have you ever seen from
a securities analyst? And why are you buying individual
stocks anyway? Do you really think you can beat the market?
Naturally, some things have changed. One change is the
breadth of stock ownership. What was once the preserve of
the rich, the daring or the foolish is now part of
middle-class life. If corporations, accountants and the
securities industry don't do better, we'll all suffer.
But the idea that regulators or auditors can protect us
from our own excesses is absurd. The point is not that
corruption is our natural state, or that capitalism will
always be crooked. It's caveat emptor. Let the buyer - and
voter - beware. Don't invest in companies with no real
businesses. Don't vote for politicians who won't deliver
some decent regulation. Don't expect to become rich
overnight. Maybe most important, don't forget history.
So the next time a tycoon is indicted or a company
collapses like a house of cards, don't be so alarmed. It's
happened before. And rest assured that it will happen
again.
Copyright 2002 The New York Times Company |
