A World of Hurt

Well, knock me over with a junk bond. Yesterday, WorldCom's world of hurt--detailed in these pages in late May--finally broke out of the business pages and into the headlines, with new revelations that "accounting errors" had somehow worked out to WorldCom's advantage in its balance sheets to the tune of a whopping $3.8 billion.

Funny how such "accounting errors" always seems to happen in the company's favor--unless they're not noticed, in which case they're not considered errors at all. WorldCon, the 7th largest issuer of corporate bonds in the country--bonds which were considered "investment grade," meaning they were of the highest order of stability and reliability, as late as May--has seen the value of those bonds not just plummet, but evaporate. WorldCom--parent company of MCI, among others--is now being called potentially the largest corporate scandal, and almost certainly will become the largest corporate bankruptcy, in US history.

It's easy to note that nobody responsible for these errors will pay a price remotely commeasurate to the crime. Tell some ghetto kid serving 20 years (or life) for stealing a candy bar that there will be "justice" for a WorldCom executive who oversaw this "error." You'd need to steal fifty candy bars a day, every day, for the next 208,219 years to equal WorldCom's feat.

That's a lot of long-distance calls. And even then, it's only about one-seventh of the debt WorldCom had already racked up. Betcha our ghetto kid didn't have that kind of credit limit, either.

But more interesting, as one surveys the initial fallout from the WorldCom story, is that so many people seem surprised, Here we haed a company whose debt--as in, the sort of money credit card companies demand from you or I each month--had so many digits as to be, for practical purposes, incomprehensible. We had the SEC already investigating. We'd seen that the bonds WorldCom needed to use to even begin to pay the interest on those debts had become worthless. And we'd been besieged of late with stories of corporate scandal bequeathed to us by those ten years of preposterous stock prices: not just Enron, but Qwest, Microsoft, Duke Energy, Dynegy, the Williams Companies, Mirant, Calpine, CMS Energy, Arthur Andersenm, ImClone Systems, Tyco International, Halliburton, Xerox, Rite-Aid.

And now, well, golly, it turns out that WorldCom was also doing exactly the same thing many of those companies have been accused of: treating routine expenses as long-term capital expenditures, so as to remove them from financial reports presented to investors and the SEC. It's not like WorldCom invented the idea.

At what point does an avalanche of similar, or even identical, crimes become an indictment not of one particular executive or company or accounting firm, but of an entire economic system? Clintontime accelerated a trend that began in earnest with Reagan, of deregulating financial markets and accounting practices. Services traditionally kept separate were to be offered under one roof: banking, investing, insurance, accounting, consulting. The foxes weren't just guarding the henhouse--they were being given enormous financial incentives to empty the henhouse of hens. That sort of thing used to be illegal, until the foxes figured out to give politicians (who decide what is and isn't legal) a tiny piece of the loot, in the form of those thinly disguised bribes called re-election campaign donations.

Conservatives during Clinton's eight long years harumphed a lot about Willie's having disgraced the presidency itself with his tabloid behavior, but the more serious scandal was a different sort of sex act--the prostitution of democracy being championed gleefully by both parties. And, so, Dubya got his almost-victory in 2000 by trading on our rightful distaste for Clinton's behavior--and by racking up more of those thinly disguised bribes than had ever been seen in any electoral campaign in the history of the world.

Even today, as Bush self-righteously thunders that WorldCom's corporate behavior is unacceptable blah blah blah, he's busy cramming in as many fundraising opportunities as possible all summer long, before the soft money tactics he's ridden all the way to the White House become officially illegal this fall. And every other D.C. politician is doing the same thing, only not as efficiently.

WorldCom's bond default will have enormous consequences for the economy; but the problem with all these scandals isn't whether one or another act is or isn't legal any longer, or even whether their armies of lobbyists can make such acts retroactively legal. High-level corporate executives are now trained to carry out sophisticated analyses on the benefits and possible downsides of lying and cheating (or screwing customers), and to make their moral decisions based on how promising their analyses are. It's how business is done.

Until global capitalism makes room for a different kind of accounting altogether--one that incorporates moral values and social costs and benefits into business decisions big and small; and until ordinary people decide they'd rather not be ruled by corporations; scandals big and small will keep right on happening. Lying or cheating or financial misrepresentation--or pollution or outsourcing or union-busting or any other behaviors that destroy lives, but enhance bottom lines--should come as no surprise, until global capitalism stops rewarding it. And given that our government is essentially a division (and not one of the larger ones) of Corporate America, expect the same behavior from our "leaders," too.

We can reregulate 'til we're blue in the face (though if we hold our breaths waiting for reforms, we'll turn blue sooner). But lack of laws isn't the problem. Lack of money or will for enforcement isn't even the problem. Capitalism is the problem.