Re: The System is Broken

["Schulte-baeuminghaus" <schulte.baeuminghaus@xxxxxxxxx>]

Dear Jozef,

The great concern is and must be that, while details differ and while some
other corporations may not seem as "culpable" as Enron and others, virtually
all have used "creative accounting" and have employed a variety of devices,
including use of company options to meet labour costs, that appear to reduce
outgoings and that certainly inflate profits.
The sharp downturn in profits in the last year or so is serious enough in
itself but when we take account of the ways in which even the "collapsed"
profits continue to be inflated, we must be fearful about the extent to
which business and general economic conditions will deteriorate in the
months ahead.
This is in the context that, even where creative accounting and so on have
not been so much in evidence, for example, in Germany, the world's third
largest economy, there is already recession and rates of unemployment are
already very high - over four million in Germany at last count.
As we have noted in the last few days, Germany continues to struggle against
twin burdens that are at the heart of its "system" - the lingering burdens
of Wiedervereinigung are still there and the costs of Maastricht, as
distinct from its easy "benefits," are now coming due for payment.
The discussion at WEF seems to have touched only on the fringes even of the
accounting problem, without ever getting near the heart of it or giving any
real indication of its extent and likely impact on economies and societies
everywhere.
Attention has already been drawn to the thesis that it is Japan and its
failure to deal with decade-long problems that poses the greatest risk to
the world economy.
So we have the United States, Japan and Germany - the three most powerful
economies in the world - all in serious economic difficulty, at the same
time, not only with short-term "cyclical"  problems, but with fundamental
flaws in their basic systems.
This is why VOW is not only "a necessary initiative" but also an urgent
initiative.



James Cumes



----- Original Message -----
From: "Jozef Imrich" <chezimrich@xxxxxxxxxxx>
To: <VOW@xxxxxxxxxx>
Sent: Monday, February 04, 2002 10:24 AM
Subject: The System is Broken


> World needs tough accounting rules, economic forum told
>
> Executives attending the World Economic Forum have called for the
> establishment of tough, global accounting rules to prevent another
> collapse of the magnitude of Enron Corp, the largest bankruptcy ever.
> "Enron simply proves the point that we've known for years: the system is
> broken," said Lochlann Quinn, chairman of Ireland's Allied Irish Banks,
> and a former accountant at Andersen, Enron's auditor.
>
> "We need to overhaul the way auditors are selected and compensated," Mr
> Quinn said.
>
> At a session entitled "Lessons about a Fall From Grace," several
> participants stood up in a crowded conference room and urged panelist
> Carl Levin, the Democratic senator from Michigan, to push for new global
> rules.
>
> "The rest of the world has looked at the American markets as a model for
> regulation, disclosure and transparency," said Munir Abdul Majid, a
> Malaysian real estate developer who from 1993 to 1999 served as the
> first chairman of the Malaysian Securities Commission.
>
> "One begins to get rather scared by the way Enron disintegrated," Dr
> Majid said.
>
> "This could lead to great uncertainty in global markets unless it is
> addressed."
>
> In recent weeks companies that have any hint of flawed accounting have
> seen their shares drop sharply.
>
> Enron filed for bankruptcy protection late last year after disclosures
> that executives used secret partnerships to conceal debt and boost
> profits.
>
> "The aversion to risk is beginning and will continue to have real
> ramifications on the market," said another panellist, Gail Fosler, chief
> economist at the Conference Board.
>
> Having tougher, global accounting standards could have enabled
> regulators to detect some of Enron's questionable accounting practices
> early on, said Michael Groom, president of the Institute of Chartered
> Accountants in England and Wales.
>
> "Enron's off-balance sheet trades would have been caught by UK
> regulators," Mr Groom said.
>
> "The US has to look to a global approach to accounting and take the rest
> of the world with it."
>
> Mr Quinn suggested companies should be stripped of the ability to hire
> auditors. "We have a big oxymoron in this business: independent
> auditor," he said.
>
> "Because auditors are hired by companies and paid for by companies, they
> really lose their independence. Everyone at any accounting firm knows he
> or she won't get promoted if he fires or loses a client."
> In all, 10 congressional panels and regulatory agencies in the US are
> probing the collapse of Enron and the role of Andersen.
> Next week former Enron chairman Kenneth Lay and Andersen chief executive
> officer Joseph Berardino will be questioned at hearings run by the House
> Financial Services Capital Markets sub-committee.
> "The question is why are there so many investigations and the simple
> answer is that there is an awful lot to investigate," Mr Levin said.
> "What's at stake is public confidence in the markets."
> It was clear the US needed to adopt new rules, he said.
> "We obviously need to change the constraints. I hope we don't overdo it
> because we can't put our own financial institutions at a competitive
> disadvantage in the global economy."
> Dr Majid said he would rather the US err on the side of over-regulation
> this time around.
> "Essentially, after all the rhetoric about transparency, all we have is
> a very clear window on a very small part of the financial world," he
> said.
> "We need to be expand on that in the future to maintain confidence in
> the US stockmarket and markets around the world."
> (Bloomberg 4 February 2002)
>
> To be for ever one click away ...
> http://www.abctales.com/abcplex/viewfeature.cgi?f=277
>
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