Sunday, September 2, 2012

Fruits From Our Behavior


Someone challenged us a while back to remember Enron. That is old hat by now, but the song seems to survive like a cat with nine lives, each time with a different verse: Enron … S&L Scandals … Wall Street breakdown … Real Estate Market … The Bush Depression … the list only gets longer!

Mit Romney is now charged with using business interests to ram-rod a Federal bailout of Bain Capital back in the 90s--a 360 degree inconsistency with his presidential “anti-Obama” rhetoric (cf Rolling Stones Magazine, 8-29-12.

While nothing new for a politician, it reminds me of the comment my friend Ron made to his broker back in 70's . While discussing differences between upper middle and lower classes, Ron popped of with "A poor mans dreams, can be found in the lining of some Rich mans Pocket".

With due respect to the writer that first called us to remember Enron; we should remember Enron as we view the political mess we’re in these days.

Runaway executive pay.
Enron paid its CEO Ken Lay $140 million in 2000, including $123 million in stock options. They set the standard for outrageous CEO pay, and demonstrated how, in search of ever-larger paychecks, CEOs lead companies into ever-riskier schemes that endanger both shareholders and the economy as a whole.
Tax evasion.
Despite reporting huge profits, Enron paid no taxes in four of its last five years and used tax scams and offshore shell entities to dodge paying its fair share. Today, dozens of U.S. corporations use similar tactics not only to dodge Uncle Sam, but claim huge tax rebates. Enron was a catalyst for today’s corporate tax cheats.
Corporate conflicts of interest.
Enron’s chief financial officer profited by using his own company, LJM, to do deals with Enron to cook its books. Heedless of Enron’s example, banks such as Goldman Sachs and Citi later set up synthetic securities, sold shares to clients, and profited by betting against their own clients. Enron helped create a culture of corporations failing to do right by their clients.
Accounting conflicts.
Enron’s accounting firm, Arthur Andersen, approved financial statements loaded up with fraud. Despite Enron’s cautionary tale, so did accountants for Madoff Securities, Olympus, and other firms that have collapsed in years since, damaging investors, consumers and market stability. Enron showed how accountants reliant on revenues from clients can be convinced to look the other way. It’s still happening today.
Credit rating conflicts.
Credit rating agencies gave Enron AAA ratings until it collapsed. They have given the same AAA ratings to toxic securities, failing corporations, and deadbeat banks, often because issuing tougher ratings would cost them business. Enron exposed the unreliability of credit rating agencies that place the search for market share above the need for objective analysis.
Excessive speculation.
Enron speculated and manipulated electricity prices for big profits. Today, speculators whipsaw the American economy with roller coaster energy, metal, and food prices. Enron jacked up the commodity business to everyone’s detriment but the speculators; and without tough enforcement of anti-speculation laws, the damage will continue.
Financial engineering.
Enron designed countless financial engineering gimmicks that served its financial interests but endangered clients and investors. Today, financial firms rave about financial “innovations,” while pushing toxic products like auction securities, naked credit default swaps, and worse. Enron showed how financial engineering creates weapons of mass destruction; a decade later, exotic financial products helped bring the U.S. economy to its knees.
The need for regulators to stop the madness.
In response to Enron, the Sarbanes-Oxley Act banned multimillion-dollar corporate loans to corporate insiders, forced CEOs to certify their internal financial controls, and created new accounting oversight. Those changes helped curb Enron-style abuses.

Congress did minimal reform in 2010 through Wall Street reform legislation, but fell far short due to the anti-regulation atmosphere in Washington that continues to overly protect business. We should all keep Enron in mind as the country elects a new President and hopefully addresses the strong rules that we need for protecting both consumers and the economy.

The Bible says we will know them by their fruits. We are eating the fruits of rampant selfish CEO’S the greed of corporate corruption, and the deviousness of sinful men. It remains to be seen whether or not we can rally together sufficiently to re-write some of our behavioral rules in favor of the common good of America.    

Or, must we have a total breakdown of national morality and become complete victims to America’s need for a moral revival. From Warner’s World, I am walkingwithwarner.blogspot.com

2 comments:

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