- The Washington Times - Tuesday, May 14, 2002

Corruption on Wall Street is undermining the world's most successful economy and giving democratic capitalism a bad name for the first time since the demise of the Soviet Union. What we see as the excesses of capitalism, countless millions around the world see as the evils of a system that is making the rich richer and the poor poorer. Celebrity CEOs, wrote the Economist last week, "are falling from pedestals faster than communist heroes after 1989." Ph.D. dissertations on a "post-capitalist" world are all the rage again, according to political science faculties from Singapore to Spain and from Vladivostok to Vancouver.

What is the difference between September 11 terrorists and greedy entrepreneurs who cook books and persuade analysts to tout worthless stock? Who has done the most damage to the greatest free market system in the world? These are the kinds of questions that grad students tomorrow's leaders are attempting to answer. They are prone to accepting, unquestioningly, what the far-left-wing think tanks like the Institute for Policy Studies (IPS) claim to be fact e.g., in the past 20 years CEO compensation increased from 42 times that of the average worker to 531 times. But it is true that executives have structured their compensation packages to protect them in a falling market. Thus, a number of CEOs sauntered into their golden years or were asked to step down with $1 billion or more.

These youngsters see free market capitalism as a license for corruption and the media in developing countries are having a field day throwing accusations of arrant behavior back at the United States. The Singapore Straits Times called it, "legalized corruption that passes for U.S. lawmaking." Newspapers from India and Pakistan to Argentina and Brazil check out their Web sites are more interested in how American investors have been cheated of their savings and employees of their jobs than in the war against transnational terrorism. The way Pravda propagandized about the evils of capitalism during the Cold War is now more reality than fantasy.

Wall Street as the most transparent place in the world to do business turns out to be as opaque as the central bank of Russia. Blue smoke and distorting mirrors appear to be a more appropriate symbol than bulls and bears. Out of some 6,000 hedge funds less than 300 use derivative instruments that can be described accurately as hedges.

During the Cold War, discipline and psychological restraints stemmed from the knowledge that an alternative force world communism was constantly breathing down one's neck. Since then discipline has broken down.

The complacent capitalist world seems to believe it has no credible opposition. Head-in-the-sand boardroom hoppers seem surprised when they get kicked in the most obvious place. Enron's board members claim they had no idea that the company they were paid to oversee was deliberately causing electric power congestion in California and causing rolling blackouts, and then "relieving it" in order to manipulate the market to the company's advantage. Thus, while Enron's slick spinmeisters were pinning the blame on Gov. Gray Davis, the company was defrauding California of several billion dollars. It was not alone. More than 100 power suppliers, suspected of market-rigging, have been given an ultimatum to submit within 15 days sworn affidavits detailing their trading strategies during California's 2000-2001 energy crisis.

California has already asked for a $9 billion refund as an advance on the $30 billion the state says it lost to "megawatt laundering." The law of unintended consequences has deprived Bill Simon, the Republican challenger, of his best shot in his campaign to oust Mr. Davis in November.

It taxes credulity to argue, as financial houses' lawyers do, that the banks were as gullible as the shareholders who were ripped off. Senior bank officials, the prosecutors say, consulted Enron daily on the company's deepening financial crisis, but concealed the facts from investors who continued to buy Enron shares, and from other banks that bought shares of syndicated loans. What did the bankers know and when did they know it is a question that should dwarf the trial of John Walker Lindt. But it won't.

In the Washington D.C. tristate area, some $200 billion of stockholders money went up in smoke primarily WorldCom and AOL TIME Warner paper. WorldCom stock plummeted from $180 billion three years ago to less than $8 billion twice the size of Enron's loss. In the past five years, the acquisitive CEO Bernard J. Ebbers ingested 70 telecom companies for $60 billion, created WorldCom, ran up $28 billion in corporate debt and used the new giant as a piggy bank to buy stock in his own company, then borrowed $366 million to cover his losses as the stock fell 60 percent in 10 days. Mr. Ebbers then walked the plank and swam away with the title of Chairman Emeritus.

Three out of four executives, according to a survey by executive search firm Christian & Timbers, believe that CEOs at other companies deceived stockholders. Widespread prestidigitation drove many investors away from equities and bonds into commodities and property.

Police in Los Angeles had good luck with a robbery suspect who just couldn't control himself in a police lineup. When each man was asked to repeat the words, "Give me all your money or I'll shoot," the culprit shouted, "That's not what I said." Similarly, financial analysts accused of touting stocks they had described in e-mails to one another as bullfeathers, are now pleading that's not exactly what they said. Whatever scatological terms they used to describe the dogs they were walking around the winner's circle, it would hardly come as a surprise to learn that these ghouls of capitalism had contributed in no small way to the biggest stock market tumble in 50 years. The easy-dot-com-easy-dot-go wipeout was not a natural phenomenon. Hyped IPOs were part of a scam that hoodwinked millions into believing the pap and pabulum about a "new economy."

The SEC has belatedly and reluctantly given one half turn to the regulatory screw on the ethical code that governs the conduct of wayward analysts. Faith in corporate America is a sine qua non of America's global paramountcy. Accusing New York State's Attorney General Eliot L. Spitzer, now in the role of the "Untouchables'" Eliot Ness, of "corporate McCarthyism" will not turn back the gathering storm.


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