Corporate Greed !

[R. Davis]

Hello to my fellow members of TMF. Does anyone think the recent legislation to curve corporate wrongdoing will be effective?

 

[DungeonMaster]

Legislation...

"Does anyone think the recent legislation to curve corporate wrongdoing will be effective?" R.Davis




HELL NO! I don't think so. But it will tend to settle the anger of naive and greedy investers who demand high returns from corporations who must manufacture profits where there are none. The trend will continue of course, as it always has, as long as corporate CEO's,COO's,CFO's, etc have their jobs at risk as a result of down profits and stock valuations. Only now the stakes have just gotten higher for them due to this legislation(which may not be a bad idea anyway, it is fraud being commited), so as a result their salaries will have to increase to comphensate for the increased risk of getting caught for magically making profits appear where there are none to be had. Mustn't dissappoint the investor, he might wake up and smell the con.

It's really hard for most people to accept reality these days.

DungeonMaster.

 

[Oblesklk]

Not realistically, no. It is a good thought, naturally, but the logistics will never work. You can play the blame game until you're blue in the face, but a real conviction of someone that literally makes millions per year, and can "afford justice" just isn't a realistic solution. But it is a step in the right direction, and we're recognizing it.

This is a capitalist system. It is the corporate officers' duty to maximize the return on investment for the investors; it is the only reason they are hired. So then people get angry when it happens. Don't know what to tell ya *shrugs* I've discussed the series of events that led up to Enron's and even Worldcom's collapse with the other professionals that I work with. We do know the issues they're dealing with quite intimately, and I've yet to see any evidence to insinuate there was honest to God fraud going on during any of those two specific cases...except for the price fixing mess that Enron got itself into with the state of California. A whole different issue.

 

[Strelnikov]

Quite simply, corporate officers were cooking the books to make their companies look like better investments than they in fact were. I doubt that the current legislation will make any real difference - it would be a bigger help to enforce the existing laws against fraud.

There are some hopeful signs that institutional investors are taking steps to remedy the situation. Some are insisting on changes to accounting practices, and using their purchasing and stock-voting powers to make that happen. Another step I'd like to see is lawsuits against officers and directors of failed corporations. Not likely that any money recovered would go very far when divided among all stockholders. But it would strip those individuals of their personal fortunes defending themselves. If it became a habit, others might just start to take their duties to the stockholders seriously.

Strelnikov

 

[Oblesklk]

Another step I'd like to see is lawsuits against officers and directors of failed corporations. Not likely that any money recovered would go very far when divided among all stockholders. But it would strip those individuals of their personal fortunes defending themselves.

Seems we're all a bit socialist at heart

I wouldn't mind this myself, except that in most bankruptcies and dissolutions, it isn't really anyone's "fault." Sometimes shit happens. Sometimes markets take a nose dive, sometimes war breaks out, sometimes terroists make their presence known within an economic system. While I'm all for holding perpetrators of fraud responsible when they're acting for their own personal gain, it's simply too tough to do right. (and by the way, that is the direction this newly signed piece of legislation is going...they're forcing signatures from corporate officers guaranteeing the legitimacy of their figures)

It's similar to my philosophy on the death penalty...killing 100 guilty people isn't really the problem for me, it's that 1 innocent guy they threw in the bunch that makes the system illegitimate (in my mind). While that may not be a proper analogy, it's how I feel about holding corporate officers responsible for any corporate failure. You may catch 20 guys that deserve to go to prison and think about their past misdeeds, but it's that 1 CFO who tried his best to turn the company around, and just got swept up in the fun blame game that naive investors like to play when their house of cards collapses.

 

[kurchatovium]

I think the legislation was a step in the right direction but I doubt it will do much to stem the tide of corporate greed. The top executives of any major company wield so much power that it is quite scary but to have the goverment regulate things too much I think would be even scarier. I don't know how to handle the problem except to prosecute those who violate laws whenever you can.

 

[Shem the Penman]

I'm still scratching my head over the mindset in which it's the mark's fault for forcing the con man to take his money ...

As an investor, I'm not happy if a company I own stock in takes actions that will lead to a short-term stock spike and then tank the company in the long term. I'd be especially unhappy if the company assured me that everything was going great even as they knew otherwise (as at Enron). Nor would I be happy to know that stock analysts have been promoting stocks that they personally consider worthless (as at Merrill Lynch).

How much more do CEOs need to be paid? CEO pay has risen into the stratosphere over the last few decades, while non-management workers' salaries have been flat. As a result, when a company dies, the executives can just walk away without a look back while everyone else struggles. Shouldn't a CEO's fortunes be more closely tied to the company's fortunes? Or should it just be the rank and file who have to bear the blow when business goes sour?

Unfortunately, the chances of any real reform with a walking conflict-of-interest case running the SEC and a couple of shady businessmen running the White House are pretty slim. I'm encouraged that some companies have already taken the common-sense step of expensing stock options, and I hope others will follow. It may not be much, but it's something.

 

[Oblesklk]

I'm encouraged that some companies have already taken the common-sense step of expensing stock options, and I hope others will follow. It may not be much, but it's something.

I too am pleased with this development, that it will perhaps be the "in thing" to be as honest as possible about your operations. While the legislation means well, it won't change anything material. I think a social climate change is just what we need, to get ourselves back on track of what made this country tick in the first place

 

[GuitarPeteTklr]

...it would be a bigger help to enforce the existing laws against fraud...Strelnikov

Right on the head, in my opinion, Strel! To expound on my sentiments about today's "blameless society," justice is a "relative" concept most closely tied to the accused's "material means" and "political influence." Those middle American poor souls (aka Joe and Sally "Lunchbox") who do not possess EITHER "means" or "influence" pay penalties plus interest while carrying the salaries of corrupt CEOs, CFOs, COOs, and their conspiring public official cronies who continue to pass more "feel good legislation" in order to justify their continued term in office without impeachment.

In summary, Strell, your "pure enforcement mindset" applies to nearly every social problem this country now has. From Driving While Intoxicated to narcotic drug law enforcement, the whole system is completely and utterly unfair and inconsistent as to punishment/enforcement fitting the crime. The low level users get long sentences, while the high level dealers continue with impunity. High recidivism pedophiles are flippantly released back into society as if the criminal justice system were some revolving door! Under the current trend of punishment and enforcement, someday you will see the impoverished executed for repetitive jaywalking offenses as their public defenders jaywalk with impunity on the way to said death sentencing! And the Department of Justice would have us believe that vigilante killings and mutilations here at home is some alarming trend. I say, WHY NOT? That's what was done in the wild west when justice had failed and look at the great nation we evolved into shortly thereafter!

I would like to see the re-emergence of unions and social problems being solved within the family unit, as opposed to looking to "big brother" and "social programs" for answers. Keep the central goverment's powers narrow and the local goverment's powers broad, bring back strong import duties, do away with GATT and NAFTA. Call for the payment of World War (and other conflict) debts, before we amortize our "so-called" national debt. Then, we'll see just how "expendable" the United States and her resources are in the global economy. One last thought...If an American corporate interest causes a revolution overseas, let them wallow in their own collusion and conspiracy. Don't shed the blood of any more of America's military youth for the retention of ill-gotten corporate gains. Then...watch the honor miraculously return to corporate America.

Thank you for your ear, fellow Americans! Now, let's revolt, peacibly, if possible, violently, if necessary...and take our great country back before the current government and corporate regime sullies it irrevocably!

GuitarPeteTklr

 

[kurchatovium]

I think when it comes to things like this the "shady businessmen" are abundant in both parties, in the house, the senate, and probably in every state and local goverment office you can think of. Heck even ole Martha Stewart has got her hand in the cookie the jar.

 

[arion30]

Ive discussed this with some of my friends, and the only I dea I can truly come up with to curb this is quite radical and never happen. I think a law should be passed where in cases like enron et al., the court can revoke the company's arcticles of incorporation, and direct teh the primary owners be named as the senior managemnt and board of directors. Further, do not allow the new owners to file for bankruptcy protection or allow insurance comapnies to provide payment until all the owners assets have been liquidated. Articles of incorporation,from my understanding of the business courses I took, seperates corporate proprty from that of the company's owners, thus protecting them in cases of bankruptcy, and so forth. If they revoked them for cases of extreme negligence and accounting fraud, it would only thake one or two times of using it before they all straightened out their acts.

 

[Strelnikov]

On a lighter note...

UNDERSTANDING THE MARKET

Bull Market - A random market movement causing an investor to mistake
himself for a financial genius.
Bear Market - A 6 to 24 month period when the kids get no allowance, the wife gets no jewelry and the husband gets no sex.
Momentum Investing - The fine art of buying high and selling low.
Value Investing - The art of buying low and selling lower.
P/E Ratio - The percentage of investors wetting their pants as the market keeps crashing.
Standard & Poor - Your life in a nutshell.
Stock Analyst - The idiot who just downgraded your stock.
Stock Split - When your ex-wife and her lawyer split all your assets
between themselves.
Financial Planner - A guy who actually remembers his wallet when he runs to the 7-11 for toilet paper and cigarettes.
Market Correction - The day after you buy your stocks.
Cash Flow - The movement your money makes as it disappears down the toilet.
Call Option - Something people used to do with a telephone in ancient times before email.
Day Trader - Someone who is disloyal from 9-5.
CISCO - Sidekick of Pancho. (you have to be over 50 for this one.)
Yahoo - What you yell after selling it to some poor sucker at $240 per share.
Windows 2000 - What you jump out of when you're the sucker who bought Yahoo @ $240 per share.
Institutional Investor - Past-years' investor who is now locked up in the nuthouse.
Profit - Religious guy who talks to God.
Bill Gates - Where God goes for a loan.
Alan Greenspan - God.

Had enough? How about these?


THE TRUTH ABOUT INVESTMENT

STOCK: A magical piece of paper that is worth $33.75 until the moment you buy it. It will then be worth $8.50.
BOND: What you had with your spouse until you pawned his/her golf clubs to invest in Amazon.com.
BROKER: The person you trust to help you make major financial decisions. Please note the first five letters of this word spell Broke.
BEAR: What your trade account and wallet will be when you take a flyer on that hot stock tip your secretary gave you.
BULL: What your broker uses to explain why your mutual funds tanked during the last quarter.
MARGIN: Where you scribble the latest quotes when you're supposed to be listening to your manager's presentation.
SHORT POSITION: A type of trade where, in theory, a person sells stocks he doesn't actually own. Since this also only ever works in theory, a short position is what a person usually ends up being in (i.e. "The rent, sir? Hahaha, well, I'm a little short this month.")
COMMISSION: The only reliable way to make money on the stock market, which is why your broker charges you one.
YAK: What you do into a pail when you discover your stocks have plunged and your broker is making a margin call.

And finally:
http://encarta.msn.com/column/whyarestocksworthanything.asp

Enjoy!

Strelnikov

 

[Daumantas]

One point that still needs to be made: corporate managers who use "creative accounting" to create nonexistent profits are NOT, for the most part, jut good ol' guys and gals trying to accomplish their fiduciary duty of maximizing shareholder value. What they are usually trying to accomplish is a SHORT-TERM APPEARANCE of profitability, usually with the goal in mind of enhancing their own bonus, stock options, etc.

Is this illegal? Not usually. Is it questionable and misleading accounting? Quite often, yes. Is it immoral? Well, you can think what you want, but I surely think so.

(Furthermore, you can argue that these good ol' guys and gals have actually violated their fiduciary duty; if an investor theoretically buys a stock presented as valuable, on the basis of its reported financials, with the intention of holding it as a LONG-TERM investment, and a CEO lies on the income statement and gets caught, the value of that long-term investment is destroyed.)

One last thought: I'm sorry, but bankruptcies seldom "just happen" (and when they do, you can usually see it coming). Almost always, there's some kinda mismanagement goin' on. The CEO might not be dishonest, just stupid. But: if you fuck up on your job, don't YOU get in trouble?

 

[Strelnikov]

For those who don't know, Daumantas is as liberal as I am conservative. Nonetheless, we do often find points of agreement.

Like now, for instance. D's post is a restatement of my first post in this thread, amplified and worded better. Glad to hear from you again, D.

My statement about lawsuits isn't socialistic. It's a means for punishing those who "fuck up on their jobs" and thereby cost a lot of people a lot of money. I'd like nothing better than to see Ken Lay forced to bag groceries at Winn Dixie, like the impoverished geezers trying to stretch their retirement income from Social Security because their 401k tanked. Consider: He cooked the books, took his stock options and ran, and left stockholders holding the bag. He STOLE their savings. That rates some sort of punishment, don't you think?

Strelnikov

 

[Shem the Penman]

If you want better enforcement, you had better be ready to beef up the SEC's enforcement budget. The SEC has undergone repeated staff cuts even as its workload increased during the stock boom of the 1990s, and SEC accountants and investigators get paid much less than those at other government agencies like the FDIC, which only encourages them to quit. The SEC currently has 3,000 full-time staff, of which 1,900 are professionals. So they're trying to patrol all of Wall Street with 1,900 people. I'd rather try to keep order in New York City with just 1,000 cops. Most mutual funds only get checked once every five years; the last time the SEC looked at Enron's papers before the implosion was 1997.

Of course, it'd be a good first step for the man some call president to ask SEC head Harvey Pitt to resign, since Pitt's idea of stiff enforcement is to ask businesses to please not break the law, if they don't mind.

And there are some areas where abuses just can't be overlooked, and must be fixed by (gasp horrors) regulation. For instance, why is it legal for accounting companies to take fat consulting fees from the companies whose books they verify? That's just begging for corruption. Why is it legal for corporations to open maildrops in the Caribbean, pretend to be foreigners, and dodge taxes that way?

It's nice to talk about "changing the social climate" so abuses like this don't happen, but when a bank is robbed, you don't sit around talking about changing the social climate so people don't rob banks. You install new security measures and you catch and punish the perpetrators.