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Join us as we discover, document, expose and challenge the bad people, the bad institutions and the bad ideas that stand in the way of wealth creation -- and show you how to fight back!

Friday, November 15, 2002

FLOYD NORRIS: ACCOUNTING REGULATOR? PART II    You know, if it's true that Harvey Pitt asked Floyd Norris to serve on the Public Company Accounting Oversight Board, maybe there was the method to the seeming madness. Maybe it was a brilliant piece of public policy judo. Saddled with the unwanted duty of populating a board that Pitt no doubt despised, what better way to assure its impotence and destroy its credibility than to put someone as eminently unqualified as Norris at the top of it -- yet someone whom the opposition would scarcely be able not to embrace? Maybe Pitt wasn't as politically inept as he was made out to be.

Posted by Donald L. Luskin at 1:30 PM | link  

FLOYD NORRIS: ACCOUNTING REGULATOR?    I'd thought that Harvey Pitt was doing a great job as chief of the Securities and Exchange Commission, and it's a pity that he was forced to resign over the way he handled the nomination of William Webster to head the new Public Company Accounting Oversight Board. But if this report by James Stewart (my fellow columnist at is correct, then I may have to hope that he'll be reinstated so I can hollar for his resignation.

According to Stewart, Pitt asked New York Times columnist/reporter Floyd Norris to serve on the Accounting Oversight Board. I simply don't believe it. First, Pitt has in all cases wisely sought to lower the intensity of the jihad against "corporate crooks," and appointing Norris -- a loose cannon in the war on capitalism -- to a position of influence like this would have exactly the opposite effect. Second, it's inconceivable to me that a professional like Pitt, who as a securities litigator understands the life-and-death importance of the work of this board, would appoint to it a mere journalist.

But isn't that the mistake the media expects all of us to make every day -- to appoint mere journalists to perform the critical work of interpreting the behavior and regulation of the markets and the economy? It troubles me every time I see Norris on some TV news show, brought in as an "expert" to talk about Enron or WorldCom or some other scandal du jour -- but I write it off as the media both cutting corners and flattering itself through one medium's use of another medium's footsoldiers in place of real sources. The idea of elevating this practice to the level of government -- of empowering a bitter and envious old kvetch like Floyd Norris not just with an endless number of barrels of ink but with the police power of the state -- is horrifying.

Posted by Donald L. Luskin at 11:43 AM | link  

ORDEAL BY SLANDER    Wall Street Journal reporter Charles Gasparino has been on a rampage this week to be the first with every new bit of gossip leaked from NY attorney general Eliot Spitzer's office trying to connect Salomon Smith Barney telecom analyst Jack Grubman's upgrade of AT&T with improper influencing from Citigroup chairman Sandy Weill. The story has moved a long way from where it started in August, when Spitzer's office began publicly investigating the possibility that Grubman's 1999 upgrade of AT&T resulted in SSB getting a lucrative lead underwriting assignment for a major AT&T deal. Wednesday Gasparino rushed into print with a jumbled front-pager quoting a Grubman e-mail -- quoting it repeatedly throughout the article, each time a little differently -- suggesting that Weill had urged the upgrade as part of his power struggle with former Citi chairman John Reed. Today the story is that Grubman's upgrade may have been a payback for Weill's help in getting Grubman's kids into an exclusive private nursery school.

The final paragraph of Gasparino's story today, covering the nursery school angle, reprises the original issue of the case in the manner of historical backgrounding, treating it as though it were established fact: "But in late 1999, Mr. Grubman upgraded his rating on AT&T to the equivalent of a 'strong buy' from a 'hold.' A few months later, Salomon was chosen in early 2000 as one of three underwriters on a massive stock sale by AT&T, receiving nearly $45 million in fees. A few months after the deal, Mr. Grubman downgraded AT&T back to a 'hold.'"

How different in purpose and meaning this last paragraph is from another last paragraph -- one published in a Gretchen Morgenson story in the New York Times on August 24 when the scandal first broke. Back then, when the scandal was new, the last paragraph was used for balance, not for historical backgrounding -- it was the place where the Times buried -- buried, yes, but at least grudgingly acknowledged -- the exculpatory facts that made Sandy Weill seem like less of a crook. And exculpatory it is -- it simply blasts away any rational basis for connecting Grubman's upgrade to AT&T's selection of SSB -- the upgrade, and a subsequent downgrade, seem to have made no difference at all in AT&T's utilization of SSB as an underwriter!

"...before Mr. Grubman's positive report, the bank [Salomon] was not shut out of AT&T's deals. In February 1999, for instance, while Mr. Grubman was still lukewarm on the company, AT&T sold $8 billion in bonds, at the time the largest corporate debt offering in the United States. Salomon was one of that deal's lead underwriters along with Merrill Lynch. After Mr. Grubman became negative on AT&T in October 2000, AT&T included Salomon in a top role in five of its six subsequent major stock and debt sales."

Now, two months later, those facts are simply forgotten. As the story has moved on to more personal and more titillating levels, the original charges -- charges that were never proven, and against which there were critical exculpatory facts -- are now being treated as established facts, as a basis on which to add new, sordid details about the maneuverings of the rich and powerful.

Why else do you think Spitzer leaks all this junk? It's the classic McCarthyist technique -- "trial by slander." Weill may be able to survive this week's titillating but fundamentally silly charges -- but even when he does, the original and more serious charges will have been magically transformed from mere charges to unquestioned historical facts.

Posted by Donald L. Luskin at 10:09 AM | link  

Monday, November 11, 2002

REFORM REBORN?    Here's something that could change the world -- Bob Novak points out in his column today that GOP candidates who fearlessly embraced Social Security reform got elected, while those who followed the White House play-book and ignored it did not! Novak points out that maybe Social Security is not the third rail of American politics, which if you touch you die. This could be a third rail that you have to touch to live! It could be that the White House has not failed to notice this -- Bush said little about the economy in his post-election press conference last week, but this topic somehow just kept coming up.

Posted by Donald L. Luskin at 8:57 AM | link  

Sunday, November 10, 2002

THIS SHOULD MAKE PAUL FEEL A LITTLE BETTER    Paul Krugman is licking his wounds from last week's GOP electoral sweep, but his friends at the New York Times have sent him a little get-well-soon gift. Today's Sunday Magazine publishes letters from readers on the two previous week's cover stories -- Krugman's For Richer... (October 20, 2002) and Michael Lewis's In Defense of the Boom (October 27, 2002). Just in case you couldn't tell which side the Times is on just by how they positioned these two pieces, today's letters scream it loud and clear -- and since Krugman is incapable of embarrassment, he should be delighted. There are eleven letters -- eight about Krugman (all wildly adulatory) and three about Lewis (one complimentary, two critical).

Fortunately the letters are no more likely to change anyone's minds than Krugman's article was. One typically flattering but unpersuasive letter about Krugman (from a writer who describes herself as a "transplanted New Yorker" but who now, for unstated reasons, lives in Istanbul): "I used to be a bit afraid to admit that I'm not a capitalist. Now I understand the details behind my own reasoning even better."

Krugman should draw particular solace from this one, evoking as it does images of peasants with pitchforks reading the New York Times in Starbucks -- "Krugman's concerns about the inequity of wealth in the United States are right on target. Corporate and political exploitation of the middle and working classes has not escaped the notice of the 'rabble.' A storm is brewing. If I were a member of the superwealthy, I wouldn't be making any 'let them eat cake' jokes."

Posted by Donald L. Luskin at 12:08 PM | link