Bob Morris, who writes the usually sensible Politics In The Zeroes blog, takes Ted Ralls hook and gets reeled in (no permalinks, so just scroll down) with this:
Ted Rall on why it’s different this time
Wise words from Ted Rall, an investment banker turned cartoonist/political columnist.The trouble is that the accounting scandal that brought down Enron, WorldCom and Xerox is something far more serious than a short-term cyclical correction. It threatens to undermine the foundation of market-based capitalism itself. Bush addressed investors twice in one week, but his assurances that help is on the way only drove jittery securities exchanges to record lows. “For lack of a better description, you have as much full-fledged panic as you are going to get,” commented Tony Cecin, director of institutional trading at U.S. Bancorp Piper Jaffray in Minneapolis. “The negative mentality is as pervasive as I have ever seen it, and I went through (the) `73 and `74 bear market.”
The panic is real and it is rational: Investors finally realize that they can’t trust earnings and other “audited” figures released by corporations. Absent that information they can’t evaluate stocks, which leads to only one logical conclusion: sell everything and stay out of the market.
“Independent accounting” was BS all along; even companies that didn’t bribe their auditing firms outright with lucrative consulting deals controlled them via the millions of dollars in fees paid out for their signing off on company financial statements. It’s hardly a unique moment in history to discover that some shepherds have been munching on lambchops from a flock they swore to protect.
Rall, sadly is no better on business history than military reportage. Off the top of my head, from the turn of the century to the 90s:
Teapot Dome (and pretty much the whole Harding Administration)
Julian Oil, here in L.A.
Ivar Krueger, in Sweden
I.O.S. (Bernie Kornfeld)
Equity Funding
Cendant
People have always cheated; capitalism has survived, Ralls apocalyptic fantasies notwithstanding.
Date: 07/24/2002 00:00:00 AM
I’m more interested in why it is that certain pundits (Rall) seem to look for disaster in every corner. The canary in the mine?
Date: 07/23/2002 00:00:00 AM
“When he predicts the end of market-based capitalism because ofthese scandals, he’s being grandiose and silly, and that’s my point. “but that ISN’T what he said – you seem to be ignoring the word “foundation” – as in what is in jeaopardy is the stock market being the bedrock by which companies are efficiently capitalized. You can capitalize companies in other ways than the stock market – and still have a market-economy – however the stock market is the most efficient way of doing it – and the stock market itself is only as good as investor confidence that the system isn’t rigged, which I think is Rall’s point. I don’t think any of the individual scandals that you mention actually went anywhere near the core of confidence in the actual stock market system – so there is a huge difference in this and previous scandals. What exactly about some naval buddies of Harding getting kickbacks in an oil lease signing would have made other investors shun the market as a whole the way the accounting fraud has the potential to? I think that you’re misreading Rall’s point about the damage to the credibility of the *stock market* system as the doom of the “market system” which are 2 completely different things. Rall’s key observation is “Investors finally realize that they can’t trust earnings and other “audited” figures released by corporations. Absent that information they can’t evaluate stocks, which leads to only one logical conclusion: sell everything and stay out of the market.” If the system isn’t fixed so that investors can trust the numbers and make decisions based upon numbers that they trust you don’t think that they won’t abandon the market? Why not just go to Vegas? Following any of the scandals that you mentioned, would *you* have hesitated to put money into stocks completely unrelated to the scandals? Knowing that you can’t trust *any* numbers put forward right now because the accounting system is untrustworthy, the problem is now that you can’t even figure out which stocks are completely unrelated to the scandal.I think Rall is entirely correct in pointing out that what is happening now is of a completely different magnitude and has a completely different psychological effect on the investment community than your run of the mill economic downturn or business scandal – and I don’t think that that observation is grandiose or silly at all.
Date: 07/23/2002 00:00:00 AM
Bob & Andy:I think I’m being careless and not getting my point across:1) there are been similar eras of ‘loose accounting’ in business in the past;2) AFAIK (some expert help would be nice here) they tend to coincide with the end of speculative bubbles (suggested mechanism: to keep the bubble going you have to be creative in your accounting or projections, and while that’s looked at with a wink and a nod when stocks are rising, when they are in decline, all the dirty laundry comes home to roost);3) It isn’t anything remotely threatening to ‘market-based’ capitalism, which has its own problems;The market may well go down a bunch more (I think it will); bad things will happen; people will have trouble finding jobs; but the mechanism will probably be around for a while.I’m more interested in why it is that certain pundits (Rall) seem to look for disaster in every corner.A.L.
Date: 07/24/2002 00:00:00 AM
“Capitalism is the natural economic state of man, as is freedom”Huh? Capitalism as it’s commonly understood is a recent phenomenon. There was trade, sure, but neither serf, nor a tradesman, nor a landowner was especially capitalistic.AL: I think you’re glossing over Andy’s valid point, and missing the fact that this is neither the Harding administration, and historical comparisons are limited by other, differing factors. At this point, we’ve got a combination of factors that hasn’t really happened in history: we’ve got a tightly integrated worldwide system of capital flows, a lot of “rank and file” investors, the presence of an abundance of other ways of capitalizing companies, and proof that corporate bosses were playing around with the numbers in an attempt to make themselves look good. Some of these have been present before (Harding administration, for some, 1929 for others) but I believe the combination is unique, as are all the other social, political, etc. forces involved nowadays. (Hell, this is happening in the middle of a war… isn’t that new?)As for that silly bit against Rall… I realize you don’t like the guy, but dislike doesn’t mean dismissable. I think Rall had a valid point in that this could mean a significantly lowered role for stock markets for a long time to come, and it plays into the hands of those young protestor critics of global capitalism awfully well. I think the only reason they haven’t had a bigger presence is because of the WoT, but if that changes, they’ve got ready-made examples for their charges.
Date: 07/23/2002 00:00:00 AM
Bob– Did you miss this line?? It threatens to undermine the foundation of market-based capitalism itself.?? I’ve thought stocks were overvalued for some time now; I think they still are, because I believe in regression to the mean. I also believe that one of the features of ‘late bubble’ behavior is the unearthing of all the chicanery that went into propping up the bubble earlier…our mood has changed, and we aer shocked, just shocked, at what was once tolerably illegal (which is now totally unacceptable). Bummer for the last folks in. A.L.
Date: 07/23/2002 00:00:00 AM
A.L.I guess I don’t quite understand your criticism of Ted Rall’s point. To me, the point is that the whole stock market system of capitalizing big business relies upon investors having comparative knowledge of how a company is doing both in relationship to it’s own history and in relationship to it’s peers and the rest of the market. The ONE thing that the investing community relied upon was that the numbers put forth were true and accurate – and now we find out that not only are the untrue and not accurate, but the “independent” outsiders who we counted on to ensure that the information is true cannot be counted on. Even if “only a few bad apples” are at fault, the integrity of the entire system is now in disrepute. If you are a fund manager responsible for millions of *other* people’s money, at this particular point in time would you commit that money based upon less than perfect knowledge with the thought in the back of your mind that the other shoe may drop at any time? Just to cover your butt, you may find some other, safer places to put the money – remember return is partly a function of risk – and if the risks of the stock market get too high, the high rollers may decide to accept less return in someting like the bond market rather than accept higher risk betting on companies with possibly cooked books – (alternatively, the return in the stock market should rise appreciably to cover the extra risk – and that isn’t happening right now )Do you REALLY think that this is the same type of “scandal” as government kickbacks in Teapot Dome? That brought the Harding Administration into disrepute, but I don’t think it affected the market or the fundamental underpinnings of the market as a whole in anywhere near the way the accounting scandal has the potential in today’s world. In the other scandals that you cite, was the damage potentially so pervasive or was it just limited to particular companies/industries? Compare the relative damage to the integrity of something like the NCAAs if one guy on one team is trying to fix one game to if it came out the all of the refs in the entire tournement were on “the take” such that you couldn’t tell if ANY of the games were real. People theoretically could still find meaning in following the tournement if one guy is cheating, but if the entire underpinnings of the tournement are cast in disrepute, how many will continue to care and take part?
Date: 07/23/2002 00:00:00 AM
Ted Rall is the left-wing equivalent of Ann Coulter. Why does anyone waste time reading and commenting on him (or her)?
Date: 07/22/2002 00:00:00 AM
It sounds like wishful thinking to me. Capitalism is the natural economic state of man, as is freedom. No amount of scandal is going to bring it down. Capitalism is self correcting. The cheaters are being punished (unfortunately, so are the rest of us), but that will only benefit capitalism in the long run.BTW: My fledging 401(k) is getting hammered. My statement came today and I’m down about 25 percent, but I wish I had more money to put in my account. I’m 20 to 25 years from retirement. This is a great time to buy mutual funds; though 1,000 points may get squeezed out of the market in the next few months, it will all come back.
Date: 07/23/2002 00:00:00 AM
Rall didn’t say capitalism wouldn’t survive. (BTW he used to be an investment banker). He did say things look grim.If you’d owned stock when the market crashed in 1929 you’d have been back even by the early 1940’s.A long wait indeed.