Wall Street shenanigans made for sorry story - Phil Power (Farmington Observer).
Phil Power expresses his outrage at the seemingly inadequate and non-existent punishment meted out to the corporate executives responsible for the recent accounting scandals (“Wall Street insiders always end up OK”). Unfortunately, he failed to shine a light on the largest accounting scandal in the history of the United States and the culprits behind it.
Politicians routinely report the national debt as $3.5 trillion. Unfortunately this amount understates the truth. As of January 2, the Bureau of the Public Debt reports $3.6 trillion as publicly-held debt in the form of treasury bills, notes, and bonds. In addition, the bureau reports $2.7 trillion of intragovernmental debt. For the mathematically-challenged in Washington, this totals $6.3 trillion.
In addition to underreporting the debt, politicians lied about a budget “surplus”. For the past few years, Americans were told government income exceeded expenditures for the first time in decades and the government paid off some of its obligations. The government did pay off some of the publicly-held debt, but at the same time increased the intragovernmental debt. This would be equivalent to paying down the balance on your VISA card but charging even more to your American Express card. The end result? From fiscal year 1997 to 2002, the national debt rose each year from $5.4 trillion to $6.2 trillion. I wonder how much debt we would have accumulated without the “surplus”?
Now if $6.3 trillion seems rather large, brace yourself. Liabilities include all financial obligations, not just the amount of debt. For corporations, examples of additional liabilities include retirement and insurance benefits to be paid in the future. The Social Security Administration reports their fraudulent trust fund has a long-term unfunded liability of $25 trillion while Medicare’s unfunded liability stands at $17 trillion. While future reforms such as personal social security accounts and medical savings accounts could reduce these liabilities, the lack of honest dialogue between Republicans and Democrats offers little hope for the near term.
To put this into perspective, Worldcom over-reported earnings by $7 billion while Washington underreports its liabilities by over $40 TRILLION. But Washington’s accounting malfeasance doesn’t stop there. The General Accounting Office discovered $17.3 billion in unreconciled transactions last fiscal year. This means the federal government could not account for more money than Worldcom and Enron misstated as earnings. In addition, Congress plays with the books to avoid spending caps. When trying to avoid the cap, Congress will declare expenditures as “off-budget” or classify them as “emergencies” or “move” expenditures into the previous year to free up more money for the current year.
In recent years, Congress freely exploited each of these methods. Congress bailed out the railway worker’s retirement fund at a cost of $15.3 billion but declared the expense “off-budget”. This way the “surplus” could be reported higher until later in the next fiscal year when the books were closed. Also, Congress funded the 2000 census - a known and routine expense - through an emergency bill and avoided having its costs applied to the spending limits. In another example of cooking the books, Congress pushed the first military paycheck of fiscal year 2001 back into fiscal year 2000 to free money under the 2001 spending cap.
So while Congress attacks corporate America and demands accountability, they turn a blind eye to their own abuses. Does this somehow forgive the deceit and fraud committed by a few corporations? Absolutely not. Executives should be prosecuted and, if found guilty, thrown into prison. But at the same time, let’s send them some cellmates from Washington. Let’s restore confidence in the economy by applying the same standards to government officials as corporate executives.
[Letter to the Editor - Farmington Observer - published 01/2003]
