TUNBRIDGE WELLS, England, July 15 (UPI) -- Corporate collapses, accounting scandals, outright fraud, allegations that a Texas oilman made President Bush a dubious loan, the stock market strategists have one word for all of them: noise. The noise at present is deafening. When it is gone all will be well, one economist argued recently in The Wall Street Journal; people will focus on the recovering economy. But sound and fury do not always mean nothing.
What do we mean? Is Bush guilty of impropriety? Is the vice president, Dick Cheney, former oil executive and a winner "big-time," as he might say, from stock options, dubious, too? From such allegations your correspondent will keep his distance. He cannot know but doubts the presidential duo will be found guilty of anything.
No, it is not corruption in government that is important now: We are not heading for a Nixon-like saga. The great and noisy shift going on, the moving of tectonic plates that is causing politics and politicians to tremble, is, deep-down, economic. The deafening noise does mean something. This is a key moment. U.S. President George W. Bush may be dragged down, though not in the way some of his accusers now imagine.
In the sport of politics, timing is everything. The great politicians have it, sometimes by luck, sometimes by design. Conflict sometimes provides the setting that helps propel a leader to greatness or failure. On other occasions the economy is the alchemist.
Winston Churchill was the man for his time and Margaret Thatcher the woman for hers. Gen. Charles de Gaulle returned with his Delphic "Algeria, I have understood you," and did the opposite of what was expected. Other politicians, less fortunate, are buried by their times. George W. Bush came to office at a time when the first wobbles were troubling a U.S. economy that had been built on sand. Now the sand is sliding.
Corruption plays a part in that shifting sand. In the 1990s it is probably true that U.S. business cleaned up somewhat environmentally; cleaned up, too, probably, in other regards, such as treatment of staff. In most U.S. corporations the human resources department is probably stronger than ever before. There are procedures for everything. Lawyers have ensured that dismissal is well-justified or well-compensated. But in other regards the standards of business have slipped in a manner that is only being revealed now. And what has driven that deterioration is greed -- and the stock market.
Perhaps the greatest accounting mistake of the past 20 years has been to tie compensation of staff, and especially of executives, to the stock price of the companies over which they preside and to make the rewards from so doing absurdly, obscenely high. Company executives received the strongest possible incentive to push the share price up, and they have done so, by whatever means possible.
A salary of, say, $1 million -- enough to live on quite comfortably, one would think -- was just pocket money. The real rewards paid to "successful" executives, were those obtained from stock options or bonuses tied to the stock prices. And what were these rewards paid for? They were paid, we now learn, not for good management but for bad and even criminally bad management: for the distortion of accounts, for deception, for outright fraud, in some cases.
Noise! Let's have more of it! There deserves to be noise. For the losses being made by investors now and the losses they will continue to make, as we explain below, are the counterpart of the extraordinary gains paid out on the basis of the inflated stock market bubble to greedy corporate executives.
There deserves to be sound and fury about the fact that many executives have become rich while their own staff and investors have been fleeced. Yet, in most cases, prosecution is going to prove difficult or impossible. Many executives will have done nothing that is legally wrong. They were simply men and women of their own less than ethical time: a time about which our perceptions are only just shifting, from miracle to scandal.
It was legal, for example, to buy back company equity and increase company debt, in the form of bonds. Many corporate executives have done just this, in recent years, helping to push up their already inflated share prices. But was this a good maneuver for their company and their long-term investors, or merely for them in the fly-by-night economy of the 1990s?
Meanwhile, on the sidelines, Wall Street, journalists and other countries cheered the U.S. miracle economy. The Wall Street cheerleaders, too, had something to gain from the euphoria and helped to whip it up. These were euphoric times, of an economy and a market built on hype. The construct soared up, reaching its greatest height shortly before Bush was elected, in the first quarter of 2000. Two years on, with the bubble deflating -- and only because the bubble is deflating and investors are suffering --those who benefited most directly and dubiously are beginning to be called to account.
Who is to blame? Bush? Hardly. Clinton? Not really. He did not control monetary policy, which was too loose. Nor could he be expected to prevent all the worst excesses of U.S. corporations, though there may be some sort of a case to answer in this regard. No, most of all those to blame were the executives and their accomplices in accountancy firms and on Wall Street, not the politicians.
The sand is going to keep shifting. U.S. blue chip stocks, many of which soared as much in 1998-1999 as the dot-com-laden Nasdaq, are vulnerable to major falls. The indices remain vulnerable. Renewed recession is possible. Weak growth is probably. The consumption that has kept the U.S. economy going is also a reflection of the 1990s bubble, the cheap money that is now sliding away. Don't let talk of insignificant "noise" deceive you. That is more nonsense. An era of false accounting but even more of false perceptions is coming to an end.
The sound and the fury mean something. U.S. business is going to be called to account. Accounting, auditing, the greed of the ridiculously rewarded yet bad executives are going to come under much-needed scrutiny. Some tough years lie ahead. Afterward a new era will arise.
Will Bush be part of that? He does not have the lucky timing of his predecessor, made successful by the unsound economy. Perhaps only another creator of great presidencies can save Bush: conflict. As he is swept down now by the sliding economic sand he may look desperately and hungrily at other sand far away -- and the Iraqi dictator, Saddam Hussein.
Global View is a weekly column in which our economics correspondent reflects on issues of importance for the global economy. Comments to [email protected].
