Bernie Ebbers: lucky fool
Bernie resigned two months ago, when WorldCom was in serious trouble, but long before anyone knew they’d have to recalculate their earnings to the tune of four Beeeellion dollars. But he didn’t know about it. No way. Neither did their auditor for 2001, Arthur Anderson (heard of them before?):
“Important information about line costs was withheld from Andersen auditors by the chief financial officer of WorldCom,” Andersen said in a statement.
Oh yea, I’m buying. So how is this awful problem to be fixed? Further federal regulation of auditing won’t work. Both the feds (collection of taxes and campaign contributions) and the auditor (collection of the auditee’s check) will always have a conflict of interest.
The markets can correct this themselves. Neither shareholders, the NYSE, or the NASDAQ look kindly upon a company that has an auditor with a reputation for cooking the books. And I don’t think that CEOs or CFOs enjoy seeing the company they built collapse, no matter how golden their parachute. It’s basically nuclear deterence applied to financial markets. Sure, Iraq or North Korea could try to wing a warhead our way, but since certain death would result, they probably won’t.
Because of the late hour that analogy was rather oblique, so here is a helpful equation: certain death = bankruptcy.
Popularity: 2% [?]
Explain to me how Harvey Pitt and the SEC care about IRS revenues or campaign contributions. Conflict of interest, my ass.
This post reveals the inherent absurdity of libertarianism. Just like economics or physics, the concepts of libertarianism work wonderfully in the lab–people act through self-interest, the market rewards good ideas, the ball accelerates at a constant rate when it’s dropped–but all these things aren’t clean in real life. Markets fails due to lack of information, long-run consequences are ignored because of human psycological weaknesses (see: failure to save for retirement), and the chaos inherent in nature means that we can’t project the flight of a ball.
Libertarians need to admit that market forces aren’t always the most efficient deterrent to bad behavior. In markets where cronyism, cartels, or monopolies are most likely to develop or have taken root, regulation is the only method of assuring transparency and fair play. I’m not advocating a suffocating bureaucracy, but a reliable actor who polices behavior that steps outside boundaries. It’s a miniscule price to pay for the financial reliability upon which a healthy market economy relies.
Or we could turn over the economy to home-grown chaebol and keiretsu. Your choice.
This post reveals nothing other than the inherent absurdity of one libertarian who is poorly versed in economics.
The conflict of interest comment was mostly directed at those that feel that somehow we can regulate away conflicts between auditors and the companies they audit. The idea that tax revenues cause the SEC a conflict is faintly ridiculous. But just banning consulting by auditing firms won’t fix anything. As long as the customer foots the auditing bill, the auditor will say what they want to hear, or be replaced by a company with less integrity.
I’m not at all knowledgable in this area (and should probably just go back to polling for hits), but aren’t the current laws against fraud enough to toss Ebbers in jail for many years and fine him into penury? If so, that needs to be done. And not Milken style. One year and half of his money ain’t gonna cut it.
Is that admitting that market forces aren’t always the best deterrent to bad behavior? I think it is!