Shell Game

‘Sinking in a sea of debt and deception, [the government] . . . passed weak measures and called them a solution,’ says David E. Sanger of The New York Times. Insisting this assessment of Japan is only ‘a cautionary tale,’ Sanger claims ‘no one is predicting the same [depression] for America.’

Balderdash. Market losses are likely to continue until valuations return to pre-deregulation levels, and Congressional action is hardly inspiring investor confidence.

Spurred last week by the largest market loss, government debt, and trade deficit in history, and despairing of a ‘free marketer’ Fed chairman and president who inappositely ‘fight’ corporate corruption with failed Keynesian increases in the money supply and deficit spending necessitated by pseudo tax ‘cuts,’ Congress trumpeted its passage of accounting and securities ‘reform’ bills as ‘tough’ measures to protect investors and restore accountability to the financial system.

The bills are a sham, and their sponsors, including Rep. Michael Oxley (R-OH), Rep. James Sensenbrenner (R-WI) and Senator Paul Sarbanes (D-MD), are each playing a shell game, with the public playing the sucker and the press certifying the Congressional game as legitimate and quashing all dissent, much as Arthur Andersen certified Enron.

It makes no difference which combination of their bills pass. Each is an empty shell, which can?t remedy, let alone prevent, existing or future damage to investors and taxpayers, even if any were retroactive, which they aren?t. Each will make matters worse by resurrecting a proven failure, a ‘public’ oversight board, to conduct token reviews of auditors and companies while ignoring and implicitly passing their smoking guns, fraudulent securities filings.

Sarbanes? bill, S. 2673, is the most damaging because its POB is fleshed out with the most explicit loopholes, rendering it publicly unaccountable and diverting enforcement authority from an already fatally politicized Securities and Exchange Commission. As if to acknowledge the fix is in, President Bush, says he is ‘confident’ the SEC will acquit Vice President Cheney of fraud at Halliburton, and SEC Chairman Harvey Pitt claims ‘no one in this country gets a pass,’ even as he declined to reopen SEC?s much faulted investigation of President Bush?s insider trading when he was at Harken.

The POB and SEC in Oxley’s bill are no better. Just after the existing POB resigned in disgrace in January, Oxley restored it under his shell, H. R. 3763, a sketchy accounting and securities ‘reform’ bill he shepherded through House passage in April. The original POB, a private corporation created in 1977 by the accountants? trade association, AICPA, not by government, was designed to dilute SEC?s oversight authority and did so for the last 25 years. Together with a hobbled SEC, such deregulation contributed mightily to the corrupt practices and phony filings that precipitated the present financial crisis that have cost investors and taxpayers an estimated $18 trillion (almost $8 trillion in lost market cap and $10 trillion in transformation of a projected $4 trillion federal surplus into a $6.4 trillion debt). That?s almost twice the annual GDP and obviously unsustainable. By legalizing this failed, private-sector POB,Oxley, recipient of $363,988 in contributions from the securities and accounting industries since 1995, seeks to keep the corruption going as long as possible.

Last week, Oxley had the gall to criticize Sarbanes’ bill for featuring a POB that is functionally indistinguishable from the one in his own bill, albeit slightly more fleshed out: ‘The [Sarbanes’] bill is not a good bill and has major flaws. There’s major concern with a [private] body with government power that would be in competition with [SEC],’ he said. Then, within hours, Oxley reversed himself and admitted that his and Sarbanes’ bills are ‘very, very similar.’

Oxley can’t have it both ways. Of course POBs are a fraud and of course he and Sarbanes intended their POBs to be in competition with the SEC so as to further deregulate the already thoroughly corrupt accounting and securities industries. The point is, Oxley is just as guilty as Sarbanes of lying about what their POBs do: They are free to take unlimited bribes under Sec. 101(f)(3) of both bills–including from the accountants and industries they ‘regulate’ (on top of ‘oversight’ fees) and ensure zero oversight and zero public accountability over both fraudulent financial filings and the auditors and corporations who perpetrate the frauds.

Now that it’s politically incorrect to openly advocate the deregulation that caused the problem in the first place, Oxley is suddenly pointing the finger at Sarbanes when he should be pointing it at himself. Marc Racicot, Republican Party chair, also reportedly fingered Senate Democrats for stonewalling Oxley’s bill and disrupting the economy. While true, they also would have disrupted the economy if they had supported Oxley’s bill. Senate Democrats did unto Oxley what Oxley did unto House Democrats by sidelining John LaFalce’s clone bill, H. R. 3818 in committee. Such tit for tat is Congress’ idea of legislating an end to corporate corruption, instead of implementing viable solutions, such as Dennis Kucinich’s Federal Bureau of Audits (H. R. 3795) or my Federal Bureau of Investor-Taxpayer Protection and automated forensic screening tool for securities filings.

The Congressional accounting ‘reform’ shell game is an equal opportunity scam that’s raked in about $176 million since 1990 from the securities and accounting industries being ‘reformed.’ According to Ray Warner, a professor at the University of Missouri Law School, the most significant ‘reform’ was to change generally accepted accounting principles (GAAP) from a simple admonition to report a firm’s financial condition accurately, which covered all contingencies and outlawed all loopholes, into a Byzantine labyrinth riddled with loopholes, much like the tax laws.

One such loophole, not expensing stock options, was threatened by an amendment advanced by Senator John McCain, (R-AZ). Rhett Dawson, an industry lobbyist, reportedly threatened to cut contributions to the Democrats if they failed to kill McCain’s options expensing mandate. Needless to say, the Democrats canned it. Senators Patrick Leahy (D-VT) and Trent Lott (R-MS) each touted amendments to Sarbanes’ bill as ‘tough crackdowns’ on financial fraud, when, in fact, all of their penalties conflict with and weaken each other, existing law, or the underlying bills–and rely on a POB or a compromised SEC to find fraud. Finally, Sensenbrenner passed a shell of his own, another package of unenforceable penalties. Each one’s penalties are a sham because the POB and SEC on which they depend are shams.

Not only is Congress scamming the public with a shell game, the press is billing it as one of the ‘most far-reaching corporate reform proposals in 70 years.’ If the WashingtonPost means ‘the bill that reaches farthest into the public’s pockets,’ they’re on to something. Picking the pocket-pickers (i.e., members of the conference committee who determine the final legislation) is hardly the ‘high-stakes…decision’ the Post claims–at least from the point of view of investors and taxpayers, who will be betrayed by all outcomes, regardless of who sits on the panel. Similarly, calling John LaFalce (D-NY) ‘the panel’s liberal pit bull’ is a gross misrepresentation. LaFalce didn’t accept $230,009 from the securities and accounting industries since 1995 to bite the hand that feeds him. The bill he sponsored, H.R. 3818, which Oxley tabled, features a POB that is a clone of all the others. Given the near-total absence of honest press coverage about these clone bills, one can’t help but wonder whether, like Congress, members of the media are accepting ‘contributions’ from the securities and accounting industries to tell the story industry’s way.

All of these bills and amendments are equally ludicrous–or would be, if they weren’t treasonous. A plague on both their houses and shame on the majority of Americans, who, according to a recent poll, have swallowed the lies which Congress, the Bush administration and news organizations feed them–phony solutions to corporate corruption that are ruining our economy and republic.

Copyright by Barbara Langer. All rights reserved.

Barbara Langer welcomes your comments at She authored: ‘No Recourse:’ The price of securities deregulation is rapacious financial practices, phony audits and a sham SEC,’ and ‘Buy Low. Sell High:’ The securities and accounting industries have paid $32.3 million to Congress to keep those $4.75 trillion bubbles coming. A regiment of similar, industry sponsored bills I call ‘Attack of the Clones’ will make things worse. Taxpayers and investors can fight back by asking Congress to denounce the clones and sponsor the practical solutions I am proposing.

Debunking Senator Sarbanes’ Accounting ‘Reform Bill, its Amendments, and their clones in the House, is available in the Guest Commentary Section of It includes the text of the Federal Bureau of Investor-Taxpayer Protection Establishment Act draft bill.

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