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Capitalism's Best Pals: Liberals

By ROBERT L. BOROSAGE

WASHINGTON -- Corporate corruption is a "moral cancer that ... is threatening this great system and our economic health." These "sins of omission, malfeasance and misfeasance" are "eroding shareholder value for all corporations and public confidence in critical elements of our economic system." This is a "betrayal of capitalism" in which the "most fundamental principles of our market system were being flouted."

Corporate scourge Ralph Nader? Mirthful muckraker Michael Moore? No, these quotes come from leaders of America's financial community--Pete G. Peterson, Blackstone Group co-founder and former U.S. Commerce secretary; John Snow, chairman and CEO of CSX Corp.; and Felix Rohatyn, a former Lazard Freres partner. All are calling for rapid, bold institutional and legal reforms to revive investor confidence.

But these financial giants are discovering that if they want to save capitalism from itself, they'll have to rely on liberals to lead the way. Despite the dire warnings from Wall Street, it is still business as usual in Washington. The scandals have merely stirred dozens of industry associations and hundreds of corporations into action to bottle up even watered-down reform. For example, Thomas Donohue, president of the U.S. Chamber of Commerce, issued an "action call" urging opposition to accounting reforms offered by Senate Banking Committee Chairman Paul S. Sarbanes. He accused the Maryland Democrat of having a "knee-jerk, politically charged reaction" to the Enron scandal. The American Institute of Certified Public Accountants, which gave $14.7 million in campaign donations to both Democrats and Republicans during the last election cycle, according to the Center for Responsive Politics, denounced Sarbanes' reforms as a "de facto government takeover" of the profession.

The Republican majority in the House has been happy to pass legislation pre-approved by the business lobby. In the Senate, Phil Gramm (R-Texas) has served as de facto administration point person. Congressional Quarterly reported that he urged lobbyists to "stall, stall, stall" to avoid reform legislation. Gramm denies the charge.

The Bush administration's initial response to Enron's bankruptcy was to dismiss it. Treasury Secretary Paul H. O'Neill said the company's fall was evidence of the "genius" of capitalism. As the scandals have mounted, the administration has acknowledged, in the president's words, "some bad apples" in the corporate world but remains opposed to broad legal reform. Harvey L. Pitt, chairman of the Securities and Exchange Commission and the administration's lead on the issue, has rejected most of the proposed reforms, such as restrictions on stock options or conflict-of-interest limits on auditors or stock analysts.

New Democrats and Blue Dog Democrats--the corporate money wing of the party--have been reluctant reformers, at best. Senate Governmental Affairs Committee Chairman Joseph I. Lieberman (D-Conn.) has essentially punted, warning of the "twin dangers of doing too little and doing too much." As Bruce Josten, executive vice president of the U.S. Chamber of Commerce, crows, reform Democrats "have problems on their side of the aisle, not just with Republicans."

So, rescuing U.S. capitalism is left to liberals, just as it was after the excesses of the 1920s led to the stock market crash and the Great Depression. Sen. Edward M. Kennedy (D-Mass.) has pushed for pension reforms and legislation regulating stock analysts. Sarbanes' bill, among other things, would create a new regulatory board to monitor auditors and partly curb auditors' conflicts of interest by prohibiting some types of consulting. Sen. Jon Corzine (D-N.J.), former chairman of Goldman Sachs, has been the most vocal advocate of significant legislation, often joined by Sen. Barbara Boxer (D-Calif.), whose husband, Richard Blum, is a major investor. The two senators have introduced a bill that would allow employees to invest no more than 20% of their 401(k) funds in shares issued by their employers. At the state level, New York's liberal attorney general, Eliot Spitzer, exposed the conflicts plaguing stock analysts and embarrassed Merrill Lynch into a settlement.

But liberals don't have a majority in either house of Congress. So despite the continuing scandals and the economic damage they may cause, Corzine has warned that "it is unlikely that we will get strong reform unless there is a new event that captures the [public's] imagination." Even Martha Stewart's alleged insider trading and WorldCom's staggering $3.9-billion exaggeration of profits, which is giving new impetus to Sarbanes' accounting reform bill and goading the president to speak out, may not suffice.

At the turn of the 20th century, when the country was debating what rules to impose on the emerging industrial economy, reformers faced a similar dilemma. The dominant corporate Republican majority, led by William McKinley and Mark Hanna, opposed new regulation. Muckrakers and political movements helped push through change at the state and local level, beginning with the eight-hour day, minimum wage and basic fire and safety laws. Maverick Republican Theodore Roosevelt laid out a larger agenda and made some progress. But the market fundamentalists resisted regulation throughout the manic 1920s, until the stock market crash and the Great Depression catapulted Franklin D. Roosevelt and a reform majority to power.

The question is how to reform U.S. capitalism without having to endure another crash. For this to happen, alarmed financial leaders would be wise to ally themselves with reformers on Capitol Hill, however uncomfortable that may be for them, and mobilize the political clout represented by millions of small investors who have watched their 401(k) plans plummet in value. To dramatize the urgency of the matter, Sarbanes' Senate Banking Committee should stage a televised hearing to establish just how perilous the current loss of investor confidence is and how ideologically resistant some segments of the business establishment are to reform. Then liberal Democrats and financial gurus would be wise to enlist the Republican maverick, Sen. John McCain (R-Ariz.), to help lead the fight for the core reforms on pension protection, auditor independence, stock options, accounting standards and investment bank conflicts of interest.

With sufficient exposure, President Bush, already scrambling to limit the political fallout from burgeoning corporate scandals, might even begin to support meaningful legislation. But for this to happen, the conservative doyens of Wall Street must make public their common cause with the few remaining liberals in the Congress.

Laws and regulations already on the books were broken and the liberal reaction is that we need more laws. Much of the downturn in the market recently is due precisely to the fear that Washington will now step in and "fix" things. Our politicians in Washington would do better to examine their own bookkeeping practices and leave the markets alone. These corporate lawbreakers wil be found out and their corporations will suffer at the hands of the investors far greater than from regulators. Our markets will be far healthier once it has shaken out these bad actors and equity valuations are once again based on sound accounting. More regulation wil only make matters worse. This probably says it better than I can. Yes, it is from the "highly respected 'National Review'".

The text is as follows:

We’re All Marxists Now
The crisis of capitalism.

By James Bowman

It's easy to dismiss Marxism as a "failed theory" because of its economic failures, but Marx lives on in a way that makes him arguably more influential than he was when his discredited economic ideas served as an excuse for the immiseration of a quarter of mankind. For he and his followers have provided us with a lot of the political language that we still use and therefore the terms in which we still think about politics. In a sense, we are all Marxists now. That this is the case is something we should all be reminded of by the alleged crisis of "capitalism" suggested to so many distinguished minds by the accounting scandals at Enron or WorldCom or the alleged insider trading of Martha Stewart.

A cartoon in the Daily Telegraph of London, for instance, shows cavemen with weapons labeled "Enron," "WorldCom," and "Andersen" slaughtering what we are to suppose is the last of the Wooly Mammoths, which is labeled: "Trust in the System." In the same paper, George Trefgarne worries that "some academics, pundits and Left-wing rabble-rousers, playing on fears that the system doesn't work, will take advantage of the situation and question the very values and institutions on which the world economic system rests." Meanwhile, the Times hastens to soothe our natural anxiety on behalf of the same "system" by editorializing that "WorldCom is an exception and not capitalism's rule."

This kind of reassurance is actually more worrying than the outright attacks on "capitalism" by such papers as the Guardian, which has been saying similar things for so long that nobody pays much attention to it anymore. But when Mark Leibovich in the Washington Post says that the news from WorldCom is "yet another body blow to our national faith in capitalism triumphant," we have to wonder if the defenders of "capitalism" shouldn't consider the dangers of using their enemy's vocabulary. For "capitalism," as a man from Mars unfamiliar with the terms of political debate in the 20th century would have to conclude, is simply the socialist word for life.

Or, to put it another way, this supposed "system" of capitalism is simply the way things are, baby — even under "socialism," as the inevitable black markets in socialist countries bear witness. To give this fundamental economic reality its socialist name, to call it an "ism" and speak of that "ism" as a "system" implies that there is some alternative to it — which is the cue for the socialist, who just happens to be the only person with a ready-made alternative that he has been tinkering with for well over a century, to step forward. He may not expect to sell his whole program anymore, but if he's got the rest of us being defensive about the alleged system we already use, he is more than half-way to being able to sell us socialist patches for it — such as over-regulation of accountants or stock markets, or maybe a Clinton-style health-care plan.

His remedies are designed for the bits of the system he has got us to believe don't "work." The hidden metaphor in such language is that of a machine — as we might expect from ideas having their origins in the 19th century — which has been designed to perform a specific task. It "works" when it performs the task and doesn't "work" when it doesn't. But the economy is not a machine and wasn't designed by anybody. It is more like an organic being and therefore can't work or not work — since there is no specific task it is designed to perform — but only be healthy or unhealthy. It can continue to generate wealth, as it always has done, or it can be hobbled and interfered with and prevented from generating wealth and doing other things natural to it. But it cannot be replaced by a machine which has been designed so that everybody will be happy.

Nor is it only "capitalism" which is the victim of this kind of intellectual con-trick. Every time we use words like "imperialist," "racist," "sexist," etc., we are thinking in quasi-Marxist terms. Or when we use the word "fascist" in a non-historical context. Thus a Reuters story tells us that the government of the tyrant Robert Mugabe in Zimbabwe has described the desire of his nation's white farmers to go on farming as "racist and fascist." Mugabe is himself an unashamed Marxist, of course, and so is happy to use "fascist" as the Marxist does to describe any political view to the right of his own. But for the rest of us there is no excuse for using such language which, like that of "capitalism," is designed to impose a bipolar structure on the world, requiring us all to be counted either among the far-left sheep or the far-right goats.

— James Bowman is, among other things, movie critic of The American Spectator and American
editor of London's Times Literary Supplement.

I always enjoy it when people like the National Review, who are opposed to all but very limited regulations on business tout those same laws and regulations that they once opposed as the saviour when problem comes up and use them as a reason to fight against legislative solutions. One has to admire their chutzpah.

Has anyone else noticed that Enron, WorldCom, et al had been playing their shell game for years - most of those years, in fact, under the Clinton Administration? But because their collective house of cards collapsed on Bush's watch, the debacle becomes another example of how Republicans are in bed with big business, blah, blah, blah... Please, spare me.

While both also serve other constituencies, there is no doubt that Democrats and Republicans are equally in bed with big business. But trying to paint the recent corporate implosions as evidence of Republican collusion rings hollow. I don't think these examples of corporate greed and dishonesty are particularly evidence that Democrats are more in bed with big business than Republicans, either. But looking at the facts, you could easily make a much better case for that argument, than that it was a caused by a Republican administration.

It has been said that capitalism is the second worst economic system know to mankind. The problem is, all the other systems are tied for worst.

There is nothing wrong with capitalism. There is something wrong with the way some people abuse the system. The greatest country in the world would not have achieved all it has without capitalism. Among other things...Capitalism is what drives medical advances...Capitalism is what has extended life expectancy...Capitalism is what developed the microchip.

While I'm always willing to consider that we might need a new law now and then, I believe our biggest downfall is not enforcing many of the thousands of laws already on out books. White collar crime has been given a free ride for far too long. Throw a few of the crooks in jail (and I mean real jails, not country clubs) for 40 years and you might find a little less of their shenanigans being exercised by so many.

Legislative solutions is an oxymoron. Liberals are not capitalism's best friend.

I have to agree, Dwain, that the foundation for what is happening has been allowed by both the Democrats and the Republicans. But I do not see the damage that is being done in partisan political terms nor do I look for solutions in partisan political terms, I don't really care whose watch it was on. (But then, I do not view many of the issues facing us today in partisan political terms)

I do, however, care, what those who have the power to solve the problem today do with that power.

To agree with JohnC, why should an armed robber be sentenced to 10-20 years, and a coporate office who has stolen millions recieve a slap on the wrist?

We don't need more laws, we just need to enforce the ones we have. Insider trading is illegal. Cooking the books is illegal. Lying to stockholders is illegal.

Charge them, try them, convict them, and sentence the guilty to a nice long stay in the grey bar hotel. That is the government's job.

It is the board of director's job to ensure that the management of a company is above-board. Perhaps it is time to bring charges against some boards who have miserably failed their shareholders. Or at the very least, the shareholders should rise up, and vote the board out.

More laws serve only as a sop to the unrealistic, who think that a new law solves all ills. Let us try to obey and enforce what we have.

Well, let's hope this is a step in the right direction...

http://www.msnbc.com/news/777063.asp

For those of you who feel all we need to do is enforce existing laws and not pass new ones, let me give you a few of those being proposed and let me know whether you consider them valid -- since in each case, the existing law would allow the abuse that has caused some of the problems.

1. Limiting the amount of its own stock a company can place the employee's retirement funds in. Should this law be passed or should the Enron-like practices continue to be legal?

2. Requiring a CEO to sign the annual financial statements and verifying that to the best of his/her knowledge the numbers are accurate. Or should the CEO's who benefit from the possible rise in stock prices from cooked books be able to say they did not know what was going on and not be held accountable even as they amass great wealth?

3. Prohibit an accounting firm from acting as a financial consultant for the same companies they audit? Or should the conflict of interest which has brought the destruction of Anderson be allowed to continue?

4. Require financial advisors to disclose to their clients if they are advising the clients to invest in a company their own firm provides consulting and financial services to? Or should they continue to be able to encourage people to invest in something their company makes money off of but they know is a bad investment because of the conflict of interest the law now allows and does not require be disclosed?

5. Require auditors be hired by and report directly to the Board of Directors, rather than the CEO or other executive? Or should the executives with stock options continue with the authority to supervise the audit which often significantly affects the stock price?

6. Not allow the CEO and top management to be involved in the selection of the Board of Directors so that the Board is not dependent on the Executives for their jobs?

Since these are all issues which have been identified as part of the problem which now exists and the current law allows for the practices which have caused the problem, would any of you support these changes? Or would you continue with the status quo now knowing what can happen under it?

Each one of these proposals presumes that government is the only solution to these problems and that business practices that created huge losses and even destroyed corporations in the past will be tolerated by that same business community in the future. It's as if they either enjoy huge losses or they are completely brain dead. It may be possible that, when you hit yourself in the thumb with a hammer, a new law is not required to ensure that it never happens again.

I understand your philosphical position, JBryan. So, if you do not see the government as the solution, how would you solve these problems? Or do you not see them as problems needing solving?

OK George, here goes.

No existing law "allows" illegal activity. Whatever existing laws were broken at Enron would just as easily be broken under all of your "new" laws. If it turns out that *everything* the Enron execs did was legal, then come see me about implementing some new laws to stop this from happening again.

1. No. Just because a few bad apples exist we don't need the government telling employees they have no right to invest in their employer. They should be knowledgeable to make their own best decision. The fact that some people will always screw up their own lives is not a reason to support a nanny state.

2. What is it about the left that just loves signing documents as if that solves all problems? First the Russians during the cold war, Arafat the last decade, and now CEO's? How does this stop any crime?....Issue? Executive integrity.

3. There are only a handful of major accounting firms left. While I have no proof, I stronly believe it isn't the accounting firm encouraging the illegal activities, it is more like the accounting firms going along for fear of losing the business. A definte issue to be dealt with for sure. But having 2 accounting firms doesn't solve the fear they have of losing the business if they don't go along with management..... Issue? Accounting firm integrity.

4. Not really sure of your point here. Financial advisors come in all colors and stripes. If you mean stock brokers, well again it gets complex. So Merrill Lynch brokers can only sell you certain stocks and Goldman Sachs can sell you others? But very few if any can sell you all of what you want?.... Issue? Investment advisor integrity.

5. I'm not positive here, but I believe utimately and legally the board of directors *is* responsible for what the auditors rubber stamp. Don't see how this would solve anything if truely complex illegal transactions were going on with the knowledge and support of high level execs..... Issue? Ultimate responsibilty, which leads to? Integrity.

6. Not sure about this. Who would hire the board then? And since most board positions are pretty low paying (most, not all) who would you find to take the jobs?....More integrity.

In general, all of your concerns go to a root problem with the integrity of the the individuals involved. Execs, auditors, boards of directors. Passing any of the above as laws would not stop another Enron from happening. Putting people in jail for serious amounts of time just might. If current laws regarding sentencing need to be revised I might see supporting that. Adding more laws and signing agreements is the "ready, fire, aim" solution.

But John, is not integrity the root of all criminal law? If people had integrity, they would not steal, burglarize or murder. The whole point of criminal law is that we have a small percentage of people -- not the majority -- who do not have integrity and therefore laws must be passed. I doubt either you or I would murder someone, even if there were no law against it. (Although, I suspect there have been days you would have liked to have killed me! )

If we take your view of things, we need no criminal law at all.

Of course we need laws. But we have way more than we need now. Just because a crime is committed, violating a current law, doesn't mean we need another law. Do you truly and honestly think that if all of your 6 points had been law, that the Enron debacle would not have happened? That it wouldn't happen again?

If we take your view of things every time a crime is committed, a new law must be passed. It is a knee jerk reaction. Most if not all of these types of laws (knee jerk) are more harmful than helpful. Wasted energy.

Why not just get serious about the laws we have? Cleaning up the legal system so that justice truly gets served would be much more helpful than just passing new laws.

It is interesting that those on the left are more supportiveg of trial lawyers and renegade judges than in seeing true justice served. You can't have it both ways.

If you want to reduce crime get serious about it.

Completely eliminate these types of things if some of these were laws? No. Drastically reduce what has happened in company after company after company? Yes.

If Anderson had not been allowed to act as both investment/financial consultant as well as auditor, I think it would have been far harder to cook the books at Enron. The same at World Com and all the others.

If the Enron management had not been able to coax their employees into putting the vast majority of their 401k's into Enron stock and if the employees had accurate information about the company (see my first point), they would not have lost their retirements.

If the CEO's of Enron, Tyco, Adelphia, WorldCom, Haliburton and all the others had had to vouch for the accuracy of their company's financial statements or face a stiff jail term, they would have been far more careful about releasing fraudulent information.

If the Boards of Directors of these firms were accountable to the stockholders and each other for their position rather than the CEO who gave them their job, kept them in it and whom they are supposed to be overseeing, they likely would have asked much tougher questions.

Yes, I believe we put up a fence around the henhouse to keep the foxes out. Does it mean no fox will ever get in? No. But it does mean very few will.

The scandals of the savings and loans in the 1980's came about because under Carter and then Reagan (including the Congresses at the time), the S&L industry was deregulated. No one was watching the hen house. And the impact was massive.

The current scandals came because under Godfather Bush, Clinton and Il Duce,(and also including the Congresses), the high tech companies were exempted from all sorts of laws and regulations. No one was watching the hen house. And the impact is massive again.

You are right, JohnC, we need to enforce the laws we have -- and we also need to get many of them off the books entirely. But there are also areas in which new laws remain needed as new circumstancees arise. I don't think we should ignore those areas because we feel there are too many laws in other areas.

Here are a few laws we need to pass:

1> Those on the public dole should lose the right to vote til they get off it. People getting free stuff shouldn't get to vote for those promising more free stuff. That right should only go to those who are paying the bills.

2> All professed Socialists, Marxists, and Communists should be force deported to a country that follows their political bent so that they can live in what they propose, and all their assets seized and distributed among the poor who want to live in a capitalist society, but need a little help getting started.

3> All those remaining who still consider government redistribution of wealth to be the right thing to do should be rounded up and placed on reservations where all living conditions would be uniform, and all money or possessions above the minimum level required for their existence are taken from them and distributed among the Indians, who will be moved *off* the reservation and given their old houses, cars, and jobs. I would think that would make them happy.

4> All environmentalists should be forced by law to live in the deep woods, with nothing but a hoe, some seeds, and a tarp.

5> Any environmentalist caught driving a vehicle bigger than a Honda Civic should be arrested and sentenced to 1 year hard labor at a saw mill.

6> NPR should be declared a subversive organization and dismantled.

7> The NEA should be declared a subversive organization and dismantled. A special prosecutor should be appointed, charged with the task of charting the infiltration of socialism and marxism in our school system from beginning til today, and then finding all those who have participated in this treasonous act and prosecuting them.

8>Tenure should be made illegal, and all educators should be required to register with the government proving that they share the ethical, moral, and political values of the community in which they serve.

9>All citizens should be required by law to run their own business and live solely from what it generates for 2 years minimum before any diploma from any educational institution is granted.

10> All citizens should be required to do 2 years of military duty.

11>All members of congress should be required by law to have to live under the same rules they dictate to the citizenry. They should be forced to contribute to social security just like everyone else, and their other retirement accounts limited to the exact same ones we are limited to.

12>Congress members' pay should be tied to military pay scales, but capped at the highest NCO rate. The total length of time they can serve should be limited to 4 years, and lawyers should be barred from running for political office. Their net worth when leaving office should have increased no more than the national average. All assets accrued during their tenure above this amount should be returned to the federal treasury. This will fill congress with men and women who want to make a difference, instead of lawyers looking for a lifetime career.

13> Lobbying should be just as illegal as insider trading.

14> All judges should face public election every 4 years.

15> Outcome based education should be banned from the public school system.

16> Atheism should be acknowledged as the religion it is, and eliminated from the public school system.

17> Humanism should be acknowldged as the religion it is, and eliminated from the public school system.

George, I rebutted all of your points as to why your specified "laws" are not needed.

Let's see how many current laws were broken before we feel the need to rush in and add some more.

When these cases are finished I think you will find there were plenty of laws already in existance to protect investors and employees. Whether or not appropriate punishment is meeted out for violating these laws will be the big question in my mind. I'm fearful it won't be.

As I said before, if you want to stiffen up the sentencing laws (longer terms) you just might have my support. Beyond that, Id like to wait and see.

All politicians are whores and are crooked but these guys are going to "save business".

If you subjected Congress to the same accounting practices that are required in the business community (not by law but by business managers and stockholders themselves) you would see a true scandal. But these are the guys that are going to "save business".

George cites deregulation as the cause of the S&L scandals and the collapse of high tech as if this were an established fact when, if you really look closely, you will see that while Congress deregulated the entire banking industry, it left much of the regulations in place on S&Ls while requiring them to compete head to head with regular banks. Congress deregulated the telecommunications industry but, when it appeared as though the smaller carriers and CLECs might actually become competive, the RBOCs got Congress to exempt them from the parts of deregulation that would have forced competition. And these are the guys who are going to "save Business".

It seems that crooked politicians who cook their own books and promulgate phony "deregulation" need to watch the hen house more. I smell fried chicken.

Let me ask you again, JBryan, if you do not see the government as the solution, how would you solve these problems? Or do you not see them as problems needing solving?