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To: Oeconomicus who wrote (143261)	6/22/2002 12:07:26 PM
From: H James Morris	Respond to of 164684

>>"all managements are corrupt," << Not all, just too many. It was nice to see ex-Rite aid executives indicted for fraud. That happened in 1999. Why those crooks still aren't in jail is beyond me. >>June 22, 2002 On any given day in this downtrodden market, pundits will remark that stocks fell because of government action against a corporate wrongdoer. Logically, long term, stocks should rise if a government agency deservedly nails a malefactor. However, today's markets are dominated by the big Wall Street institutions, and they may dump stocks on scandal news because they fear their necks will be next in the noose. But for the long pull, stiff criminal penalties are what's needed to restore trust in our reeling capitalist system. Until more wrongdoers are dealt with severely, stock-market malaise may well worsen. Until Congress gives the Internal Revenue Service, Securities and Exchange Commission, Federal Bureau of Investigation and other agencies the funds and personnel needed to root out corporate and Wall Street fraud, the stock market will probably move desultorily, at best. The business press is increasingly aware of capitalism's credibility crisis. Said The Wall Street Journal Thursday, "The scope and scale of the corporate transgressions of the late 1990s, now coming to light, exceed anything the U.S. has witnessed since the years preceding the Great Depression." "Rarely have business and its leaders been held in such low esteem," said Business Week in its June 24 cover story, "Restoring Trust in Corporate America." The cover of the July 1 Fortune is devoted to the same topic: "Phony earnings, inflated revenues, conflicted Wall Street analysts, directors asleep at the switch – this isn't just a few bad apples we are talking about," said the magazine. "This, my friends, is a systemic breakdown." The three publications are trying to get business out of its ivory tower – force top managements to find out what the public is thinking. Business leaders keep talking about "isolated incidents." President Bush said yesterday that "some bad apples" are leading to an "overhang of distrust." Bush said 95 percent of business is honest. Bush is wrong. Phony accounting, excessive executive pay, egregious corporate welfare, Wall Street mendacity, etc., have been deeply rooted in the system for a couple of decades. Private-sector leaders such as Henry M. Paulson Jr. of Goldman Sachs and Omaha billionaire Warren Buffett are trying to get corporations and Wall Street to realize that if current trends persist, the future of the system itself is at stake. The threat of imprisonment may not deter crime in the streets, but it does deter crime in the suites. Thus, investors should be happy each time a wrongdoer is brought to justice. The verdict against Arthur Andersen LLP is the best thing that could have happened to the accounting industry: The other firms, which didn't get caught, know they will have to shape up. It is not encouraging that they are trying to block congressional reforms of their industry. Long range, if necessary reforms are enacted, it will be good for everyone's portfolios.<<