The Bottom Line / Restoring faith
The vastness of WorldCom's fraud ($3.8 billion in the past five quarters) surprised even the great cynic of the American capital market, James Chanos, known for uncovering hidden debts and inflated profits of several corporations.
WorldCom. The vastness of WorldCom's fraud ($3.8 billion in the past five quarters) surprised even the great cynic of the American capital market, James Chanos, known for uncovering hidden debts and inflated profits of several corporations.
Why was Chanos amazed? Because up to now, it was thought companies could deceive through inflating reported profits by writing current expenses as investments, or by pumping up inventories, or through turning "conditional" sales into actual sales. It now appears WorldCom lied through overstating its cash flow, so now a corporate cash flow sheet becomes unreliable. So what is left to trust? If the chief financial officer lies, if ex-CEO Bernard Ebbers receives a company loan of $366 million (!!!), accountants are amiss because they don't want to lose a client, and analysts fail to tell the truth because of their "success" commissions - is it any surprise the American public has completely lost faith in the stock exchange.
Exalted lot. While all sectors are having to take a sharp cut in their budget, the Knesset House Committee managed to find time yesterday to pass a bill to provide full bodyguarding services for MKs, on its first reading. According to the bill, the Knesset security officer will employ private guards to protect 40 MKs at an annual cost of NIS 40 million.
Why should members of Knesset get all-round protection when the average citizen is vulnerable to terror attacks? Is their blood redder? Have they become mightier than thou? This is how they want to restore the public's faith? The Knesset already has a guard unit, the IDF accompanies any MK that goes into the territories and there are also some MKs the police and Shin Bet security services protect. So why do another 40 MKs need bodyguards? Of course, such arguments don't wash with MK Yossi Katz (Labor). He wants the 40 guards and the NIS 40 million is nothing to him. It's only other people's money.
Cease-fire. Governor of the Bank of Israel David Klein gave a speech yesterday, but did not take the opportunity to say what he really thinks about the government's budgetary management. Last Monday, Klein met with Finance Minister Silvan Shalom, who implored Klein to accept a "cease-fire" between the two: He won't talk about the interest rate if Klein won't mention the budget.
Yesterday Klein demonstrated that he took this restriction as only partial. He chose to talk about the interest rate and rebutted claims that the central bank does not set rates, but rather is dragged into line by the markets. For dessert, Klein added that the government ought to aim for a budget deficit of even lower than 3 percent GDP next year and that growth will be only between 0-1 percent, which means the budget must still be drastically cut - and that this would restore confidence.
He did not attack treasury policy head on, and I therefore wouldn't be surprised if Shalom decides to withdraw his "monetary council" bill from Knesset, and set up a joint team with the bank to discuss afresh ideas for the new law. Well, who said there's no such thing as a free lunch?