Is it rigged?
Is corporate
America utterly
corrupt? Quite
the contrary.
What we are seeing
is one those
periodic periods
of self-examination
that have in
the past--and
will again--lead
to an even more
transparent,
system. One of
the great strengths
of democratic
capitalism is
its self-correcting
nature.The system
depends on trust.
When trust is
violated steps
must and are
taken to restore
the trust.
In fact it is
because our financial
system is already
transparent that
these revelations
even get made.
The checks and
balances make
it almost inevitable
that chicanery
will out. We
have the media,
hungry for scoops,
the dirtier the
better. There
are short sellers
fine-combing
the available
information to
identify and
puncture undeserved
reputations.
Let there be
even a whiff
of scandal and
the market punishes
with a deluge
of sell orders
that sinks the
stock and endangers
to careers of
the people who
head the companies.
The oversight--as
the recent events
have shown --isn't
perfect and often
operates with
a lag. In roaring
bull markets,
as in the 1990's
the oversight
gets sloppy.
There
is a long
history
of this
in the US: Boom,
abuses, retribution--and,
most important,
correction. Some
131 years ago,
Charles Francis
Adams penned "Chapters
of Erie," a
chronicle of
scandalous goings-on
during an earlier
boom. Adams was
a man of great
probity, grandson
of John Quincy
Adams, a hero
of the American
Civil War, and
a businessman
and public servant.
As the Civil
War ended, America
was caught up
in one of those
financial bubbles
that usually
accompany periods
of great technological
progress. This
time it was the
steel-wheel-on-the-steel-rail:
railroads. Suddenly
the world had
become a smaller
place and hinterlands
far from ports
were opened to
development.
The ensuing boom
unleashed the
usual floods
of greed and
gullibility.
A flood of money
corrupted the
Federal courts.
Railroad magnates
like Jay Gould
had certain judges
in their pockets.
The rule of law
was replaced
in part by the
rule of money.
"Chapters
of Erie" led
to reforms and
a more honest
and transparent
system. Thirty
years after Adams
exposed the corruption
of the courts
by money, the
so-called Muckrakers
came along, pioneer
female journalist
Ida Tarbell in
the forefront.
She exposed the
heavy-handed
methods used
by the Standard
Oil Trust and
others to crush
competition.
Our tough anti-trust
laws were one
of the results.
The
1929 stock
market crash
and the worldwide
depression
that followed
led
to stricter
standards in
stock trading,
to tougher
disclosure
rules for public
companies,
to creation
of the
Securities & Exchange
Commission--a
development
that the rest
of the
world has since
followed.
Captains
of industry
could
no longer say "the
public be damned."
Today. as one
can expect in
a democracy,
the politicians
are elbowing
each other to
be first to investigate
the misdeeds
that are surfacing.
They propose
new laws. But
we don't need
to wait for the
politicians to
act. The market
has already punished
many of the transgressors.
Bankers are withdrawing
loans, the pressure
is on outside
auditors to get
tough with their
clients, sullied
careers have
been destroyed
and where there
is doubt about
transparency,
shares have been
battered to the
ground. Even
General Electric
whose transgressions
were relatively
minor, has suffered
a decline of
$100 billion
in market value
(over and above
what it lost
in the general
decline of stocks).
GE is quietly
refinancing its
debts on a more
conservative
basis.
So,
in honor
of Charles
Francis
Adams let's call
the current episode "Chapters
of Enron." It's
a scandal but
a scandal from
which we are
already learning.
The lesson is
that the system
is built on trust
and on transparency.
The US financial
system is imperfect
but it is self-adjusting
and self-correcting.
No wonder that--despite
Enron--so much
of the world
still prefers
investing in
the US to investing
elsewhere.
(James W. Michaels
is Senior Vice
President, Editorial,
at Forbes. He
will be writing
a monthly column
for Earthtimes.)
