NATIONAL CATHOLIC REGISTER

SEPTEMBER 22, 2002

The ongoing saga of the stock market gyrations and the corporate accounting scandals present a real challenge to a writer for a weekly newspaper. By the time I figure out something intelligent to say, it’s out of date. Now that it has been going on a while, there is some chance of getting a bit of perspective. But don’t get too excited. I’m not about to give stock tips.

The Bush Administration has to deal with the fall-out from the corporate accounting scandals, but the problem was well under way, before George W. was even nominated. The Clinton years were the "go-go" years, when the economy was booming and the stock market chalked up record gains. The nation was so fat and happy, we were willing to let Clinton get away with perjury. "It’s the economy, stupid," Clinton famously told his aides during his first campaign. And most of the nation seemed to agree.

Now comes a Commerce Department update to some of the economic data during the Clinton years. Respected columnist Robert Novak recently related that the government’s growth figures may have been artificially inflated during the Clinton years. Citing recent revisions to the Commerce Department’s profit figures for 2000, Novak stated that, "through all of President Clinton's last two years in office, the announced level of before-tax profits was at least 10 percent too high -- a discrepancy rising close to 30 percent during the last presidential campaign. Most startling, the Commerce Department in 2000 showed the economy on an upswing through most of the election year while in fact it was declining." Judging by these figures, a recession was already under way, even during the 2000 Presidential campaign. As Novak put it, "headlines in 2000 spewed false information of corporate profits growing at 25 percent, bolstering the stock market and holding up the state of the economy as the election approached.

Novak continues that while no one, even the Bush Administration, alleges particular wrong-doing, "such a discrepancy in earnings statements by corporate executives today would warrant a congressional subpoena." This brings us to the second part of Clinton’s legacy; the culture of lying.

The corporate accounting scandal is more about lying than it is about poor corporate performance. The market can handle poor performance. It simply punishes weak companies by beating up their stocks. But the market depends on reliable information. Systematic lying delivers a double-whammy to the company that does it. Once discovered, investors realize that the company not only underperforms, but its data can’t be trusted. Investors say to themselves, "Who needs this stock? Got plenty of companies to invest it. Sell this double-dog!!"

If you notice, for quite a while, this is exactly what the stock market did. It targeted the particular firms that falsified their reports. The market as a whole did not collapse right after Enron’s announcement that its reports should not be relied upon. The overall thrashing of the stock market took place later, in response to poorly focused political pronouncements on "getting tough" on corporate crime.

What does Clinton have to do with it? The culture of justifiable lying is largely his legacy to the nation. Sure, lots of people lie. Richard Nixon lied. But his lies destroyed his presidency. The Clinton difference is that he thought he was entitled to get away with it, and he justified it to himself and his supporters.

Does this seem like a long stretch? Check this out. I went looking on the internet for an issue of The American Enterprise magazine called, "What Ever Happened to the Truth?" I remembered that the cover featured prominent liars such as O.J. Simpson, Al Sharpton, Rigoberta Menchu, and of course, Bill Clinton. Various commentators weighed in on the question of why truth has become such a scarce commodity, and what difference it makes. In the course of the issue, the editor quoted from an annual report by super-mega-investor, Warren Buffet.

The editor noted Buffet’s opinion that misrepresentations and accounting gimmicks are becoming a serious problem in the investment sector. "Many major corporations still play things straight, but a significant and growing number of otherwise high-grade managers...have come to the view that it’s O.K. to manipulate numbers and deceive investors." Buffett continues, "These managers often say that...in using accounting shenanigans to get the figures they want, they are only doing what everybody else does. Once such an everybody’s-doing-it attitude takes hold, ethical misgivings vanish."

Old news, big yawn, right? Except for one small thing: Buffet’s comments were quoted in an issue of the magazine that appearred in May 1999. The issue was an extended commentary on the impeachment of Bill Clinton; specifically, what difference it makes to American society whether Clinton gets away with perjury. Warren Buffet’s concern about fraudulent corporate accounting was a mere aside in the overall discussion. (You can find the whole issue yourself here: http://www.theamericanenterprise.org/taemj99.htm)

How prescient the editor of The American Enterprise appears in retrospect. He introduced the issue by saying, "for four decades now there have been intellectual trends underway which blur truth and encourage lying. We see the results in universities, in politics, in professions like the law, in popular entertainment and the media, even in places like business."

Now, we come to find out that the profits that generated that prosperity and those stock prices were over-inflated. Maybe intentionally, maybe accidently. But, I think we can safely say that the strong economic performance of Clinton’s presidency no longer looks like such a feather in his cap. And we all have a stake in reversing the attitude that lying is acceptable if you can get away with it.