Positive response to good news

JITTERY US markets heaved a huge sigh of relief when the bulk of the country’s top chief executives officers vouched for the integrity of their company accounts.

Under the cosh since the Enron and WorldCom debacles, confidence in the integrity of the free markets and free enterprise, which the US regards itself as a beacon for the rest of the world, has been pretty well undermined.

This followed disclosures the success stories of Enron and WorldCom were built on a tissue of lies, malfeasance and connivance by their auditors.

In the case of Enron, the role of auditors Arthur Andersen has resulted in the company one of the top accountancy groups in the world being destroyed over night.

Even though some companies failed to meet the deadline set by the Securities and Exchange Commission, markets appeared relived as the first deadline imposed by the Securities and Exchange Commission (SEC) passed without any further shocks to the integrity of the free markets being uncovered.

Wednesday was the deadline by which 700 chief executives in the US had to swear to the accuracy of their financial statements.

And while not all of those whose integrity was on the line complied by the set time just 500 of the 700 companies said they were clean seemed to be enough to inject a rush of relief among the major global investors.

That no other major company disclosed any other big fraud on its books looks to have been enough to send a rallying call to the markets.

So palpable was the relief in New York on Wednesday the Dow gained 3% gain by the close while the dollar also got some comfort from the day's events and strengthened against the euro.

Even further bad news from AOL Time Warner and a threat of a bankruptcy filing from United Airlines failed to scare off bullish investors.

How long that trend lasts is a matter of opinion, but the important point about Wednesday's 500 declarations of clean accounting policies by 500 of top chief executives in the US was desperately needed.

One of the big imponderables is whether or not this could happen again.

Not all the senior executives have met the deadline and who knows what may lie in waiting.

At this juncture the markets are choosing to belive that confidence in US big business is justified and voted with their investments yesterday and the day before.

Much of what has happened to undermine belief in the American way has been the greed and arrogance.

Enron and WorldCom believed they could defraud the system short term to boost their stock performances, enhance investor confidence and clean up the mess down the line when all of the building blocks had stared to deliver real profits.

Closer to home Elan seemed to operate along the same lines. It is significant that the top executives in the company, chief executive Donal Geaney and financial director Tom Lynch were former accountants in KPMG.

People forget KPMG signed off on Goodman International's accounts in the early 1980s.

A few months later the Dáil had to be recalled to pass legislation to prevent the liquidation of the company.

Teh professions wre able to hide behind accountancy rules and guidelines and nobody was ever held accountable although banks were owed about Euros 700m at the time and the group was on the rocks.

When Europe tries to insist that practices here are different it is difficult to take that assertion on face valvue given the recent experience with Elan and the carry on at Goodman International whiccast a long shadow over the economy for quite some time.

Luckily Goodman wasn't a publicly quoted company so there were no external investors and many of the bank were overseas because a lot of the big Irish banks were wary of the Irish beef sector at the time.

Meanwhile looking at the bigger picture the issue going forward that has to be addressed is the integrity overall of the markets and the support systems with which it surrounds itself.

It is an interesting fact that in the early 1980s a chief executive in the US could expect to earn about twenty to twenty five times more than the average salaried worker.

By the end of last year he or she was earning more than 500 times the average industrial wage in the US.

Anyone who saw the shock and disillusion on the faces of Enron workers as they were interviewed following the collapse of the company knew their faith in the free markets and those whom they regarded as its cheer leaders had been shattered. Thousands of lives and retirement plans destroyed by the greed of a few under the pretext that if you paid the best you got the best.

That's the excuse used by those in the banking sector for the huge salaries paid their top people. You have to pay the best in order to get the best has always been the lame excuse.

It did not work in the case of AIB Group and Allfirst.

And to cap it all the boss of the entire operation got a bonus of Euros250,000 while nearly Euros 800m was lost on his watch.

What we seem to be looking at is a system that actually determines its own rules even after it has been found wanting.

That situation has to change. Free markets are not an end in themselves and have no in built morality.

Those who operate them and manipulate them will have to be called to account otherwise the greed that oils the engine will ultimately destroy confidence in it if it hasn't done so already.