A Brief History…

I am not much of a businessman but I try to understand economics and the US economy, which is the best example of capitalism since 19th century Britain. I am concerned we are losing it and this article by T J Rodgers offers a sort of five minute version of an MBA course. Read it and the comments and you will have a better understanding of the US economy and what is happening.

Why are the Pharisees of Accounting in the U.S. trying so hard to destroy American business? Having crippled high tech entrepreneurship and made it nearly impossible for any U.S. company to ‘go public’, the people who set the rules of financial disclosure are now making corporate financials so obscure that investors literally have no way of knowing the financial condition of their companies.
In 2002, in reaction to Enron and other perceived corporate excesses of the Dot.com Boom Congress passed the Sarbanes-Oxley Act. The Financial Accounting Standards Board (FASB) followed suit be revising its Generally Accepted Accounting Principles to make corporate accounting more transparent.

But in my experience, all that these new laws and regulation have done is make corporate finances more opaque – and is killing off the creation of new public companies in the United States.

Rodgers, aside from being a successful entrepreneur in a high tech business, was the first of the Dartmouth alumni to be nominated for the Board of Trustees by petition when the college ignored his wish to become more involved with his alma mater. He and three more petition nominees were elected before the college, dominated by left wing activists, changed the rules to try to ban other conservative board members.

Rodgers is the sort of capitalist we should be encouraging but the government seems intent on a sort of social democracy mediocrity for our future. Let’s hope it can be reversed starting with next year’s election.

Of course, fraud makes accounting harder, especially when government entities are doing it. You know, like Fannie Mae and Freddie Mac ?

In the case of the GSEs, analysts were indeed complicit in the fraud, in some cases because they really drank the kool-aid, some were lazy, and others were afraid – over the past 20 years one of the surest ways for an analyst to get called on the carpet was to make a negative comment about Fannie Mae, Freddie Mac, or AIG. AIG CEO Hank Greenberg would call the offending analyst himself and beat them into submission. Fannie and Freddie, however, would simply go through channels, threatening to reduce the amount of business allocated to the analyst’s firm. Mind you, this wasn’t in response to unjustified slanders on the company. I know of one analyst who received an extremely angry call from the Vice-Chairman of his firm (now a very senior Obama administration diplomat), threatening repercussions for the sin of suggesting to investors that, at a given point in time, Freddie Mac might be a more attractive investment than Fannie Mae.

Hope and Change.

This entry was posted on Friday, July 31st, 2009 at 5:20 am and is filed under financial, politics. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.