- ANNANDALE, Va. (CBS.MW) --
Have our politicians in Washington no shame? Given the shenanigans they
employ to manipulate the federal budget, they should be among the last
to criticize corporate America's accounting methods.
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- Perhaps our elected representatives are hoping that if
they divert our attention to how corporations are cooking their books,
we might not notice what a mess they've made of the federal government's
books.
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- According to Bill Frenzel, who himself served in Congress
between 1971 and 1991 and who now is a guest scholar at the Brookings Institution,
one of the only differences between the accounting methods used by some
corporations and the Federal government is that criminal sanctions do not
apply in the latter case.
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- This situation has led a number of investment newsletter
editors to throw up their hands in disgust.
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- This past Friday, after the stock market was driven down
even further by yet more evidence of malfeasance on the part of both corporations
and the federal government, Sy Harding of Sy Harding's Street Smart Report
pleaded: "Will someone please give investors a break?"
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- Imagine, if you will, how the Feds would react to a publicly
traded company that:
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- * Does not employ accrual accounting.
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- * Frequently changes the definitions used to classify
revenue and expense.
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- * Regularly places expenses "off budget,"
while nevertheless declaring as current income any associated revenues.
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- * Rarely, if ever, accounts for any of the insurance
that it underwrites or guarantees.
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- Our politicians would fall over themselves in righteous
indignation. Yet these are just a few of the methods that for years they
themselves have been employing to make the federal budget look better than
it really is.
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- The government's budget mess is not the only federal
government offense that upsets Harding. He also is shocked by the poor
quality of economic data released by the government. The latest example
is the Labor Department's monthly reporting of the unemployment data, which
he concludes is "almost unbelievable."
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- Here is Harding's opening statement for the prosecution:
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- "In early March the Labor Department reported that
66,000 new jobs were created in February, a surprising reversal of the
long stretch of monthly declines in jobs creation. It was taken as a sure
sign the economy was growing again, and the stock market rallied strongly.
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- "A month later came more good news, that 58,000
new jobs were created in March. But whoops -- the numbers reported the
previous month for February were wrong. Instead of 66,000 new jobs being
created as previously reported, there had actually been a loss of 2,000
jobs. So apparently the turnaround in the employment picture did not begin
in February as investors had been told -- but at least it had begun in
March.
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- "The following month came the good news that 43,000
new jobs were created in April, - but whoops -- the numbers reported the
previous month for March were wrong. Instead of 58,000 new jobs created
in March as previously reported, there were actually 21,000 more jobs lost."
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- Tongue firmly in cheek, Harding muses: "I'd hate
to think it's the same kind of self-serving on the part of Washington that
Wall Street firms and corporations have been guilty of, trying to make
investors (and voters) think that everything is better than it actually
is."
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- Harding concludes: "Rather than dragging more CEOs
off to jail right now for previous problems, Washington might do investors
a bigger favor by investigating why the government itself is misleading
investors with incorrect information."
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- Mark Hulbert is the founder of Hulbert Financial Digest
in Annandale, Va.
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