|Man Without Qualities|
Sunday, July 14, 2002
Brendan Nyhan makes some good points on the limitations of arguments that a Republican "climate" or Democratic "tone" caused the current spate of corporate malfeasance.
Mr. Nyhan cites to Rush Limbaugh, Howard Kurtz and Joshua Micah Marshall as having noted that Bill Clinton, while president, may have created a "tone" of dishonesty that somehow led to fraudulent accounting. However, the point was made by the Man Without Qualities, in response to a contrary (and even earlier) article by Matt Miller, a week before any of those sources chimed in. Mr. Nyhan's cites to Kate O'Beirne, Steve Forbes and Republican strategist Rogers are even tardier.
As noted here previously, the most likely exemplar effects of Bill Clinton's general dishonesty were probably inflicted on ordinary people - such as the book-writing Enron juror who attracts Matt Miller's umbrage. But eight years of Presidential demonstrations of the effectiveness of "stonewalling" and perpetual evasiveness may well have had a serious effect on the thinking some executives. Nevertheless, Mr. Nyhan is correct to point out that such effects are very difficult to measure and attribute.
Mr. Nyhan also correctly notes:
Aren't changes in specific incentives -- such as threats of prosecution, pressures to increase profits, and opportunities for personal gain from stock options -- obviously more relevant than a "climate," an "atmosphere," or the alleged example of Bush? If Bush largely carried over the same policies that were in place under Clinton, how did this "climate" suddenly arise?
And at this point, the symmetry between the Republican and Democratic positions ends, because there is a specific federal agency charged with monitoring and regulating exactly those things Mr. Nyhan mentions: the Securities and Exchange Commission. That agency appears to have been seriously undermanaged during the Clinton-Gore Administrations by Arthur Levitt. In fact, as noted in another prior post:
Under the management of Harvey Pitt, its current chief, the Securities and Exchange Commission has uncovered quite a few very large irregularities originating in the Levitt years. Mr. Pitt has not required whatever enhanced legislation or regulation or accounting rules or practices Mr. Levitt said he needed to do the job.
Nor do most of the alleged or apparent irregularities have much to do with any of the supposed "reforms" Mr. Levitt hides behind. No one is saying that WorldCom or Xerox or Global Crossing or whatever company hits the screen tomorrow were themselves led astray by consultants, nor is anyone seriously suggesting that the auditors for any of these companies were compromised by imprecations from their consultant partners in need of business (Mr. Levitt's big hobgoblin), nor are we hearing that fancy off-balance-sheet "structured finance' transactions (or the accounting therefor) were the problem. No.
The most serious alleged problem is the old fashioned problem: deliberate fraud and simple lies. ...
While the financial world has known for a while that some new forms of businesses (such as trading in electricity or rentals of telephone wires or broadband sales) have created opaqueness, gaps, quality-of-earnings issues and opportunities for abuse in the financial reporting of companies involved in such businesses. ...
The SEC had a clear awareness that such problems, and opportunities for problems, had developed in areas of the economy serviced by established companies. Indeed, much of the FASB rules reform in this area was prompted by SEC action. But the SEC's investigatory and enforcement actions did not follow suit. There is no indication that Mr. Levitt directed the attention of his enforcers and investigators towards such companies. It is hard to imagine a more misguided application of agency resources - and Mr. Levitt is responsible for that misapplication. Paying increased attention to such businesses might have made a real difference in some of these cases, unlike Mr. Levitt's mostly irrelevant "reforms." Enron's collapse prompted much of the Levitt spin regarding his defeated "reforms," but notably lacking from the evidence adduced at the recent Andersen trial was any indication that the consulting/audit threat that Mr. Levitt's "reforms" purported to address played any role in the Enron/Andersen disaster. Nor has that dichotomy surfaced as a contributing cause in any of the other recent scandals.
The fact is that the current spate of corporate abuses originated under Mr. Levitt, were not addressed by his supposed 'reforms" and have been uncovered by Mr. Pitt without additional resources. Pretending that there is a naive symmetry between these two men creates a false impression of the problem.
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