WASHINGTON -- As President Bush prepared last week to go to Wall Street and lecture corporate corrupters, a prudent financial adviser for major industrial firms e-mailed a warning to his network of associates around the country: the sleeping giant of Congress has been awakened, and that is reason for the economy to shudder.
"A witch hunt by Congress may be unstoppable at this point," the e-mail warned, adding that the Bush administration "now appears ready to join this 'inquisition' by holding executives criminally liable for false disclosure." The result, he said, is contributing to a deepening liquidity crisis. This adviser (who asked that his name not be used) told me of a potential double-dip recession ahead and even used the d-word -- "depression" -- as a possibility.
While the federal government is frustrating when it treats economic problems with nonchalance, it is terrifying when it gets involved. The failure of President Bush's New York speech to calm markets provoked a feeding frenzy in Congress. The government seldom makes the right response to economic crisis, and the horrible example came in the 1920s when the executive and legislative branches collaborated to help turn the stock market crash into the Great Depression. The question is whether George W. Bush, so loath to exercise the veto, will stop a criminalization of business that is ravaging stock prices.
The problem is politics. Democrats, who have been brooding about fading 2002 election prospects, see their great opportunity in tying corporate corruption to Bush and the Republicans. Agreeing, Republican senators, chatting in their cloakroom last week, mourned their opportunity to regain control slipping away. Thus, the two parties engaged in a competition for who could come across as most hostile to business.
A relatively harmless manifestation was the comic opera session Tuesday by the House Financial Services Committee, when witnesses who agreed to testify were interrupted by legislators such as Rep. Maxine Waters of California, interested only in hearing themselves. Since two former WorldCom executives were invoking the Fifth Amendment, Chairman Michael Oxley was ready to let them leave in disgrace rather than waste the committee's time. But members could not resist the opportunity to badger millionaire businessmen unable to reply.
Many Republicans and Democrats wanted instantly to vote a contempt of Congress criminal citation against ex-WorldCom CEO Bernie Ebbers and perhaps incarcerate him. Republican Chairman Oxley got needed support from liberal Democratic Rep. Barney Frank, who patiently explained to his colleagues that they are supposed to be legislators, not prosecutors.
Actually, Congress is most frightening when it is legislating. On Tuesday, senators who usually cannot agree on the time of day were acting like a totalitarian state's parliament: 97 to 0 to punish securities fraud with 10 years imprisonment; 96 to 0 for longer prison sentences; 97 to 0 for tougher treatment of document shredding. It raises the specter of businessmen fearing a term in prison if their accountant makes a mistake. "In the environment we are in, virtually anything can pass," Republican Sen. Phil Gramm told reporters.
Nobody can keep up with the flood of legislation pouring out of both sides of the Capitol -- some of it threatening Article I of the Constitution prohibiting ex post facto legislation. "What companies now face is potential criminal liability for accounting errors that will only be discoverable when new final rules are adopted," said one private memorandum by a financial analyst.
Supply-side consultant Jude Wanniski, in a letter to clients last Thursday, said: "There is absolutely no doubt that the beating Wall Street is taking is the result of the frenzy in the U.S. Senate to make it a crime to do business in the United States." He sees the two big political parties competing "to see which can force more morality on the American businessman." What will the president do about it? Earlier, Wanniski asked: "Will GWB be the (Herbert) Hoover of his age?"
Bush is in a dreadful situation. He did not address corporate corruption until the market had gone into a free fall and now seems to have lost control of what's happening in Congress. Can he dare veto the criminalization of business? Does he dare sign it?