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It’s Time to sell Stocks and Buy Gold

by Gary Larrabee Tuesday, Feb. 12, 2002 at 5:56 AM

Enron is the tip of the iceberg - In 2001, with 'pro forma' creative accounting, the top 500 US listed companies were able to report earnings of 42 percent more than that allowed by 'generally accepted accounting principles', writes David Podvin in an article, Multi-Trillion Dollar Financial Scandal.

Rumor Mill News Reading Room Forum



Posted By: Boudewijn Wegerif

Date: Saturday, 9 February 2002, 4:44 p.m.


'This Thing Involves Everybody'

By David Podvin - February 4, 2002

"Immediately after business slave George W. Bush took power, Corporate

America went on a lying spree. Dan Rather, Tom Brokaw and Peter Jennings

appear loath to report that such high profile companies as Viacom, General

Electric, and Disney are also engaging in the accounting scheme."


A multi-trillion dollar financial scandal is occurring in the United States

right now. It threatens to inflict unprecedented carnage upon Corporate

America and horrific damage to our national economy. The mainstream media

is aware of it, but most Americans are not, because the corporate news

outlets refuse to report on it. It is not conspiracy. It is complicity.

The coverage of the Enron situation has primarily focused on the

disintegration of a powerful corporation due to the deceit and criminality

of those who ran the company. The few reporters who have looked below the

surface have proven linkage between Enron's corruption and its political

connections to the Bush administration. While the crimes of former Enron

chairman Kenneth Lay and the collusion of former Texas governor George W.

Bush are significant, the corporate media is selfishly choosing not to

focus on the big story.

In February of 2001, Enron stock was trading above per share, which

placed a market value of more than billion on the company. Today, the

stock no longer trades, rendering Enron virtually worthless. It is crucial

to remember that, despite the harrowing decline in its fortunes, the

company never reported a bad earnings quarter.

Enron's duplicity is an extreme symptom of a financial cancer that

threatens the health of the economy. The disease is a malignant accounting

method that has received legal protection from conservative politicians on

behalf of their corporate benefactors. It is called 'pro forma'. Originally

intended to allow companies to compensate for extraordinary events that

distorted their financial reports, the pro forma accounting method has led

to the greatest fraud ever perpetrated.

Previously, publicly owned companies had been legally required to provide

shareholders with an honest accounting of their earnings. The standard used

was GAAP, Generally Accepted Accounting Principles. Under this method, a

company would state its earnings based on the old fashioned equation of

income minus expenses. Using pro forma, companies decide which expenses are

irrelevant, thereby providing great latitude for creativity.

Freed from concerns about regulatory oversight, this country's biggest

companies became dramatically more 'creative' with their earnings reports.

Current estimates for S&P 500 corporations are that they have collectively

earned about 0 billion in 2001 when using the pro forma accounting

method. However, when using GAAP, they have collectively earned about 0


Those who claim that Enron was an exceptional case are technically correct.

While Enron overestimated its earnings by 100%, the average large publicly

held American corporation is overestimating its earnings by only 42%.

IBM reports pro forma earnings. So does Intel. And Cisco Systems. And Dell.

And Sun Micro. And Motorola. And Microsoft. And... By engaging in such

manipulation, with the assent of accountants and governmental oversight

agencies, Corporate America has conned the public into investing trillions

of dollars based on phony earnings. Cisco, for example, has used its

artificially inflated stock price as capital to acquire other companies.

Many corporate empires have been built on such accounting legerdemain,

including General Electric (NBC), Viacom (CBS), Disney (ABC), AOL/Time

Warner (CNN, Time Magazine), News Corporation (Fox), The Washington Post

Company (Washington Post, Newsweek), the Tribune Corporation (Chicago

Tribune, Los Angeles Times), and the New York Times Company (New York

Times, Boston Globe).

Enron is the tip of an iceberg on which sits the entire mainstream media. A

national association of accounting firms has called on the Securities and

Exchange Commission to require all publicly held corporations to report

real GAAP earnings. The return to ethical accounting standards would mean

that, in order to reflect the current valuation of the Dow Industrials, the

average would fall to 5825. In order to reach the historical norm based on

GAAP, the Dow would decline to 3300.

A major decline in stock prices would erase trillions of dollars of

investors' wealth. With the uninformed public currently heavily invested in

the market, this would have a crushing impact on the finances of the

average American.

In 1995, Senate Republicans and almost half of their Democratic colleagues

joined to override President Clinton's veto of legislation providing

corporations with protection from shareholder lawsuits. The leader of the

effort to dramatically reduce civil liability for companies that report

phony earnings was Wall Street lobbyist Harvey Pitt, who has made a career

of defending the shady dealings of stock market thieves like Ivan Boesky.

Just as his father hid the magnitude of the savings and loan scandal until

after the 1988 election, Bush is desperately trying to obscure the truth

about Corporate America's financial sleight of hand in order to defer the

tumbling of the house of cards until after the 2004 campaign. He expects to

be helped in this effort by the man he appointed to be Chairman of the

Securities and Exchange Commission, the one who is most responsible for

seeing that corporations accurately report their earnings. Harvey Pitt.

The powers that be are pulling out all the stops. What they are fighting is

the law of gravity. As the high powered executives at Enron learned, all

the political machinations in the world can't prevent a stock from falling

when the word gets out that the books have been cooked.

After investors discover they've been scammed, they sell, and the mightiest

of companies can be crushed. Less than a year ago, Enron was the seventh

largest corporation in America. Today, it is no longer functioning as a

business entity. It is, for all intents and purposes, dead.

The greatest legacy of the Enron debacle will be increased public pressure

on companies to report their real earnings. If corporations are forced to

be honest, then there will be shocking revisions in the financial

statements of America's most prominent businesses.

The current situation is a scandal of almost incomprehensible magnitude,

but it is not a conspiracy. For years, the disgrace of earnings

manipulation has been an open, dirty little secret. Dissidents like the

highly respected money managers at Comstock Partners

(http://www.comstockfunds.com/) and brokerage analyst Alan Newman

(http://www.cross-currents.net/charts.htm) have been screaming bloody

murder about how Corporate America is cheating the public.

Their voices have not been amplified. Dan Rather, Tom Brokaw and Peter

Jennings appear loath to report that such high profile companies as Viacom,

General Electric, and Disney are also engaging in the accounting scheme.

The current reported level of corporate earnings is a mirage. The investing

public has been taken for a magic carpet ride. The deceit of management,

now so evident in the case of Enron, is endemic in corporate boardrooms

across America. It is the massive impending economic fallout from that

bitter reality which is the looming tragedy in this story.

While the media continues to focus on the microcosm of corruption at Enron,

the public at large has yet to be informed of the epidemic of the earnings

lies. As Deep Throat told Bob Woodward during the Watergate scandal, when

the reporter was focusing on the criminal behavior of Nixon functionary

Donald Segretti, "You're missing the big picture. You're missing the

overall." "This thing involves everybody."

New Economic System for the Kingdom of God



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