The conviction of WorldCom boss Bernie Ebbers for organizing the world’s largest ever corporate fraud ought not be the end of the response to this scandalous crime which wrecked the lives and destroyed the savings of tens of thousands of employees and small investors.
Yet it is already clear that the authorities are busy drawing a line under the WorldCom affair. The boss has been found guilty and grave assurances have been given that regulators are now far more alert to the sort of tricks that Ebbers and key top management played. Unfortunately, stock markets have been here before, following up corporate failures brought about by criminal manipulation of the figures with similar solemn and binding assurance about future vigilance. Yet still the WorldComs and the Enrons continue to happen.
It is however wrong to blame the regulators. The problems arise because the regulators are still too often seen as killjoys dedicated to reining in the market’s parade. Market professionals still only pay lip service to the regulator’s role of protecting the investor. Any new rules which slow up the market or add costs are seen as inhibiting its vitality and success. The regulator embodies the antithesis of a “good” market, where fortunes can be made or lost and where regardless of the direction in which the index is moving, the market professionals, the brokers, analysts, lawyers and accountants are still being paid their fees and commissions.
It is often hard to believe the way these market experts do not harbor early suspicions about stocks that perform dazzlingly above expectations and warn investors accordingly. The answer, of course, is that they do not want to scare investors away. As money piles into booming stocks no one is going to issue research saying that a sector like the dotcoms is dangerously overvalued. They will prefer to believe that the market s will continue to rise inexorably. And herein lies the problem of regulation. Faced with a wall of greed riding on a tidal wave of investment, regulators who are often themselves former market professionals are reluctant to invoke their powers to the full and prove that the latest new stock market emperor such as Bernie Ebbers in fact has no clothes.
Time and again the people whose job it is to check, whether it is the bona fides of companies or the honesty of government contracts in Iraq fail to do their jobs properly because they fear the backlash from the angry and mighty corporates and investors
The markets do not want to hear bad news. If the messenger cannot bring good news, then he should not bring any. For the salaried regulator with only his rule book to wave in the face of roaring market sentiment, there often seems little to be gained and much to be lost by trying to cry “Halt!” Much safer to wait until the evidence of wrongdoing becomes obvious and then move in when there is nothing to fear.
Everybody gains that way — except the little guy who has put every cent of his savings into the stock. You can’t worry about everybody, can you?
