A Word from London

Herbert London & Lawrence Parks

Herbert London is the President of the Hudson Institute and the author of Decade of Denial; Lawrence Parks is the Executive Director of the Foundation for the Advancement of Monetary Education (FAME) and the author of What Does Mr. Greenspan Really Think? Herbert London and Lawrence Parks wrote the first article; Herbert London wrote the following articles.

Enron: The Catalyst for Fixing the System

It’s not merely that Enron destroyed the jobs of thousands, decimated pensions, and obliterated $70 billion in market capitalization. People’s lives are at stake. What do you do if you are an elderly person and your pension and your savings somehow evaporate? In Russia, after the savings and pensions of seniors were wiped out in the 1990s due to the collapse of the ruble, longevity went down five years for men and four years for women.

Enron’s principals cheated tens of thousands for the benefit of an elite few. It appears that every part of the system failed: analysts hyped the stock, and the SEC wasn’t as vigilant as it might have been. But, most of all, the public was misled by the certified, i.e., licensed, “public” accountants.

The accounting profession grosses many tens of billions each year. What does society get for this expenditure? Many (most?) accounting reports are useless and, more than one might assume, are misleading. GAAP (Generally Accepted Accounting Principles), which is an invention of the profession, often conceals as much as it reveals. It’s not that Enron did something that hundreds of other firms have not done. It’s that Enron pushed the envelope, with the blessings of the licensed professionals, and Enron got caught.

As long as twenty-five years ago, Distinguished Professor of Accounting, Abraham Briloff, sometimes referred to as the “conscience of the accounting profession,” was penning books with titles such as Unaccountable Accounting and More Debits than Credits, in addition to innumerable articles for Barron’s, in which he highlighted lapses in GAAP. So, it’s not that the industry didn’t know that it was misleading the public. Further, in recent years there have been hundreds of “restatements” of financial results for prior periods, virtually all of which overstated earnings. Ordinary people, who relied on the original “certified” statements before investing their retirement savings, and who were damaged, have no recourse.

What’s to be done? More than anything, we need to change the system so that these licensed professionals can no longer mislead the public. As a practical matter, reforming GAAP to disallow egregious obfuscation will be nearly impossible, because those who will be doing the reforming are often beneficiaries of the present system. We need to get rid of and replace GAAP entirely. Fortunately, that is fairly easy to do, because all corporations are already using a more objective set of accounting standards for tax purposes.

First, Congress should immediately pass a law making the tax returns of publicly traded firms public along with the tax returns of entities, domestic and foreign, in which they have investments. The IRS has a set of disclosure rules that allow for much less discretion than GAAP. Also, for tax purposes, firms do not “pump the tulips,” i.e., inflate earnings, because that would mean paying more tax money to the government. Second, Congress should greatly simplify the tax code, perhaps even eliminating corporate taxation altogether. But what about disclosure to investors? Who should decide what should be disclosed and when?

Without a doubt, the best-qualified group to set disclosure standards is not the Congress, and certainly not accountants, but large investors, e.g., CALPERS, Warren Buffett, etc. They are the ones with the greatest stake in publicly traded firms; they are knowledgeable, and they understand what information is needed for investment decisions. Congress should limit itself to legislating that disclosure is standard and is available to everyone at the same time.

To further reduce the role of accountants for individuals, Steve Forbes’ conception of a flat tax should be revisited. To make this palatable to ordinary people, the payroll tax should be reduced to a level that matches outlays for Social Security and other transfer payments. It is outrageous that the government collects taxes from those least able to pay under the guise of a Social Security “trust fund,” which is a complete fiction. When outlays for Social Security increase, then it’s time enough to increase the payroll tax.

Finally, and most important, Congress should repeal all laws that limit liability for anyone. People should be fully responsible for what they do or fail in their fiduciary responsibility to do. It is a misuse of government power to give a special elite refuge behind a “corporate veil” or “limited liability companies.” Officers and directors of corporations should have unlimited liability for the actions of their corporations. These reforms would go a long way to guaranteeing good corporate governance, full disclosure, and the assurance that our free enterprise system does not dissolve under an avalanche of fraud and special privilege.

Ultimately, it is not the government’s role to ensure the public’s confidence in business activity. Corporate leaders have that responsibility, and they should be proactive in exercising it. Now is the time for them to act, before the market extracts an enormous price for financial malfeasance and government scrambles to make things right.

When Islam Is Required in California Schools

It was reported recently by Assist News Service that in the aftermath of September 11 a large number of California public school students were asked to attend intensive courses and workshops on Islam.

The course mandates that seventh graders learn the tenets of Islam, memorize verses in the Koran, learn to pray in the name of Allah and are instructed to chant, “Praise to Allah, Lord of Creation.”

Despite the horrific attack of September 11 and the anti-American sentiments so deeply embedded in radical Islam, I don’t object to students learning about the culture, history and religious beliefs of Islam.

What I do object to, however, is an apparent attempt to proselytize. Students in this course are required to memorize twenty-five Islamic terms, six Islamic phrases, twenty Islamic proverbs, along with the Five Pillars of Faith and ten key Islamic prophets. Islam is taught as the one true religion and students are encouraged to pray to Allah.

Now let us assume for a moment that Evangelical leaders could insert the study of Christianity into public schools. Students in this fanciful scenario would be required to read the contributions of Matthew, Mark, Luke, John and the Apostle Paul, passages from the Bible would have to be memorized and students would be encouraged to pray to the one true Christian God.

Before the ink was dry on the curriculum guide, the ACLU would have its attorney in state court claiming this was an egregious violation of the separation of church and state. Yet curiously the ACLU has not reacted to the teaching of Islam in public schools.

It may be of interest to ACLU officials that Christians are enjoined in their Scriptures to “render … unto Caesar the things which are Caesar’s and unto God the things which are God’s.” While this phrase has undergone many interpretations, it has legitimized a system in which two institutions exist side by side, each with its own laws and chain of authority-one concerned with religion, called the Church, the other concerned with politics, called the State. No such separation exists in Islam.

One might therefore conclude that the ACLU would be particularly vigilant when an Islamic course is inserted into the junior high school curriculum of several California schools. But apparently ACLU standards are selective, or should I call them hypocritical?

A parent of one of the students in this Islamic course notes, “We can’t even mention the name of Jesus in the public school, but students can be taught Islam is the “true religion.” Another parent describes the program as “indoctrination.” Yet curiously there hasn’t been a collective parental outcry about the course.

The textbook for the Islamic course, Across the Centuries, published by Houghton Mufflin has been adopted by the state of California. In this text Islam is presented in a positive manner, as I believe is appropriate. After all, Islam has brought comfort and peace of mind to countless men and women. But this is not a monochromatic picture. Islam has also promoted wars, massacres, cruelty against Christians and Jews and many other non-Muslims. Moreover radical Islam, Wahhabism, is clearly a sponsor of international terrorism. By contrast, Christianity in the text is pictured largely in a negative light with emphasis on the Inquisition and the Salem Witch Trials. While these events cannot be denied, the positive dimensions of Christianity should be emphasized as well.

What then can one make of this situation? For one thing, “tolerance madness” has clearly afflicted California. Most people are unwilling to say something is wrong if political correctness is involved. In this case, any reservation about Islamic proselytizing in the classroom is perceived as bigotry; Christianity, on the other hand, is another matter.

Second, there is a lot of silliness in the schools that masquerades as serious study. While students are memorizing parts of the Koran, I’d be willing to wager they have never been asked to memorize a Shakespeare sonnet.

Third, textbook adoption in California, or for that matter other large states, represents big bucks for the publisher, but, generally speaking, a careful analysis of these books by the state superintendent’s office doesn’t occur. Hence, marginal books enter the ranks of required reading.

Last, as already noted, the study of history and culture demand consideration of Islam. But study does not infer indoctrination. An American system that emphasizes a separation of church and state should not endorse any religious belief in the schools. Unfortunately California residents sometimes act as if they don’t live in the United States.

Cornel West and Afro-American Studies v. Larry Summers and Harvard

A dustup recently erupted at Harvard University when its new president, former Secretary of the Treasury Lawrence Summers, asked several pertinent questions to a member of his faculty. Keep in mind that in the era before political correctness university presidents asked questions all the time or, at least, they were expected to do so.

There may have been tension between a president and a faculty, but there wasn’t any doubt where authority rested. That is no longer true particularly for the academic stars in Afro-American Studies programs.

Accordingly to recent reports, President Summers asked Professor Cornel West of the Afro-American Studies program why he was spending time recording a rap CD and working for the Al Sharpton presidential campaign rather than engaging in serious scholarship. Since Professor West is employed by Harvard and since Harvard is an academic institution, this is-by any standard-a reasonable line of inquiry.

Nonetheless, Professor West and his chairman, Henry Louis Gates, took exception to the query, calling it “insulting criticism.” Highly affronted by the claim of jejune pursuits and the further suggestion that Professor West gave out inflated grades promiscuously, the scholars struck back.

First the professors contended that President Summers was less than an ardent supporter of affirmative action, a contention borne out by the omission of any endorsement in the president’s inaugural address. Second, they maintained that the president didn’t exhibit due deference to their unique standing on campus. In fact, they threatened to pack their books and move the entire program to Princeton. And last they called in reinforcements, namely Jesse Jackson and Al Sharpton-newly awakened defenders of academic freedom-or should I say “academic license.”

The Princeton president seemed to be awestruck at this “opportunity” of landing these “stars” and rolled out the proverbial red carpet. Jackson and Sharpton immediately organized a rally at which Summers was excoriated and called on to endorse affirmative action in unequivocal terms.

Probably realizing that any demurral on affirmative action will manifest itself in charges of racism and realizing that the politically correct gestapo on campus would be out to nail him, Summers blinked.

He called the dust-up a “misunderstanding”; he met with Cornel West to explain (read: apologize?) and he issued a statement supporting affirmative action.

Shelby Steele, research fellow at the Hoover Institution, described Summers actions as “capitulation.” Michael Meyers, writing in the New York Post, described this episode as “polluting higher education with phony ethnic loyalties . . . ”

Alas, black indignation triumphed yet again at an American university. In fact, had Summers stood his ground in what was clearly an appropriate posture, he would have been hailed as a hero by The Wall Street Journal editorial board, but would be regarded as persona non grata on campus. The Wall Street Journal does not pay his salary.

Moreover, the usual presidential response to controversy on campus is “no trouble on my watch.” Jackson and Sharpton were there to make trouble; that is what they do for a living. Summers could have, perhaps should have, confronted them, but then again that would require a special brand of courage and a defiance of black resentment and white guilt.

What this incident clearly demonstrates is who really controls elite campuses today. It is not the president or even the Board of Trustees. It isn’t all of the faculty or the student body. Authority rests with those who can use resentment as a political weapon.

Imagine a young man-tenured, white professor-who says that instead of engaging in research, he’d prefer to engage in rap recording. Would he have any defenders at his dismissal? Would rallies be organized by Jackson and Sharpton?

Down the slippery slope of academic degradation moves Harvard University, once the most acclaimed institution of higher learning in the world.

A former president of Harvard, Charles Eliot, was asked why there is so much intelligence at his university. He thought for a moment and answered playfully, “the freshman bring so much in and the seniors take so little out.”

If President Summers were asked why is there so much indignation at Harvard, I suspect he might say, if he has any of Eliot’s playfulness, “the professors bring so much in and they never leave.”

I wish President Summers would have stood his ground. But I’ve been at a university too long to expect even a modest display of courage and, after all, I also know who runs the Academy.

To Be Old, Confused and in the Generation Gap

It is natural for anyone over sixty to grow nostalgic with the passage of time. After all, where did that time go and why so quickly? But there is another issue that comes with advanced years and that is the extent and acceleration of change.

When most commentators discuss change they invariably mean technical developments such as computerization, cell phones, fax machines, supersonic jets, which have profoundly changed our lives. But I, on the hand am far more startled by cultural change; how we live, speak to one another and the gap that emerges in generational views.

I recently read an article in The Country Chronicle that corresponds to my own confusion with the present time. For example, when I grew up “gay” meant you were happy; people cut grass-they didn’t smoke it-and my mother used “pot” to boil noodles.

I can remember when men didn’t hug and women didn’t curse. Baseball players didn’t do a little dance around home plate when they hit a home run and basketball players didn’t preen in front of a television camera after a dunk.

I was once obliged to call older folks “Sir” and “Ma’am” and had to cover my mouth when I coughed. I could never eat outdoors unless it was a picnic or at a hot dog stand. And if my gum wrapper fell outside the perimeter of a garbage container, I felt guilty if I didn’t pick it up.

Yes, that was many years ago. In fact, it was so long ago that people actually took responsibility for their actions. Who would have thought of suing the government if you fell down and broke a leg in a public facility?

There was a moment when “time sharing,” meant getting together with the family and “quality time” meant a walk with mom or dad. If a friend asked if I “made out,” he usually meant did I pass the exam. Kids routinely went to the movies for excitement, not titillation.

When I played basketball the last thing you would do on the court is embarrass an opponent. On report cards, most teachers believed God gets an A, teachers get a B and students get what’s left-if they work for it. Senior year in high school was not a time for trips and public service-classes were held and students were expected to attend. How quaint!

If someone told me right and wrong are relative, I would have introduced him to my uncles who fought in World War II. The ensuing conversation would be very brief. A “home entertainment unit” was a family sing, “hard rock” was redundant and “scoring” was solely related to points on the basketball court.

I have a difficult time with “assisted living” as a concept since I assume it’s an old person using a cane. Similarly, I don’t know when the middle years reached the sixties and adolescence ended at thirty.

Food tastes have certainly changed. I can remember when pasta was spaghetti and coffee didn’t have foam at the top of it. When I went to a restaurant no one ever asked me how I liked my fish cooked. Moreover, I still don’t know why anyone eats uncooked fish, albeit that’s the only way my daughters like it.

Courtship is yet another antediluvian idea, a distant cousin of bar hopping. If someone talked about “hooking up” it meant installing a shower curtain in the bathroom. “Getting to first base” meant hitting a single. Sex and the single girl were oxymoronic except, of course, for the fast girls who didn’t remain single very long. A “pill” was a dull person, but he didn’t prevent pregnancy. People lived together, but they generally got married first. And wives needed husbands to have babies.

Rap was something you did when the doorbell didn’t ring. Hanging out was what you put on the line to dry. Cool was the way you drank lemonade and a “hottie” was my mother’s chicken soup.

A navel was never exposed, tattoos were for sailors exclusively and basketball players wore shorts, not short long pants. “Dis” was a sound made by angry cats. Hip-hop was something you did when you played potzie on the streets.

There was a time when .240 hitters didn’t make it to the majors much less get million dollar contracts. Men had hair on their chests and women didn’t have hair under their arms. If asked, “Where have you gone Joe DiMaggio?” the answer was center field.

All was not right with this world of my past. There were wars and poverty, racial conflict and recession, but I was less confused. Yes, there has always been a generation gap, but now it’s a valley, and I’m afraid it’s too wide to cross. What I hope for is a cycle with some return to the culture I best remember. Anyone for charlotte russe?

What Miami’s Victory in the Rose Bowl Really Means

The University of Miami Hurricanes won the Rose Bowl in convincing fashion over Nebraska. Larry Coker, the first year coach, took a team that had been on probation for three years and guided it to a national championship and an undefeated football season.

Yet that is not all that Coach Coker did. He reinvented Miami football from a team of braggarts to a team of humility, from a team of felons and thugs to a group of respectful, single-minded football players.

One might assume that this transformation would receive as many accolades as winning the national championship. But that is not the case.

William Rhoden in the New York Times (Jan. 5, 2002) writes, “I liked the old Miami better.” He prefers the Miami team that taunted opponents, greeted them with obscene gestures, routinely engaged in unsportsmanlike conduct, and was filled with felons on probation.

Presumably, the old Miami was more colorful than the present version and, after all, in a television age color is more significant than sportsmanship.

What Mr. Rhoden suggests is that Division I football is a source of entertainment and revenue. Its attachment to scholarship and character development are incidental.

He writes about the Cotton Bowl in 1991, a game won by Miami over Texas with the lopsided score of 46 to 3. “Miami’s performance that day was evidence of the Faustian pact entered into by big time football programs when they began bringing black athletes-not students or professors-to campus by the truck load. They wanted black muscle, but not the attendant style and sensibilities that often accompanied muscle.” Is it stylish, if one can call it that, when players are “ dissing” and humiliating opponents?

Clearly the expression “student athlete” at big time football programs is an oxymoron. Football is a magnet for donors and affords a bankroll for many academic programs. Almost everyone recognizes the hypocrisy between the goals of a football program and presumptive educational aims.

Yet even with that hypocrisy, I prefer the new Miami football team, the one that doesn’t taunt or try to humiliate foes. In fact, I think Coach Coker should be honored as much for harnessing players’ behavior as for his victory in the national championship game.

Unlike previous Miami teams, whose behavior resulted in NCAA probation, the current version didn’t make newspaper headlines for criminal violations and doing backflips to celebrate a touchdown. They simply played the game with brio and maintained sportsmanship and humility under the current rather flexible standard of on-field behavior.

My suspicion is that Mr. Rhoden has been seduced by a zeitgeist that puts an emphasis on humiliation instead of sportsmanship. What counts is success, not how you get it, but whether you get it.

The lesson of big time athletics is the ends justify the means. Rhoden is merely an exemplar of this psychology. The word amateur-meaning lover of the game-has been relegated to the ash heap of history as television contracts and the lure of professional football drive undergraduate decisions.

Old time athletes, of which I am one, invariably refer to sports as character building. Alas, I still make this argument. But I suspect neither old nor new Miami would consider this concept in the team equation. The new Miami may be better than the old Miami, yet I am not so naïve to believe that character enters locker room discussion before a game.

Rhoden seems to believe that taking gifted black athletes from the ghetto to Division I programs brought along a street mentality as well. He may be right. What he doesn’t seem to understand is that poor athletes invariably dominated college sports in the past and brought with them to college a street sensibility as well.

The difference is that in most instances today college programs allow this ghetto view to be expressed; in the past, it was shunned. If a player intentionally showed up an opponent, he would be benched. If a player tried to hurt an opponent he would be ostracized by teammates.

It wasn’t that players necessarily had more character; respectful behavior was simply a function of normative demands. Coaches wouldn’t have it any other way and fans expected sportsmanship from the athletes they admired.

I don’t think the clock will be turned back to an earlier sports era. But I do think it’s a mistake to laud disrespectful and disdainful sports behavior even when it comes from a winning team.