The Vast Right Wing Conspiracy Newsletter Issue Seventy One; January 28, 2002 (Permission granted to redistribute but without alteration only. Individual articles may also be reposted or otherwise used only if full credit is given to this Newsletter and the respective Author. (c) vrwc) Please direct all responses to: vrwc_news@yahoo.com ++++++++++++++++++++++++++++++++++++++++++++++++++++ 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? ++++++ -30- ++++++ ***NOT FOR PROFIT*** Posted for Research and Discussion Purposes Only. 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