BD # 15

Brain Dropping #15

I learned in 1st Grade that two plus two, and two times two, equals four.  This, I was taught, is an immutable law of the universe.   But back then I was a child and thought “like a child, but when I was an adult I put away childish things, and looked through the glass darkly.”  Now I well know that the laws of mathematics can be set aside in the calculations of economic foolery, especially in a “Kleptocracy” where we are ruled by thieves.   The vital intermediary for this  perversion of the straightforward rules of mathematical certainty is the obliging CPA – the Certified Public Accountant in his magical manipulation of the balance sheet.  Magical?  Why yes! – making a negative value appear as a positive on the balance sheet as per the prestigious accounting firm of Arthur Anderson of ENRON fame.  That episode of October 2001, was one of the rare times that the public-at-large was made aware of the torturous distortions  a well-bribed, creative accountant was capable of in making things come out just right on the corporate balance sheet to spare the oligarchs the burden of paying a fair tax, or to aid in the duping of hapless investors.

This country is awash in accounting scandals – by the hundreds – which are rarely prosecuted.  “Accounting scandals are political and/or business scandals which arise with the disclosure of financial misdeeds by trusted executives of corporations.  Such misdeeds typically
involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilities, sometimes with the cooperation of officials in other corporations and affiliates.”  Often managers and employees are pressured or willingly alter financial statements for short -term personal benefit, frequently at the expense of pension obligations.  No-one goes to jail.  Even under the most glaring circumstances a fine is levied, which as a percentage of the corporate  profits, is miniscule.

How crucial is this criminalization of the balance sheet?  The accuracy of such information has a bearing on the viability of even the smallest investment, the safety of a state’s pension fund and the funding of grass roots social programs.  One historian asserts that it was the invention of double-entry bookkeeping which precipitated the transition from Feudalism to robust Capitalism, and in the modern era plays a vital role in keeping the boat from sinking.  There is an oversight group without any enforcement power – The Financial Accounting Standards Board – which attempts to publicize the worst offenders.   But given the dormancy of the Department of Justice under AG Holder in these matters, I would not hold out any hope for a “reign-of-honesty” in the world of big business.   Meanwhile the corporate balance sheet becomes an exercise in creative fiction to the detriment of honest, taxpaying Americans.

Al Salzman

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