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Western Press Review: Reactions To Yet Another U.S. Accounting Fraud

Prague, 27 June 2002 (RFE/RL) -- Following the Enron collapse, disclosures that WorldCom also violated accounting standards to an extraordinary degree has roiled world financial markets and drawn unusual volumes of press commentary today.


Writing in the "Frankfurter Allgemeine Zeitung," German commentator Holger Steltzner captures the general mood: "Are the markets going crazy? Do stock exchanges deal in nothing but illusions? One might be forgiven for thinking so."


"The Washington Post" editorializes that despite similarities, there are disheartening differences between the Enron and WorldCom cases. "The accounting tricks that triggered the latest stage of WorldCom's collapse in some ways recall Enron." It adds: "Like Enron, WorldCom employed Arthur Andersen to audit its accounts, a duty that Andersen failed to take seriously. Andersen happily signed off on WorldCom's 2001 books, which announced an illusory profit of [$l.4 billion]. Later, when the illusion had been exposed, Andersen helpfully informed WorldCom that its audit reports 'could not be relied upon.'"

The editorial continues: "Yet in other ways WorldCom is worse than Enron. The extent of its deceit -- profits were overstated by [$3.8 billion] -- appears to be greater, and the manner of the deceit is more troubling."

It concludes: "[WorldCom] cheated investors with the crudest of all scams, taking current expenses and counting them as capital costs that could be spread over an extended period. This violates Accounting 101. The fact that WorldCom executives dared to pull this trick shows how confident they were in their auditors' compliant attitude."


A "Financial Times" editorial laments the loss of "faith in the U.S. miracle." "The WorldCom accounting scandal is an arrow at the heart of the world's financial market assumptions -- that the United States was the paragon of the world's financial markets, with the most dynamic economy, the most innovative companies, and the highest accounting standards. Overseas investors were happy to fund the U.S. current account deficit because they wanted to have a stake in the great U.S. boom. But they must feel now rather as emerging market investors did in the mid-1990s, that they were suckers in a game rigged in favor of insiders."


WorldCom fallout, editorializes the "Chicago Tribune," will wreak damage across the financial markets. "Fourteen days ago this page assessed the deep erosion of public confidence in U.S. business markets in these terms: 'Is there a way out of this forest of mistrust? Yes -- if disclosures of corporate accounting and Wall Street conflicts of interest don't escalate.'"

The newspaper continues, "The startling disclosure late Tuesday [25 June] that WorldCom Inc. is involved in one of the biggest accounting frauds ever uncovered is the blow that a slowly recovering economy didn't need."

The editorial concludes: "For now, though, it is the U.S. economy that will pay a price. The first of many forthcoming lessons from WorldCom is one that shouldn't have to be taught -- trust is an asset far easier for a company to squander than it is to acquire."


"The Times" of London offers reassuring words. In an editorial, the newspaper says that Enron and WorldCom are the black sheep of the markets, not the leaders of the flock. "There are no grounds for suspicion that even a small proportion of firms in the United States or the United Kingdom have produced company results that owe less to fact than fiction. [The recent high-tech boom] has not, as Alan Greenspan, chairman of the Federal Reserve Board, warned us at the time, proved able to defy the laws of physics. It would be unwise, as Mr. Greenspan would again be the first to confirm, to move from an age of 'irrational exuberance' to an era of even more illogical pessimism."


Britain's "The Daily Telegraph" says that "one of the great speculative manias of all time is in the advanced stage of collapse." "Just about every one of the recent problems to hit financial markets has been caused by individuals acting incompetently, fraudulently, or dishonestly. The comparison is not so much the 1930s, but the beginning of the 20th century, when millionaires such as [Cornelius] Vanderbilt, [John D.] Rockefeller, and [Henry Clay] Frick emerged in America. We, too, live in an age of robber barons. They are the greedy chief executives, bankers, and accountants, some of whom have lied and cheated, misled investors and looted companies for their own benefit. 'What do I care about the law. Ain't I got the power?' the steel magnate Vanderbilt once said. That is just the attitude we have seen during the tech boom."


U.S. President George W. Bush's speech on 24 June on the Mideast continues to draw much Western press commentary, including one-liners from columnists Mary McGrory in "The Washington Post" and Hugo Young in Britain's "The Guardian."

McGrory writes, "In his much-touted, long-awaited speech on the Middle East, George W. Bush accomplished one thing: He validated the wisdom of his original impulse to have nothing to do with the Middle East." Young says, "It's usually a mistake to assume that a world leader is off his head."


Young adds, however, that the U.S. president's critics may have missed the point. He writes: "Europeans and others have been urging for months that unless Washington re-committed to a process there would be no advance from the suicides and the settlements. Surely Monday's initiative is proof that Bush has got the message? How have Europeans got the nerve to complain? This is, after all, only a beginning. The text that could have been written by Ariel Sharon will be followed, if the Palestinians respond, by equivalent pressure on Israel."


"The New York Times" columnist William Safire also contends that a wholly rational policy lies behind Bush's remarks. Safire says, "Bush this week placed responsibility for the war on Arafat's unacceptable support of terror."

"It's time to conclude that President Bush has a clear post-Oslo policy regarding a future Palestine. In the creation of that new state, why accept the model of so many other Arab dictatorships? Why not build in for its new citizens the safeguards and opportunities of a modern democracy?"


The "International Herald Tribune" publishes today a reaction to the Bush speech by Yasser Arafat aide Nabil Shaath, writing from Gaza. "At last President George W. Bush has committed himself to a course of U.S. action for peace in the Middle East that includes an independent Palestinian state. This, in itself, is a highly positive factor. Such a personal and national commitment has long eluded him."

The writer says: "There were many other positive factors in his speech Monday, above all a call for an end to the Israeli occupation of territories taken in 1967, thus refuting the Israeli claim that these are 'disputed,' not occupied, lands. Further, Bush has called for an immediate Israeli withdrawal to the borders of 28 September 2000, before the incursions that followed the beginning of the intifada."

He says also: "The president committed himself to recognition of a Palestinian state even before the borders are finalized. Importantly, at the insistence of the Palestinian Authority, he has abandoned the term 'provisional' that implied recognition of a state based on present borders, and he has accepted that any such state must be declared with reference to the 1967 borders and adjusted by negotiation from that point."

Shaath's commentary is not entirely approving. He writes: "The most negative factor of the Bush speech, of course, is the overwhelming attack on the Palestinian Authority and its president, Yasser Arafat. These are the wrong lyrics to the right tune."


Commenting in Britain's "Financial Times," William Wallace focuses on differences between U.S. and European interests in the Mideast. Wallace is professor of international relations at the London School of Economics. He writes, "Yet again, it falls to the British government to explain to U.S. policymakers why European priorities differ."

Wallace goes on: "Mr. Bush has accepted that a two-state solution is the only way forward. On behalf of America's European allies, Mr. Blair must now add that a broader peace conference, drawing together existing political leaders from across the region and beyond, is the only way to reverse the dreadful spiral of violence."


The "Chicago Tribune" contends in an editorial that the Bush speech commits the United States to a necessary principle. "President Bush's long-anticipated statement on the Israeli-Palestinian conflict is not exactly a roadmap to peace, but it is a clear statement of principle -- the United States will not be midwife to a new nation conceived in terror."