How Big a Corporate Disaster Is Needed?

Hindsight--it’s all the rage in Washington. But though the story of the missed terrorism warning signals is eating up all the headlines, there is another story of warning signs being ignored by our elected officials that’s getting hardly any ink.

Here are a few of those signs: In the last two years, more than 400 public companies--including Enron, Global Crossing and Kmart--have declared bankruptcy. Two million Americans have lost their jobs. Four trillion dollars in market value has been lost on Wall Street. And each day brings a fresh, stomach-turning revelation of the rampant corruption infecting corporate America. Despite these ominous flashing red lights, it now appears almost certain that no real reform legislation will come out of Congress before the November elections. And that means fresh disasters down the road.

It’s a textbook case of special interests triumphing over the public interest. The biggest winners are those veteran Washington arm-twisters, the powerful--and well-funded--accounting and financial services lobbies. That’s right, the same folks who helped bring us this mess by relentlessly chipping away at the rules and regulations governing their industries are now ensuring that any efforts to clean things up will be thwarted.

The latest example of their sinister handiwork is the sudden shelving of Senate Banking Committee Chairman Paul S. Sarbanes’ accounting reform bill, a muscular measure that would have strengthened the Securities and Exchange Commission, restricted accounting firms’ ability to double-dip as consultants and auditors for the same client and imposed stringent conflict-of-interest rules on the investment banking world.

Instead, the bill is in a deep coma and not expected to survive, having been pummeled to within an inch of its legislative life by a goon squad of finance lobbyists and their No. 1 Senate enforcer, Phil Gramm (R-Texas).

First, the lobbyists brought out the rhetorical brass knuckles, issuing an “action alert� that Sarbanes’ bill “could result in serious, harmful consequences for capital markets and American business.� The warning on a pack of cigarettes is less alarmist. Then Gramm pulled out his copy of Robert’s Rules of Parliamentary Obstruction and went to work--pressing Chairman Sarbanes (D-Md.) to hold more hearings on the bill, even though the Banking Committee had already held 10 since Feb. 12, and offering scores of last-minute amendments. It was democracy at its worst.

It should come as no surprise that, according to the Center for Responsive Politics, the accounting industry has already doled out $5.2million in 2002 campaign contributions--with $293,196 of that going to 16 of the 21 members of the Senate Banking Committee, including $37,500 to Gramm.

It was this generous spreading of financial manure that doomed an earlier effort, led by then-SEC Chairman Arthur Levitt, to bar accounting firms from serving as both incorruptible auditor and smarmy sales help for the same company. And it was the same financial industry lobbying muscle that over the last decade pushed through legislation gutting so many of the regulations designed to bring accountability to our complex free market system.

Meanwhile, the White House seems less than eager to put a reform bill on the president’s desk. Apparently, the post-Enron panic that inspired the president to propose a 10-point plan that included a reform of accounting standards has subsided.

Or maybe the administration’s current do-nothing posture has something to do with the revelation this week that the SEC is investigating whether Halliburton Co., which had Vice President Dick Cheney as its chief executive from 1995 to 2000, used questionable accounting practices to pump up its bottom line.

“It is unlikely,� Sen. Jon Corzine (D-N.J.), a Banking Committee member championing reform, said this week, “that we will get strong reform unless there is a new event that captures the [public] imagination.�

You mean the largest corporate bankruptcy in history and the parade of corruption that has followed weren’t big enough?

That’s like saying the events of Sept. 11 were not enough, that we have to wait for the next horrific attack before we get serious about taking on terrorism.

Do we have to wait for another 400 companies to go belly up and 2million more Americans to lose their jobs before our leaders heed the warning signals and make passing the post-Enron reforms a top priority? How about a little foresight to go along with the heaping helping of hindsight that Washington is serving up?