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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Raymond Duray who wrote (21220)	7/14/2002 4:28:13 PM
From: shadowman	Respond to of 74559

washingtonpost.com How conservatives undercut regulation By ROBERT L. BOROSAGE, The Washington Post WASHINGTON - The bubble did it. Or so goes the newly fashionable, no-fault explanation for the cascading corporation scandals now posing a clear and present danger to the U.S. economy. "The '90s were a period of excess," intones head White House economist Lawrence Lindsay. Every economic bubble since the Dutch Tulip Mania in the 1500s has been marked by scandal and crime. We were all swept up in the craze, captured by the desire to get rich quick. Since we're all implicated, no one is responsible. The market is coming back to earth; we'll sort out the few "bad apples," the lawbreakers, and move on. This bubbleology would allow conservatives to shirk responsibility for what they have wrought. The fact is that after the "excesses" of the 1920s drove us into the Great Depression, there was no equivalent epidemic of financial and political corruption for 50 years until the current crime wave. That's because Franklin D. Roosevelt's New Deal put cops on the beat to police corporations and regulate their behavior. The Securities and Exchange Commission was created to review the books. The Glass-Steagall Act separated investment houses from commercial banks to end corrosive conflicts of interest. The Federal Trade Commission and the Justice Department limited mergers and monopolies. Unions, some 30 percent of the workforce, made companies more responsible to their workers. Reagan's 'problem' It is no accident that the current wave of costly corporate scandals followed the rise of modern conservatism to political power two decades ago. Ronald Reagan governed while denigrating government as "the problem, not the solution." He starved agencies of resources and placed committed ideological opponents in charge of them. Reagan's Commerce Department drew up a hit list of regulations resented by business ("the Terrible 20"). And of course Reagan signed the law that deregulated the savings and loans associations, while his appointee revoked requirements that any S&L have 400 shareholders. The resulting infamies cost taxpayers many billions. The conservative assault on government reached fever pitch when Newt Gingrich led the "perfectionist" caucus of the Republican right to take over Congress. For Gingrich conservatives, government regulation was creeping Stalinism. House Majority leader Dick Armey said that in the New Deal and the Great Society, "you will find, with a difference only in power and nerve the same sort of person who gave the world its Five Year Plans and Great Leaps Forward -- the Soviet and Chinese counterparts." And it wasn't just rhetoric. "Regulatory agencies have run amok and need to be reformed," said Rep. Tom DeLay of Texas, the House majority whip, as he invited business lobbyists to detail the regulations they wanted gutted. A centerpiece of Gingrich's Contract With America was "securities reform." Passed in 1995 over President Clinton's veto, the bill shielded outside accountants and law firms from liability for false corporate reporting, and made it more difficult for shareholders to bring suit against fraudulent reporting. A flood of corporate misstatements has followed, with nearly 1,000 companies restating misleading reports in the past five years. Then there were the compromised auditors of Enron and WorldCom, loathe to risk lucrative consulting fees from the companies they audited. In the 1990s, Clinton's SEC chairman, Arthur Levitt, waged a long and bitter campaign to ban this basic conflict of interest. The accountants' lobby -- led by one Harvey Pitt, current SEC chief -- blocked the reforms, with Republicans Billy Tauzin in the House and Phil Gramm, joined by New Democrats such as Joe Lieberman, threatening to gut the SEC's budget if Levitt went forward. Meanwhile, investment analysts at Merrill Lynch were rewarded for recommending stocks they considered "junk" to unwary investors. That conflict of interest was a direct result of the repeal of the Glass-Stegall Act, which had separated commercial and investment banking since the 1930s. Or consider Enron itself. Its business plan was a political plan, to free itself of regulation and oversight. The Gramms -- Wendy as head of the Commodity Futures Trading Commission under Bush I and Senator Phil -- played a major role in exempting Enron's trading in energy futures and derivatives from federal regulation. Wendy Gramm then got a lucrative position on the Enron Board. President Bush wants to pose as tough on crime now, but he came to office tailoring his rhetoric and administration to fit Reagan's pattern. He campaigned against the "excessive regulation" of the Clinton years. He appointed the accountants' lobbyist, Harvey Pitt, to head a "kinder and gentler" SEC. His first SEC budget proposed eliminating 57 staff positions, including 13 in the office of full disclosure and 12 in the office charged with preventing fraud. His Treasury secretary immediately shut down intergovernmental efforts to monitor the offshore corporate tax havens at the heart of Enron's financial maneuvers. And the president still opposes reforms to curb the executive stock options that allowed CEOs to plunder their own companies. Rules to cut the risk The new bubbleology must not distract from what really took place. Greed and the desire to get rich quick are constant in capitalism. It isn't the temptation to cheat that changes but the risk involved. What laissez-faire, anti-government zealots did by trashing government, cutting regulatory budgets and authority, and blocking needed reforms was to weaken the cop on the beat. Markets require rules. We have to do more than lock up a few corrupt corporate executives. We have to clean out the misguided conservative politicians who helped create the conditions in which the corrupt could thrive.