Monitoring our economy

Six months ago, the press was devoted to serious problems with the American capitalist system. Corporate fraud, accounting irregularities, and broker conflicts of interest were the center of the media's attention. Today, the media focus is elsewhere. The failings of corporate America are still present, yet America is not paying any attention.

Legislation to establish accounting oversight boards and resolve conflicts of interest was passed by Congress, but the regulatory agencies in the legislation exist only on paper. As long as no corporate regulatory bodies exist, corporations will continue to cheat, and the economy's struggles will continue. Congress should consider new options for policing corporations, accounting firms, and investment banks.

The concept of "self policing" is illogical. In an economic system where cheaters reap great rewards, and there is no regulatory body, many firms will cheat. The massive number of companies who restated their earnings after the collapse of Enron and WorldCom demonstrates how prevalent fuzzy accounting is in America. Agencies that monitor accountants are the only way to prevent accounting misconduct. Recent events have proven that we cannot trust American accountants and corporations to conduct business honestly.

Conflicts of interest between investment firms and small investors still exist. When corporations were failing, some large investment firms recommended that their small investors hold stock, while the firms themselves were selling. Investment firms used small investors to hold up the stock prices of falling corporations while the firms sold their holdings. Investment firms cannot effectively advise investors when conflicts of interest exist. Brokerage firms can no longer be so closely tied to investment firms.

The Securities and Exchange Commission (SEC) is an existing government agency designed to monitor stock markets, insider trading and investment banking. In the past, the SEC had a small budget, and could not effectively regulate. Recently, the SEC received a budget increase in order to make the agency more effective. The SEC already deals with illegal actions of corporations and investment firms.

Instead of creating new regulatory agencies, Congress should consider granting the SEC the power to monitor accounting agencies and allow the SEC to examine conflicts of interest. Members of the SEC have experience dealing with fraud, and will be able to recognize it. Although the original goals of the SEC did not include monitoring the accounting industry, considering how accounting reports determine the actions of investors, the SEC should be able to monitor both.

Given a larger budget, the SEC could effectively police many aspects of the corporate America. Instead of establishing new agencies to watch for accounting and corporate misconduct, Congress should strengthen the SEC. Consolidating the policing forces into one large agency would make for better monitoring. Corporations, accounting firms, and investment banks are all part of an intricate web in the American capitalist system. One agency should monitor all the players. Congress needs to investigate why its proposed monitoring agencies are not yet operating and consider pursuing other options for preventing corporate misconduct.

Adam Koeppel can be reached at koeppel@tuftsdaily.com.