Congress to the rescue? (Up front: news and opinion from independent minds).

The United States is down about $7 trillion in market capital that has vanished from the economy since March 2000. Measured against peak values, what has disappeared is more than 75 percent of the Nasdaq and nearly 50 percent of the Standard and Poor's 500. On average, this equates to roughly $70,000 per U.S. household, the most significant decline in the market since the Great Depression of the 1930s.

With the accounting shenannigans of Enron and WorldCom in the headlines, Federal Reserve Chair Alan Greenspan spoke before Congress, pointing to how a corporate way of life corrupted by "infectious greed"--a culture of cooked books and insider dealings--had produced a vast breakdown in confidence among investors and hefty drops in the price of stocks.

In addition to sharp cuts in investment spending, a recession, lagging profitability, and the terrorist attacks of September 11, 2001, Greenspan warned that recent revelations of tricky corporate accounting and fake profit reports pose extraordinary threats to an economy that depends on straight shooting when it comes to numbers. Simply stated, investors who can't trust earnings reports will be reluctant to buy stocks.

Greenspan explained, "Poorly structured [stock options have] perversely created incentives to inflate reported earnings in order to keep stock prices high and rising," undermining the proper alignment of "the long-term interests of stockholders and managers."

Executives are given the option and opportunity to buy shares of their company's stock. If the stock price goes up, they buy--often with a company loan--at the previously fixed lower price and automatically pocket a profit. If the stock falls, they don't buy. It's no risk capitalism.

In theory, options are meant to motivate executives to improve levels of performance with the benefits flowing across the board to customers, employees, and shareholders. Instead, they create "pump-and-dump" schemes where by stock prices are artificially pumped up by exaggerating sales and hiding costs, followed by option purchases, and then the overvalued stocks are dumped before the prices collapse.

Securities and Exchange Commission Chair Harvey L. Pitt says, "The entire system caused the people who run companies to focus on the short term: get the stock price up, cash in the options, make your quick bucks, and make your numbers instead of building fundamental values.... People think that folks can rob the public and get away with it."

Greenspan's warning is: "Our market system depends critically on trust." Unfortunately, stockbrokers and CEOs of large corporations ranked well below Catholic priests in a recent USAToday/CNN/Gallup poll when it comes to trust, even with the steady flow of priestly misconduct in the news. About 45 percent of Americans say that priests can be trusted while 48 percent say that one can't be too careful in dealing with them. In contrast, only 23 percent of Americans say they trust CEOs and stockbrokers.

The Gallup survey reveals the percentage of Americans who trust the top ranking groups: 84 percent trust teachers, 75 percent trust people who run small businesses, 75 percent trust middle-class people, 73 percent trust military officers, and 71 percent trust police officers. None of those groups, of course, are in the driver's seat when it comes to calling the shots at places like Enron, Global Crossing, and WorldCom.

So, with $7 trillion down the drain and the most trusted folks in the country off on the sidelines, it's the politicians--with a trust ranking of only 26 percent in the Gallup survey--who have stepped up to the plate to establish a system of honest accounting and to clean things up in corporate America. Given Congress' record, that's not unlike putting mass murderers in charge of rehabilitating shoplifters.

George Mason University economist Walter Williams asserts, "The level of creative accounting, deception, and lies in Congress make the actions of Enron and WorldCom seem like child's play."

Along the same lines, Senator John McCain (Republican, Arizona) says that politicians are playing a weak hand when it comes to lecturing anyone about straight forward accounting: "Too often, we have cooked the books, exploited off balance sheet accounting, fudged budget numbers, and failed to disclose fully the nation's assets and liabilities."

With Social Security, for instance, there's not a dime in the "trust" fund and nothing in the "lock box." The politicians have simply spent the surplus on other things, guaranteeing an increasingly bad deal as the number of workers per retiree declines. The National Taxpayers Union projects the outcome: "While a worker born in 1915 who retired at sixty-five in 1980 collected $71,390 more than he paid into Social Security, a worker born in 1975 can expect to' collect $93,486 less than he contributed.

Detroit News columnist Thomas J. Bray writes: "If you thought WorldCom accounting was outrageous, you have to be panic-stricken by the way the federal government accounts for your `guaranteed' benefits under Social Security. When it comes to cooking the books, the feds are gourmets."

The word from politicians on Capitol Hill is that they want twenty-year jail terms for executives found guilty of cooking the books. This is, of course, some twelve and fifteen more years behind bars than the average time served by convicted murderers and rapists, respectively, in the United States. Applying this new crackdown on phony accounting to themselves, not many members of Congress would be out of jail before 2023.

Ralph R. Reiland is the B. Kenneth Simon professor of free enterprise at Robert Morris University in Pittsburgh, Pennsylvania. An earlier version of this article was published as part of the American Enterprise Online on July 29, 2002.