June, 2002

Remember those stories, usually set in rural Mississippi, of a rogue county controlled by an outlaw sheriff and abetted by his local hanging judge?

Everybody keeps their eyes lowered unless they're on the right side and the right side ain't hard to locate. Run against it and at best your life is made miserable enough to move, at worst you're dead by the roadside. This scenario has from time to time migrated to big city politics, hence the days of Prendergast in Kansas City, Big Bill Thompson in New York and Richard J. Daley in Chicago.

Total control and the voters be damned. Pass out the cigars, boys and the cash stuffed envelopes as well, we gonna have a party. But it was small-time stuff in small-town America even so, even if you raise an eyebrow at the definition of Kansas City, New York and Chicago as small towns. We survived it, shrugged at it, grinned at it sometimes and wore out the subject in the barbershops. Occasionally someone went to jail, but only occasionally.

Here in Europe where I live, it's been an education in the social sciences to try to explain to my neighbors how this Enron-WorldCom slip-slide has been allowed to turn into an avalanche. "How," Pavel asks, "can these things happen in a highly regulated, market driven economy?" Pavel's more worried than accusatory. The sharks have been swimming in his landlocked Czech Republic for nearly thirteen years now.

The stocks in companies like WorldCom go up, I explain, sometimes meteorically. So all too often the boards of directors turn a blind eye to how those results are being achieved. It's more convenient, more sociable and much more profitable to sit on the board of a WorldCom and keep your mouth shut, place a few side bets and enjoy that cigar. Asking hard questions isn't the way to win friends and influence people. Besides, it's all stamped with the approval of the corporate accountants, stamped well enough anyway to let a board member snooze a bit and dream of the eighteenth hole at Thunderbird. No matter that the bean counters are doing some highly profitable consulting within the company at the same time. Bean counters, so otherwise motivated, might just turn a blind eye to a small, questionable practice here and there. Hey, one hand washes the other, right?

And as long as things keep going well, the stock ever upward, who's to question? The corporate CEO's eyes are blinded by stock options, ego and the heady ride he's had since Harvard Business School. Harvard has probably done more damage to American business and America's reputation than the 1929 crash, but that's another story for another time.

The Securities and Exchange Commission exists and has existed since 1933 just to make sure no one cooks the books. But the SEC answers to congress and currently, the congress answers to WorldCom. It's amazing how quickly a call from this senator or that representative can call off the dogs, or at least send them sniffing in a different direction. This senator or that representative depends on WorldCom to get enough dough to run for reelection, so when WorldCom or Enron calls the guy who calls the guy, it's easy to turn a blind eye. "Sure Charley, glad to help you out" is the operative word before lunch in the Senate. Fast-forward to the SEC investigator, who knows how the bureaucratic ladder is climbed and turns a blind eye to his boss changing the priority of his case load. There's plenty of cases.

No one says 'don't go there.' Not in so many words, but no one goes.

The steely-eyed bankers, those paragons of public trust that send a dunning notice when your car payment is two weeks past due are not nearly so steely-eyed when corporate giants renegotiate lines of credit and reschedule their debt. Renegotiate, for the uninitiated, means you can't pay up. Reschedule means the same thing. Of course the Citibank guys and the Merrill-Lynch guys who push (and profit from) the book-cookers are also making huge windfalls from newly sauteed stock issues. A happy, hand-holding circumstance that tends toward the turning of blind eyes.

"I can smell the bacon fryin'." Some good old southern senator said that.

None of these good folks see themselves as hoodlums and they'd be outraged if you suggested a conspiracy. But outrage seldom covers anything but a thin layer of complicity and the public trust has been busted, along with the life savings of whole lots of people just like yourself. Not just professional investors got hurt, who might have let their greed get a bit out of control and should have known better, but pension funds that secure (or are supposed to secure) your retirement have been stripped to the core. And all because good people and bad people, greedy people and distracted people turned a blind eye to this or that questionable practice.

Thank God for the whistle-blowers of our society, may they flourish and be rewarded.

My old daddy often said that the stockmarket is made up of the sheep and those who shear the sheep. But my old daddy was a creature of the Great Depression.

Baaaaaaa!

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