The fraud of corporate "reform". (Insider Report).(Brief Article)

This summer's stock market plunge provoked an orgy of corporation-bashing, as politicians from both parties, led by President Bush, laid blame for the debacle exclusively at the feet of supposedly greedy corporate CEOs and corrupt accountants. Of course, such people exist, and they are particularly prominent during a Fed-driven economic boom -- a period in which loose monetary policies and easy credit encourage heedless investment in dubious ventures. But critics of irresponsible corporate behavior must recognize another federal role in the market meltdown: that of the tax code and federal investment guidelines in encouraging many of the accounting practices now blamed for ruining investor confidence.

In a July 23rd Washington Times column, former Treasury official Paul Craig Roberts pointed out that "the current accounting scandals have their origin in government rules.... SEC [Securities and Exchange Commission] rules permit the creative accounting which enabled [many] companies to delay public recognition of their failures for several quarters. Perhaps executives had hopes of turning things around, but the scene stinks because executives used the borrowed time to sell stock and award themselves bonuses."

Previous corporate "reforms," supposedly intended to provide timely information to investors, brought about the practice of quarterly earnings reports. Other reforms tied executive compensation to stock performance. This begat the practice of issuing "stock options," in which a stockholder purchases "a specified number ...