As the so-called Sarbanes bill -loudly touted as the most sweeping financial reform legislation in 60 years, and quietly derided as a disaster waiting to happen -wends its way to President Bush's desk it might be worth asking what, exactly, the bill will do. Alas, nobody's sure. Meanwhile, Bush is so eager to sign any bill that hits his desk, the Sarbanes bill could call for the SEC to replace stocks and bonds with chickens and pigs, and he would sign it in the Rose Garden.
The bill's supporters claim it will prevent another Enron-style business scandal. But there are things in this bill (when this column went to press) that baffle accounting and business professionals and remain complete mysteries to the legislators who voted for the provisions.
There are criminal penalties for undefined crimes, draconian regulations for non-American companies and even one provision that would require every executive in America who's borrowed money from his firm to repay it immediately or face criminal charges. If you want to see panicked selling, wait until you see an executive unload his entire portfolio to repay a multiyear, multimillion-dollar loan in 24 hours to avoid going to jail.
Anyway, what has me particularly concerned is the idea that Congress is doing all of this to prevent another Enron when there was nothing special about Enron. The Bush administration is wrong when it says that the accounting scandals apply to only a few bad apples. The 1990s produced bushels of similarly bad apples that we've forgotten because they've been out of business for years already.
During the real "decade of greed," thousands of "new economy" companies, most famously the dot-coms, played crazy games with their stock prices. These firms died natural deaths because unprofitable companies must die eventually -it is a law of the universe. Enron's collapse was special for its size and its timing, but the collapse itself wasn't special at all.
Of course, other things were going on in the 1990s. Indeed, you could say that decade was the "perfect storm" for what Alan Greenspan famously called "irrational exuberance." The were Big Things in the works: the Cold War was over; the Gulf War was won almost overnight; we mapped the human genome; deregulation was all the rage (even as it was poorly implemented in places like California) and e-mail, cell phones, laptops and the World Wide Web seemed poised to deliver, finally, the paperless society.
And there were seemingly small things at work. For example, in the early '90s, during a spate of downsizing and a media-hyped recession, reformers in Congress decided executives were being paid too much. So, they clamped down on big salaries for executives. In response, corporations started offering stock options. The idea was that executives would be "incentivized" to do what is best for the company because their compensation would be tied to the stock price. The unintended consequence was that some CEOs became tempted to improve the stock price instead of the company.
Democrats fairly claim that Newt Gingrich stifled attempts to impose order on corporate America through regulation. Republicans (and, by the way, Ralph Naderites) fairly claim that Bill Clinton and the Democrats were even greater cheerleaders of the first booming economy under a Democratic president since the 1960s.
Al Gore's claims to having invented the Internet notwithstanding, dot-com mania was inevitable no matter who was in the White House. The business cycle was poised to rev up when Clinton took office, and all of those scientific breakthroughs would have happened if Ross Perot or Papa Bush had won in 1992. It's only natural for politicians to claim credit for economic booms, but like sunny days, they usually come no matter what you do.
Similarly when bad economic news comes along, politicians will assign blame just as easily as they will claim credit. In effect, Bush inherited a perfect storm. After an unprecedented expansion, he was barely elected into the teeth of a business and stock-market downturn. The 9/11 attacks smashed the economy, too. The resulting six-month rally around the president made the press corps and Democratic Party (there is a difference) desperately impatient for a story that could deflate Bush's political bubble.
Enter Enron. When it went belly up, Democrats and liberal journalists instantaneously blamed the firm's close ties to the Bush administration. It was asserted with mathematical certitude and laughable implausibility that Enron essentially bribed Bush into allowing the firm to implode in a mushroom cloud of financial ruin and criminal prosecutions.
Now that WorldCom is bankrupt and AOL, CitiGroup and countless others are under the microscope, this argument simply looks like partisan hysteria married to the sort of political arrogance that says anything that happens in America is the responsibility of all-powerful geniuses in Washington to either fix or take credit for. The Sarbanes bill appears to be the love child of this marriage.