Accounting standards or mis-accounting standards?

They are lying about the financial crisis: it wasn't deregulation that was at fault, it was the politicians and their appointees ...

Nothing angers me more than hearing that George Bush and the Bush Administration was solely to blame for the current financial crisis because of his “laissez-faire” policy of minimal government intervention in the markets. Much of our current misery can be traced back to Jimmy Carter’s Administration, through the Clinton Administration – and even Bush 41 was complicit in setting the stage.

Other than actual criminals and those  motivated by greed, it was partly the failure of the regulators to enforce the laws currently on the books, partly the failure of Congress to write coherent and enforceable legislation, partly the regulatory agency’s failure to prosecute lesser criminal acts in their quest for high-profile cases to attract favorable media attention, partly the blindness of the media and partly the effects of interfering political lawyers and lobbyists that were behind much of our current problem.

If one need cast blame at the Administration, it certainly wasn’t so much Bush’s policies as his politics. So let’s take a fast look at who and what in our government was behind this economic catastrophe. And, unless you are blind, it isn’t limited to a single party or politician.

First, let us stipulate that there were crooks and evildoers, on Wall Street and Main Street,  who took advantage of the present situation to earn staggering amounts of money by being in the right place at the right time or simply going along with the current system.

Second, let us all agree that the stage for much of the government fraud, waste, corruption and inattention to the public welfare was based on the hyper-politicalization of the government and the necessity for 24/7 fundraising in what seems like a never-ending campaign cycle. It should be noted that the last presidential campaign was the longest political campaign in history and plunged the nation in to a frenzy of special interest fundraising and political events.

And third, let us also agree that we have just witnessed the failure of the media to uphold their tacit agreement with the American people to serve as the eyes and ears of the public and to be “truth tellers to power.” They were so lopsidedly in favor of the democrats, they overlooked almost everything on one side in order to play “gotcha” journalism. Where sex and scandal reigned supreme over malfeasance and corruption.

On to the charge that the Bush Administration was solely responsible for the debacle which now faces us …

Hyper-politicalization – You are either for us or against us applied, not only to al QAEDA, but to everyone that was in the government or doing business with the government. Many decisions were made solely on the basis of politics and their impact on the Administration. Favoritism and cronyism, while not a direct Bush mandate, were certainly the basis of many agency decisions. Had Bush selected stronger, more capable leadership, perhaps the outcome would have been different. Well-credentialed and well-meaning people were placed in positions of importance. Unfortunately, they never dealt with a counter-minded Congress, a well-entrenched bureaucracy and really lacked the leadership skills to maneuver the ship of state in choppy waters.

Yes, the hyper-politicalization of government agencies decimated some of the regulatory agency’s effectiveness as incompetent cronies were appointed to high public office and we so preoccupied with political matters that they failed to uphold their sworn duty to protect the public.

Off the top of my head, I can point to Alberto Gonzales at the Department of Justice and Alphonso Jackson at HUD (Department of Housing and Urban Development). Two critical agencies involved with housing issues. Add to that, Christopher Cox of the Securities and Exchange Commission and you have a trifecta of impotence. I would also like to single out James Lockhart who headed OFHEO (Office of Federal Housing Enterprise Oversight) and who now heads its successor, the FHFA (Federal Housing Finance Administration). He was the regulator of Fannie Mae and Freddie Mac where open and blatant manipulation of the books resulted in multi-million dollar payouts to its politically connected leadership.

Secrecy – from the top down, people were cautioned to be closed mouthed about their agency’s activities. Secrecy was the watchword of the Bush Administration. Bush crony, Mel Martinez, while Secretary of HUD, racked up 40,000+ comment letters regarding a rewrite of predatory lending regulations because he refused to show his proposed rule to the financial industry; and even went so far as to withhold it from Congress. Needless to say, the bill met resistance as was sidetracked. Martinez failed upward and was given White House support to become the next Senator from Florida. Next up was Alphonso Jackson, who was more communicative with the industry and Congress, but resigned before the rule could be implemented. Jackson, it should be noted, was allegedly under investigation for cronyism and interference in the agency’s contracting practices – for political purposes. The President then placed Steve Preston from the Small Business Administration and the rule was issued – some provisions to take effect in 2010.  By comparison with this bunch, former President Nixon was a blabbermouth.

Media Manipulation – There is no doubt that the Administration tried hard to encourage favorable media attention in a time when much of the media was in the bag for the liberal democrats and, specifically, Hillary Clinton and then Barack Obama. Along with the promotion of the Administration’s policies came the need for the regulators to showcase their agency’s effectiveness so they courted both Congress and the media. Looking to pursue high-profile cases and overlooking the smaller ones, the simply did not do their job. Unfortunately, both Congress and the media remained rather unreceptive to their efforts.

This led to a lack of transparency which failed to highlight not only bad administrative decisions, but outright malfeasance in pursuing the agency’s objectives.

A recalcitrant congress – Not only was the Congress unwilling to act with bi-partisan accord, but there was open hostility on both sides of the aisle. It is almost unbelievable to imagine the sheer stupidity of many members of both the House and the Senate who often acted like they were royalty in pursuing their own political and self-interest projects.

Many of these representatives of the people offered up legislation that they could neither understand nor even read as special interest lawyers and “staff” crafted the language of the laws they were inflicting on the public. Somehow, these manifest morons did not realize that legislation cannot cure every financial, military or social ill – but they were still offering bills as real solutions to real problems. Unfortunately, they did not understand the problems nor the proposed solutions.

In the housing arena, they created a patchwork of laws, rules, regulations, guidelines which often were conflicting, confusing, unenforceable and, above all, ill-understood by those who needed to develop systems and procedures designed to cope with these so-called legislative solutions.

The myth of “record fines …”

Corporations that blatantly disregarded the law and were subsequently caught, simply negotiated their way out of trouble. By discharging a member or members of top management, the corporation could say that they had cleaned house and were willing to settle the matter – paying a “record” fine without admitting any wrongdoing. In many cases the “record” fine was so small in comparison to the amount of money actually involved, that it became just another cost of doing business as the corporation went about its business. The executives who were accused of wrongdoing, either paid personal fines – sometimes from company funds and insurance policies – and walked away with their millions. In some cases tens and hundreds of millions.

One need look no farther than the people at Fannie Mae or Freddie Mac who cooked their books, lied to Congress and received a slap on the wrist. Of course, these were mostly well-connected democrats who were allowed to escape being placed in jail like the thieves they appeared to be. 

Politically connected lobbyists, lawyers and venue shopping …

Lobbyists lobbied for special interest exemptions in the financial arena. Lawyers used the overlapping regulatory jurisdiction to skate under, over or between the edges of the law. In some cases choosing state bank charters, in others choosing national bank charters. Becoming a thrift or an industrial bank. Switching venues and organizational forms when necessary.  Lawyers explaining their interpretation of the law to agency lawyers who knew better but were not willing to spend the agency’s hard-won budget dollars on an “iffy” case that could turn on the interpretation of a clause or a phrase.

These were but a few of the failures and circumstances that led us to the current situation -- and it doesn’t appear to be getting better…

We have seen our emergency reserves, savings, and retirement funds decimated by those who publicly assured us of the safety and soundness of their organizations – while they took tens or hundreds of millions in unearned compensation. Yes, unearned,  as they lost billions of our dollars.

We have seen the amount $700 billion bandied about by the politicians. When, in fact, the bailout is now into multiple trillions. Even the democrats couldn’t resist adding pork to the bailout bill and watched the so-called fiscally conservative Republicans cave to their demands.

We have the Federal Reserve reducing the Federal Funds target rate to a amount between zero and one-quarter of one percent. Further cuts beyond zero are impossible and thus one of their most important primary tools has just been rendered useless.

We have Treasury Secretary Henry Paulson spending billions of the taxpayer’s money and not even asking how or when it is being spent. For all appearances, he does not know how to solve the current crisis and is flailing about. A Wall Street man to the end, he has made his and is isolated from the consequences of his actions. Openly flaunting the intent of Congress to bring transparency to the process.

We have Representative Barney Frank and Christopher Dodd trying to preserve the remaining federal funds so that the democrats can direct their usage.

We have corporations being allowed to change into bank holding companies to gain access to federal funds.

We have seen bailout funds extended to the people in the Madoff Ponzi scam when they were all sophisticated and should have known something was amiss. Some believe that the story remains untold and that tax avoidance and off-shore accounts may still surface. And yet the government appears to be willing to include these people in the bailout umbrella – when they should get nothing more than a tax deduction for their lost funds – if that.

We do not see anyone being prosecuted or asked to return their bloated bonuses based on losing their shareholders billions of dollars. Madoff remains under house arrest in his $7 million Park Avenue apartment when he should be held without bond at Riker’s Island or the Federal Detention center.

We have Barack Obama reportedly ready to spend another billion dollars on infrastructures – which seems like a gift to the unions and their workers. Along with eliminating the secrecy provision of employees voting to join a union.

We do not seem to be doing anything to bring the $55-TRILLION of outstanding credit default swaps under control.

We do not seem to be doing anything to de-leverage the loans that would cause major financial institutions to immediately fail – if the accounting was true, correct and honest.

We do not seem to be doing anything to regulate toxic derivatives – the root of all financial evil which has been done to the taxpayers and citizens of the world.

We are headed towards socialization and the demand to open all financial books to the government (For those of you who are skeptical, look up XBRL).

And we are heading for the largest scam of all, global warming, which will allow the government to cover-up postpone the responsibility for their corrupt actions until well after we are all dead.

But most damaging of all --

We have the accounting profession and the Securities and Exchange Commission about to plunge a dagger into the heart of American business … by discarding our accounting rules in favor of a European model that is already being politically manipulated to deny transparency and cover up crimes committed by well-connected financiers.

We are on a road that might lead to a revolution in this country. Possibly as soon as 2010 when we throw out those politicians who were complicit in this massive failure of government – and deny support to both parties which led us on this path to destruction.

One need only consider who both parties put forth as leaders to see the magnitude of the problem. And one need only to consider that a relatively few local yokels at the first primaries were allowed to pick the candidates that were to survive the political vetting process.

While I hope that Barack Obama will somehow rise above his party’s corrupt background and scant experience to perform a miracle of leadership, it would truly be a miracle given the people that he has already chosen for his Administration.

Tomorrow – more about this accounting scam that threatens to destroy accountability in finance.  -- steve

Quote of the day:
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