PRO

Planetary Rescue Operations [Filtered & blocked by Google!]

Posts Tagged ‘banksters’

The Great CPA Fraud

Posted by msrb on April 11, 2009

CPAs MIA

by Ralph Nader

Where were the giant accounting firms, the CPAs, and the rest of the accounting profession while the Wall Street towers of fraud, deception and cover-ups were fracturing our economy, looting and draining trillions of dollars of other peoples’ money?

This is the licensed profession that is paid to exercise independent judgment with independent standards to give investors, pension funds, mutual funds, and the rest of the financial world accurate descriptions of corporate financial realities.

It is now obvious that the accountants collapsed their own skill, integrity and self-respect faster and earlier than the collapse of Wall Street and the corporate barons.  The accountants—both external and internal—could have blown the whistle on what Teddy Roosevelt called the “malefactors of great wealth.”

The Big Four auditors knew what was going on with these complex, abstractly structured finance instruments, these collateralized debt obligations (CDOs) and other financial products too abstruse to label.  They were on high alert after early warning scandals involving Long Term Capital Management, Enron, and others a decade or so ago.

These corporate casino capitalists used the latest tricks to cook the books with many of the on-balance sheet or off-balance sheet structured investment vehicles that metastasized big time in the first decade of this new century.  These big firms can’t excuse themselves for relying on conflicted rating companies, like Moody’s or Standard & Poor, that gave triple-A ratings to CDO tranches in return for big fees.  Imagine the conflict.  After all, “prestigious” outside auditors were supposed to be on the inside incisively examining the books and their footnotes, on which the rating firms excessively relied.

Let’s be specific with names.  Carl Olson, chairman of the Fund for Stockowners Rights wrote in the letters column of The New York Times Magazine (January 28, 2009) that “PricewaterhouseCoopers O.K.’d AIG and FreddieMac.  Deloitte & Touche certified Merrill Lynch and Bear Stearns.  Ernst & Young vouched for Lehman Brothers and IndyMac Bank.  KPMG assured over Countrywide and Wachovia.  These ‘Big Four’ C.P.A. firms apparently felt they could act with impunity.”

“Undoubtedly they knew that the state boards of accountancy,” continued Mr. Olson, “which granted them their licenses to audit, would not consider these transgressions seriously.  And they were right…Not one of them has taken up any serious investigation of the misbehaving auditors of the recent debacle companies.”

“Misbehaving” is too kind a word.  The “Big Four” destroyed their very reason for being by their involvement in these and other boondoggles that have made headlines and dragooned our federal government into bailing them out with disbursements, loans and guarantees totaling trillions of dollars.  “Criminally negligent” is a better phrase for what these big accounting firms got rich doing—which is to look the other way.

Holding accounting firms like these accountable is very difficult.  It got more difficult in 1995 when Congress passed a bill shielding them from investor lawsuits charging that they “aided and abetted” fraudulent or deceptive schemes by their corporate clients.  Clinton vetoed the legislation, but Senator Chris Dodd (D-CT) led the fight to over-ride the veto.

Moreover, the under-funded and understaffed state boards of accountancy are dominated by accountants and are beyond inaction.  What can you expect?

As for the Securities and Exchange Commission (SEC), “asleep at the switch for years” would be a charitable description of that now embarrassed agency whose mission is to supposedly protect savers and shareholders.  This agency even missed the massive Madoff Ponzi scheme.

The question of accounting probity will not go away.  In the past couple of weeks, the non-profit Financial Accounting Standards Board (FASB)—assigned to be the professional conscience of accountancy—buckled under overt pressure from Congress and the banks.  It loosened the mark-to-market requirement to value assets at fair market value or what buyers are willing to pay.

This decision by the FASB is enforceable by the SEC and immediately “cheered Wall Street” and pushed big bank stocks upward.  Robert Willens, an accounting analyst, estimated this change could boost earnings at some banks by up to twenty percent.  Voilà, just like that.  Magic!

Overpricing depressed assets may make bank bosses happy, but not investors or a former SEC Chairman, Arthur Levitt, who was “very disappointed” and called the FASB decision “a step toward the kind of opaqueness that created the economic problems that we’re enduring today.”

To show the deterioration in standards, banks tried to get the FASB and the SEC in the 1980s to water down fair-value accounting during the savings and loan failures.  Then-SEC Chairman Richard Breeden refused outright.  Not today.

Former SEC chief accountant, Lynn Turner, presently a reformer of his own profession, supports mark-to-market or fair value accounting as part of bringing all assets and liabilities, including credit derivatives, back on the balance sheets of the financial firms.  He wants regulation of the credit rating agencies, mortgage originators and the perverse incentives that lead to making bad loans.  He even wants the SEC to review these new financial products before they come to market, eliminating “hidden financing.”

Now comes the life insurance industry, buying up some small banks to qualify for their own large federal bailouts for making bad, risky speculations.

The brilliant Joseph M. Belth, writing in his astute newsletter, the Insurance Forum (May 2009), noted that life insurers are lobbying state insurance departments to weaken statutory accounting rules so as to “increase assets and/or decrease liabilities.”  Some states have already caved.  Again, voilà, suddenly there is an increase in capital.  Magic.  Here we go again.

Who among the brainy, head up accountants, in practice or in academia, will join with Lynn Turner and rescue this demeaned, chronically rubber-stamping “profession,” especially the “Big Four,” from its pathetic pretension for which tens of millions of people are paying dearly?

Posted in Deloitte & Touche, Ernst & Young, Moody’s, PricewaterhouseCoopers, Standard & Poor | Tagged: , , , , | 2 Comments »

Wall Street: The Biggest Threat to the U.S. Economy

Posted by msrb on February 1, 2009

The Moderators and contributors of this blog have identified Wall Street as the No. 1 threat to the U.S. economy and therefore its  national security. Our colleagues at EDRO have argued that the “ten-trillion-dollar bailout-stimulus-Wall-Street-Monopoly-money plan” won’t work unless Wall Street is eliminated and the Federal Reserve system is abolished and replaced with a nationalized central banking system.

In the following essay, Ralph Nader, citing from Why Wall Street Can’t Be Fixed and How to Replace It: Agenda For a New Economy by David C. Korten, asks:

“First, do Wall Street Institutions do anything so vital for the national interest that they justify trillions of dollars to save them from the consequences of their own excess?

“Second is it possible that the whole Wall Street edifice is built on an illusion of phantom wealth that carries deadly economic, social, and environmental consequences for the larger society?

“Third, are there other ways to provide needed financial services with greater results and at lesser cost?”

Wither Wall Street

by Ralph Nader [Received Sat 1/31/2009]

Soon after the passage in 1999 of the Clinton-Rubin-Summers-P. Graham deregulation of the financial industry, I boarded a US Air flight to Boston and discovered none other than then-Secretary of the Treasury Lawrence Summers a few seats away. He was speaking loudly and constantly on his cell phone. When the plane took off he invited me to sit by him and talk.

After reviewing the contents of this Citibank-friendly new law called the Financial Modernization Act—I asked him: “Do you think the big banks have too much power?”

He paused for a few seconds and replied: “Not Yet.” Intrigued by his two word answer, I noted the rejection of modest pro-consumer provisions, adding that now that the banks had had their round, wasn’t it time for the consumers to have their own round soon?

He allowed that such an expectation was not unreasonable and that he was willing to meet with some seasoned consumer advocates and go over such an agenda. We sent him an agenda, and met with Mr. Summers and his staff. Unfortunately, neither his boss, Bill Clinton, nor the Congress were in any mood to revisit this heavily lobbied federal deregulation law and reconsider the blocked consumer rights.

The rest is unfolding, tragic history. The law abolished the Glass-Steagall Act which separated commercial banking from investment banking. This opened the floodgates for unwise mergers, acquisitions and other unregulated risky financial instruments. Laced with limitless greed, casino capitalism ran wild, tanking economies here and abroad.

One champion of this market fundamentalism was Alan Greenspan, then chairman of the Federal Reserve. Last October before a House Committee, Greenspan admitted he was mistaken and expressed astonishment at how corporations could not even safeguard their own self-interest from going over steep speculative cliffs.

Greenspan and Summers were deemed “brilliant” by the press and most of Congress. Summers’ predecessor at Treasury—Robert Rubin—was also a charter member of the Oracles—those larger-than-life men who just knew that the unfettered market and giant financial conglomerates would be the one-stop shopping mart consumers were assumed to be craving.

Now the world knows that these men belong to the “oops oligarchy” that bails itself out while it lets the companies collapse into the handcuffed arms of Uncle Sam and bridled taxpayers who have to pay for unconditional megabailouts. Instead of the Wall Street crooks being convicted and imprisoned, they have fled the jurisdiction with their self-determined compensation. Corporate crime pays, while pensions and mutual fund savings evaporate.
Now comes the next stage of the Washington rescue effort in a variety of stimulus packages which every vendor group imaginable wants a piece of these days. When trillions are offered, many come running.

As the public focus is on how much, when and where all this money should be spent, there are very serious consequences to be foreseen and forestalled. First, consider how much more concentrated corporate power is occurring. Forced or willing mergers, acquisitions and panic takeovers of big banks by bigger banks along with bankruptcies of companies further reduce what is left of quality competition for consumer benefit.

Remember the anti-trust laws. Obama needs to be their champion. The fallout from the Wall Street binge is likely to lead to a country run by an even smaller handful of monopolistic global goliaths.

In the stampede for stimulus legislation, there is a foreboding feeling on Capitol Hill that there is no proposal on the table to pay for it other than by the children and grandchildren. Just the opposite is raining down on them. Everybody including the private equity gamblers, Las Vegas casinos and Hollywood studios along with the banks and auto companies are looking for tax breaks.

So with the economy deteriorating and taxes being cut, where is the enormous money coming from? From borrowing and from printing money. So look out for big time inflation and decline in the dollar’s value vis-à-vis other currencies.

In all the hundreds of pages of stimulus bills, there is nothing that would facilitate the banding together of consumers and investors into strong advocacy groups. We have long proposed Financial Consumer Associations, privately and voluntarily funded through inserts in the monthly statements of financial firms.

If this bailout—stimulus—Wall Street funny money waste, fraud and abuse sounds confusing, that is because it is. A brand new paperback “Why Wall Street Can’t Be Fixed and How to Replace It: Agenda For a New Economy” by long-time corporate critic, David C. Korten will explain some of the wheeling and dealing.

You don’t have to agree with all or many of Korten’s nostrums. Just read Part II—The Case For Eliminating Wall Street. He considers three central questions:

First, do Wall Street Institutions do anything so vital for the national interest that they justify trillions of dollars to save them from the consequences of their own excess?

Second, is it possible that the whole Wall Street edifice is built on an illusion of phantom wealth that carries deadly economic, social, and environmental consequences for the larger society?

Third, are there other ways to provide needed financial services with greater results and at lesser cost?  END.

Related Links:

Posted in bailouts, phantom wealth, stimulus plan, tax breaks, U.S. National Security | Tagged: , , , , | 9 Comments »