The Vast Right Wing Conspiracy
Newsletter
Issue Seventy One; January 28, 2002
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Enron Enabled by Clinton SEC
Dan Frisa
Thursday, January 24, 2002
Last week on the front page of the N.Y. Times, the Clinton-appointed
former
chairman of the S.E.C. put forth what many observers might view as a
rather
self-serving, me-thinks-he-doth-protest-too-much, defense of his tenure
with
regard to the roots of the Enron debacle.
Arthur Levitt, the former S.E.C. chairman, recalled his efforts in the
1990's to change the standards of the accounting industry, which were
met -
he says - by stiff opposition from more than a dozen United States
Senators
who threatened S.E.C. appropriations should he proceed with such
reforms.
His theory, ostensibly, was, that more rigorous rules by which the
accounting industry should be conducted, would have thereby prevented
abuses
such as those seemingly perpetrated by Arthur Anderson in the Enron
case.
There are two functions provided to corporations by the bigger
accounting
firms, namely: consulting and accounting.
What many believe is an inherent conflict of interest, is that to
ensure
continued lucrative revenues from the "consulting" side of the
business,
accounting firms could be tempted to comprise their otherwise strict
adherence to generally accepted accounting principles on the
"accounting"
side to curry continued favor with their clients.
The fact that reforms of these accounting practices did not occur,
Levitt
maintains, resulted in the rampant abuses by Arthur Anderson in the
Enron
case.
Sounds plausible as far as that goes, right?
Sure it does, as a general matter, and if that is all there was to the
case
it would certainly be worthwhile to explore. In fact why not release
the
names of those senators who engaged in such questionable behavior?
However, there is a far more important and pertinent factor, which much
more
directly led to the Enron excesses.
In 1996, the Congress - while I was a member - enacted amendments to
the
Investment Company Act of 1940, to impose greater investor protections
on
the mutual companies governed by the statute.
Enron vigorously sought provisions to enable its growing investment
activities to be exempted from certain prohibitions in the law with
regard
to foreign investments and the shifting of debt from its books to the
off-shore subsidiaries as well as from provisions preventing corporate
officers from investing in partnerships related to the company.
At that time, I served as a member on the subcommittee of the House
Commerce
Committee with jurisdiction over this matter and, as a co-sponsor of
the
act, played an integral part in the drafting and enacting of this
legislation.
I recall at the time that these requests from Enron seemed odd, and in
direct conflict with our intent to provide greater investor protection
by
way of enhanced transparency - resulting in more informed investors -
while
enabling certain other valid flexibilities to the mutual fund industry,
which performed extraordinarily well as a result. Returns in excess of
twenty percent were almost commonplace - exceeding even the Standard
and
Poors 500 performance for nearly all of the time since.
We did not entertain the Enron proposals and did not include them in
the
reforms passed with our amendments to the Investment Company Act of
1940.
Undeterred, it now turns out, Enron then went directly to the S.E.C. to
lobby for regulatory relief from that which they had been rebuffed by
the
Congress.
Incredibly, in 1997 the S.E.C. granted by agency order that which the
Congress had denied in the 1996 legislation: the very ability to
lawfully
engage in the conduct that appears to have directly resulted in the
recent
collapse and largest bankruptcy of any company in U.S. history.
When questioned by the N.Y. Times for their article published
yesterday,
Arthur Levitt said "he had no recollection" of the exemption but
admitted
that it might have wound "up being determinative."
I'll say!
I guess it's somewhat understandable that those who were in a position
at
that time to have prevented the Enron debacle might point fingers today
in
an effort to absolve themselves from any blame for the mess.
But smoke and mirrors cannot - and must not - obscure the sad history
that
led to this dreadful abuse by Enron, aided and abetted by both an
unfortunate change in the rules by the S.E.C., as well as an accounting
firm
more concerned with its own revenue than upholding its fiduciary
responsibility to the investing public.
++++++
Who lost the big budget surplus?
Stephen Moore
In recent weeks, both Senate Majority Leader Tom Daschle and his
sidekick, Sen. Edward M. Kennedy, Massachusetts Democrat, have thrashed
the
Bush White House for squandering the budget surpluses of the Clinton
era. To
preserve the surplus, they want to shelve the future tax cuts,
including the
elimination of the death tax, in the Bush tax plan.
All of these recriminations about the return of federal deficit
spending would be encouraging except that it lacks even a seed of
sincerity.
Indeed, both Mr. Daschle and Mr. Kennedy have requested $50 billion in
additional spending this year. And that comes on top of the 11 percent
increase in spending Congress already approved this year.
One year ago, the Congressional Budget Office predicted that the
budget
surplus for 2002 would be $331 billion. Now, Congress is forecasting a
$21
billion deficit for the year. That's a lot of fiscal slippage in just
one
year. What in the world happened? Who lost the surplus? Mr. Daschle and
Mr.
Kennedy both contend that the major factor behind the evaporating
surplus is
President Bush's tax cut. They are wrong.
Four factors caused the surplus shrinkage (see the accompanying
chart). Only one of those factors was the tax cut. But it accounts for
less
than $40 billion in tax relief this year, out of $2 trillion in tax
revenues
the government will extract from workers and businesses. That's a
2-cent tax
cut out of every dollar paid. This crumb of a tax cut is what the
Democrats
are all hot and bothered about.
The recession accounts for about two-thirds of the surplus
disappearance. For 2001, revenues dropped 1 percent, and they won't
rise
much above 3 to 4 percent this year. That compares with the 8 to 10
percent
growth in revenues during the prosperous late 1990s. We've lost about
$160
billion in expected revenues for 2002, because 1.5 million fewer people
are
working and because fewer businesses are making profits for Uncle Sam
to
tax.
A government-spending spree is the most controllable factor
behind the
deterioration of the budget outlook and accounts for 19 percent of the
lost
surplus. Congress is spending money at a faster pace than at any time
since
the 1970s. A lot of that spending blitz has been a result of the big
surpluses. Appropriators interpreted all that money lying around in the
Treasury as an invitation to spend.
What is clear is that Mr. Daschle and Mr. Kennedy are wrong when
they
say the primary blame for the fiscal deterioration is the Bush tax cut.
By
far the biggest factors have been the recession and increased federal
spending. In fact, if this year Congress would just hold spending to
the
level of inflation, there would be at least a $50 billion surplus.
It turns out that about half of the increased spending (over the
4
percent Congress had originally predicted) was a result of the military
and
home security expenditures required to fight the war on terrorism - but
only
half. As the Congressional Quarterly recently noted: "Although the need
to
respond to the September 11 terrorist attacks accounted for much of the
increased spending, Congress was poised for a big spending boost even
before
then."
There is reason to worry that the recent fiscal deterioration on
the
outlay side of the federal ledger may be the start of a longer-term
trend of
pro-spending policies in Washington. Since 1995, when Republicans first
took
control of the House and Senate, spending discipline has eroded with
every
passing year. One indication of this erosion of fiscal restraint is
that
when Republicans first took Congress in 1995 there were some 500
members of
the House and Senate who wanted to cut spending more than they wanted
to
increase it, according to the National Taxpayers Union calculations.
But in
2000, there were exactly two advocates of smaller government. The other
533
House and Senate members wanted bigger government. Only Ron Paul, Texas
Republican, and Jim Sensenbrenner, Wisconsin Republican, voted for less
overall spending.
Jeff Flake, a freshman Republican from Arizona, recently
complained to
me that every vote he has taken in Congress has been for more
government
programs and more spending. "I'm still waiting," he says, "for a vote
to cut
the budget."
He may have to wait for a long while.
In his State of the Union address, Mr. Bush must call for a
comprehensive reform of the federal budget process to put reasonable
caps on
government spending - as most states do. Surpluses need to be
immediately
and automatically returned to taxpayers, before these dollars can be
ingested by the appropriators. The president needs a line-item veto.
Most importantly of all, he needs to tell the American people the
truth about who lost the budget surplus. Deficits are back, not because
of
the tax cutters, but because of the big spenders in Congress - the same
crowd whose profligacy created the enormous deficits of the 1970s, '80s
and
'90s. The Daschles and Kennedys of the world need to be hog tied before
a
new spending spree creates another trillion of debt for our children to
pay
off.
++++++
Abstract people (and disjointed thinking)
Thomas Sowell
http://www.NewsAndOpinion.com -- MOST people have to deal with the
reality
that confronts them. They start with that reality and try to do the
best
they can within its limitations and within their own limitations.
But there are large and growing numbers of people -- especially among
the
intelligentsia -- whose starting point is some abstraction that they
wish to
apply to reality. For example, even in the face of a worldwide
terrorist
organization that has declared open warfare on every American man,
woman and
child, those whose starting point is abstraction focus on the "civil
rights"
of terrorists.
No one in World War II worried about Hitler's or Goering's civil
rights. The
very concept would have been considered absurd. Hitler and Goering were
not
part of our civil world. In fact, they were trying to destroy that
world and
replace it with their own tyranny. That is exactly what the world
terrorist
networks are trying to do today.
How can anyone have rights within a framework that he rejects and is
trying
to destroy? Rights are not just abstractions plucked out of thin air.
Rights
are part of a whole set of mutual obligations binding people together.
If
enemy soldiers have any rights, it is as a result of international
agreements such as the Geneva Convention on prisoners of war. And they
have
those rights only after they have surrendered and become prisoners of
war.
So long as they are still fighting, enemy soldiers do not even have the
right to live, without which all other rights are meaningless. If these
enemy soldiers have infiltrated wearing civilian clothes or disguised
in the
uniform of some other country, then they can be killed legally, even
after
surrendering. Spies have been shot or hanged for centuries.
At one time, all this would have been considered too obvious to require
saying. But today, when some people talk blithely about "animal
rights," as
if animals were part of some system of mutual obligations, even the
obvious
has to be explained to some of the products of our dumbed-down
education.
A sense of decency limits what we do to enemies or to animals, but this
is
not a matter of rights, civil or otherwise. Nor is it a threat to the
rights
of American citizens when we fail to treat foreign terrorists as if
they
were American citizens. Citizens are people who have a legal obligation
to
play by certain rules, and who are therefore protected by that same
national
system of rules. But people who are trying to destroy both the citizens
and
the rules they live by have no such claim.
The hand-wringers among us seem to be worried that foreign terrorists
are
not being treated as nicely as they would like or that illegal aliens
from
the Middle East will be "singled out" to be sent back where they came
from.
In the abstract, there is no more reason to focus on Middle Eastern
males
than on Scandinavian females, when it comes to deporting illegal
aliens. It
is just that we do not live in the abstract. We live in the world that
exists. And we want to keep on living.
Some of these hand-wringers even seem to think that we have to "set an
example" that will vindicate us in the eyes of "world opinion." In
short,
they put these abstractions first -- ahead of the deadly realities
facing us
now and in the years ahead.
Why the United States of America needs to vindicate itself in the eyes
of
the despotic and failing governments that make up much of the rest of
the
world is a mystery. Whether foreigners will in fact respect us for
bending
over backward or despise us for our apologetic weakness is another
question.
Worse yet, other nations considering whether to cooperate or ally
themselves
with us -- at some risk to themselves -- will have to consider whether
we
are dependable and realistic enough to make the gamble worthwhile or
whether
we are terminally addicted to shibboleths that can jeopardize ourselves
and
them.
The great political affliction of the 20th century was putting
abstractions
ahead of flesh-and-blood human beings, especially in ideological
totalitarian states under Nazism and Communism. Do we need to repeat
that
staggering tragedy in the 21st century?
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