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Posts Tagged ‘Corporate Fraud’

Lehman Failure, Another Government Failure

Posted by Steve Markowitz on March 15, 2010

Progressives have proffered the idea that it is governments’ responsibility to protect citizens from all sorts of dangers in society.  While this is born of noble intensions, history has shown results do not match intentions.  Reviewing some of the causes of the ongoing economic slump supports this conclusion.

While there were many red-letter dates that helped start the financial collapse that led to this recession, the fall of investment bank Lehman was a key one.  Last week U.S. Bankruptcy Judge James Peck unsealed a 2,000+ page report on the bank’s failure.  According to the Wall Street Journal, the report concludes that the failure wasn’t the result of merely bad luck, but instead in part caused by Lehman executives playing games with its balance sheet, covering up the extent of its leverage (debt).  This was accomplished by moving some of Lehman’s transactions off of its balance sheet.  Its auditors, Ernst & Young, allowed this questionable practice to continue for a prolonged period.

Now let’s go back a few years.  Remember Enron?  This company failed using; you guessed it, off balance sheet transactions.  The failure cost shareholders, debt-holders and employees billions.  The political furor was overwhelming with the politicians giving us the Sarbanes-Oxley Act, a bill that ultimately cost shareholders billions and didn’t resolve the problem.  SOX, the politicians promised, would “insure” that this type of corporate fraud could never again be perpetrated on shareholders and society.  Lehman proved the politicians wrong once again.  SOX merely raised the cost and complexity of running public companies at the shareholders’ expense, guaranty accountants more work and worst of all, lulled shareholders of other companies into a false sense of security.

SOX joins a long list of government efforts that not only have not protected us, but have added cost and inefficiency to society that ultimately benefits the politicians and bureaucrats.  Perhaps the most insidious and damaging part of these governmental interventions is that their implied promise to protect investors and others ultimately becomes a benefit for those that prey on society.

Let’s use the SOX/Enron and Lehman stories as examples.  With SOX, shareholders, corporate boards and consumers incorrectly believed that the shenanigans Enron pulled off were a thing of the past.  With new regulations we wrongly believed that a high profile company like Lehman was safe from these insider manipulations.  The knuckleheads in Washington lulled us into complacency while Lehman used some of the same old tricks to take so many to the cleaners.  But these Progressives will not learn from errors.  Instead of admitting that no law can stop crooks from being crooked, they will create new laws and promise that they will protect us while past ones did not, thereby perpetuating the cycle.

What is the answer, if not governmental intervention?  How about starting with straight-talk from our leaders?  How about informing the public that laws do not stop criminal behavior, but only can help punish those who get caught?  Yes, there is greed out there and it is up to consumers, employees and others to take a role in protecting themselves.  The conclusion: the government can’t resolve or protect us all of the dangers of the real world, a very anti-Progressive reality.

What would have happened had the government not come up with SOX after Enron?  Certainly confidence in public companies would have dropped.  This would have lead to and increase cost for public companies to raise capital.  But capitalism is not static.  Companies would strived to resolve investor confidence in order to lower its capital cost or they would not survived against companies with investor trust and lower cost of capital.  This self-regulating mechanism, while not perfect in the short run, is superior to governmental meddling which never works.

The Progressives would have us trust their intellect and goodwill in choosing future directions for this country.  It is time that we look to history for answers to the challenges society faces as these problems have all been seen before.  Let’s start with the Constitution.  If the government didn’t obtain an authority from that document, it shouldn’t get it.  This Blog would rather put faith in a document written by citizen politicians over two hundred years ago, rather than the modern Progressives that make their living perpetuation their authority.


Posted in Capitalism, Governmental Intervention, Lehman Brothers, Progressives | Tagged: , , , , , , , , , | Leave a Comment »

GE – More Corporate Fraud

Posted by Steve Markowitz on August 6, 2009

On August 4, General Electric Corp. agreed to pay the Securities & Exchange Commission (SEC) $50 million to settle an accounting fraud charge.  According to the SEC’s complaint, GE was accused of misleading investors by reporting “materially false and misleading results in its financial statements.”  More specifically, the SEC accused GE of using improper accounting methods to boost earnings and revenues to avoided reporting negative financial results.  Want to take bets on what affect these actions had on GE executive bonuses?GE

While GE did not admit to or deny the allegations, the fact that it reportedly spent $200 million defending the case and settled it for another $50 million indicates that there’s more than smoke to this story. Read the rest of this entry »

Posted in Capitalism | Tagged: , , , , , , | Leave a Comment »