Pumping Up

In just three months Enron went from claiming over $100 billion in assets to complete insolvency. WorldCom executives are now scrambling to explain how they managed to "misplace" over eight billion dollars. To hear them tell it, these executives were simply victims. They were not in the loop, had no knowledge of any wrongdoing and are just as shocked as you and I by these "irregularities."

We're not buying it, of course, and the irony is delicious. Just a few years ago, we all considered these men to be financial geniuses. We viewed their style of corporate governance as progressive and innovative. Today the only hope they have of staying out of jail is to convince a jury that they were acting in good faith. To do that they must portray themselves as utter incompetents, as lacking the most rudimentary knowledge of corporate finance and governance.

Now that the damage is done and that danger has past, Congressmen and journalists are raising the alarm. It seems we are in the middle of a "CEO Crisis," and no one can understand how men of such questionable integrity obtained so much power. The most important issue facing America today seems to be figuring out who to blame.

I suggest looking in the mirror.

That's right, the fiscal and fiduciary fiascos. Those were our fault. You, me and the rest of the investing public.

Falling Down

Lets' face it. A few years ago we thought we were pretty smart. We bought technology stocks and they went up. We knew what we were doing. During the 90's the US economy was growing at 5.5% a year, so we figured that any company not growing by at least 30% was being mismanaged. If slow growth companies were unwilling to change their ways, we took our investing dollars elsewhere.

In many cases, honest management could not deliver the results we demanded, so the money flowed to dishonest management who could. We all know now that much of this growth was achieved via accounting tricks and even outright lies, but through it all, the warning signs were in plain sight. The public did not know the extent of the troubles WorldCom, Enron, or the hundreds of dotcoms, but the numbers they reported to the SEC told us that something was very wrong.

In fact, some of the worst of the excesses were not only disclosed but publicized. We cheered the twenty million dollar salaries, the multimillion-dollar interest-free "loans", the outrageously expensive parties, and the luxury homes bought for the corporate executives. Somehow it was all part of the magic that kept the stock prices climbing ever skyward and that's what really mattered.

We now know that the problems were far deeper than the reported numbers. Unsurprisingly, executives who are willing to distort inventory figures, double book revenues, and pack sales channels to deliver the earnings we demand also tend to systematically pillage corporate assets for personal gain. It seems there is little honor among thieves.

Throughout the bubble there were plenty of analysts pointing out the problems, but we chose not to listen. In fact, when Allen Greenspan commented on the "irrational exuberance" of the market, he was sharply criticized for "shaking investor confidence." It was as if we were all in on the scam and knew what would happen if people started thinking seriously about what was going on.

Standing Up

It seems to me that the investors who are claiming they were deceived and lied to are not altogether different from the corporate executives who are claiming they were deceived and lied to. Both the executives and the investors had more than enough information on which to make informed decisions, and both groups knew what they were doing -- or at least claimed that they did: The executives while being interviewed by pretty reporters on CNBC, and the investors while doing their best to impress at bars and cocktail parties.

Don't get me wrong, some of the executives in question are not only dishonest, but criminals. I sincerely hope they go to jail for a long enough time to ensure their financial ruin. A small punishment considering they were central to the financial ruin of thousands of employees.

I do, however, object to the investing public and the media claiming victimization. Dishonest executives wound up leading corporate America because that's the way we wanted it. We were not out of the loop. We were not taken advantage of. It's just that we are not the financial geniuses we thought we were and that is not pleasant to admit.

Instead of continuing to act like Skilling and his ilk by lying to ourselves and anyone who will listen, lets jail the criminals, learn from our mistakes and get back to working for a living.