Sarbannes-Oxley does to double entry accounting, what the Occupy Movement did to poop control.
Sarbannes-Oxley was correctly predicted to be a gigantic job killer and an obstacle to innovation. It has also turned out to be a license to steal, as has been demonstrated dramatically in the collapse of MF Global.
You know how the Occupy crowd is calling for personal bailouts and high status government funded virtue jobs. In Europe, by and large, their equivalents have government funded virtue jobs. President Obama and company tell each other that this is an investment in our future, and after they say it enough times, they start to believe it. And so, when MF Global’s clients thought they were investing in gold futures or such, Jon Corzine (former Democratic party Governor of New Jersey) being wiser than his social inferiors who do not know that investing in gold is politically incorrect and investing in Greek bonds is politically correct, and thus bound to be highly profitable, took their money and invested in loan guarantees to governments without telling them, which were ultimately investments in virtue jobs for the kind of people who at Occupy encampments are apt to poop in grossly inappropriate places, thus ultimately “investments” in people inadequately toilet trained and disinclined to do any real work.
And Jon Corzine’s accountants and auditors, PricewaterhouseCoopers, in accordance with Sarbanes-Oxley, somehow neglected to tell anyone the money had gone.
Civilization is the art of living together in large numbers without killing each other too often, and economics the art of coordinating human activity in large numbers without slave labor and killing fields.
Civilization began with burying your poop. God told the Children of Israel he did not like to see stools lying around, and that if you hung out with diseased or dirty people, or ate animals that had died rather than being killed, you would get unholy cooties from them. God commanded them to bury their poop. God was pleased with their obedience, and performed miracles for them – the most common important miracle reported in the bible being that during war and conflict, their enemies would be shattered by plague, and the Children of Israel would not. Until the modern era, armies were struck down by plague a lot more than they were struck down by fire and steel, so the winner was often the last army to get sick – which, the bible tells us, was apt to miraculously be the Children of Israel.
Modern technological civilization, the widespread application of science and technology to improve people’s living standards, is based on the joint stock company. In North Korea, we see what happens when you attempt to do it by the old fashioned means, by slave labor and killing fields. Slave labor and killing fields are not totally incapable of effectively coordinating the labor and capital of large numbers of people, but they are clearly less effective than the joint stock corporation. The joint stock corporation is built on double entry accounting, which treats the corporation as a being that owns property and does business separate from the particular people that actually carry out the actions of defending that property and using it to do business. The left, starting with Rousseau, have always been fundamentally hostile to civilization, all of it, lock stock and barrel. Thus with Sarbannes-Oxley the modern left did to double entry accounting, what the Occupy movement did to poop control. Sarbannes-Oxley, no less than modern university courses, is part of the left’s war on western civilization and modern technology.
PricewaterhouseCoopers accounts and audit for MF Global showed MF Globals “investments” in guarantees of for government bonds as off balance sheet liabilities, as if MF Global still had the money. But the big “liability” was that the money was already gone. It had been spent – and ultimately spent on Greek rioters and suchlike. It was not a liability, still less a liability that could be appropriately listed off the balance sheet. The money was gone, and the “liability” was that it was not very likely to return. A liability is money that you are at risk of having to pay out in the future. This was money that had already been paid out in the past. By treating this as a potential liability, PricewaterhouseCoopers misled MF Global’s clients that MF Global still had their money, when in fact MF Global no longer had their money.
If it had merely been a liability, then if that liability had come due, MF Global would then have gone bust and its creditors would have been out of luck, but the clients would have been able to withdraw their money, while the creditors would not have been paid their liability. But it was not a future liability, but a past actual loss. The money to pay the clients was no longer there. The money had already been spent, in part on Greek rent-a-rioters. Or, as President Obama would say, “invested in the struggle for justice”.
PricewaterhouseCoopers was the same accounting firm that also somehow failed to notice that Freddy and Fanny had pissed away most of their money and lots of other people’s money on no money down million dollar mortgages to unemployed no-hablo-english wetbacks – another triumph of Sarbannes-Oxley accounting. Back in 2002, Democratic Party Senator Jon Corzine was shocked, shocked to find that Fannie’s accounts were a teensy weensy bit vague as to where the money was and who had it.
Sarbannes-Oxley killed IPOs. It used to be that venture capitalists would fund an entrepreneur and, if the venture succeeded, sell it to shareholders. Today, however, the compliance costs are too great, which makes it a lot harder to cash out.
Supposedly, Sarbannes-Oxley prevents fraud:
Most senior company officers and auditors can attest that Sarbanes-Oxley is difficult and expensive to comply with. While the legislation prevents accounting fraud and material misstatements, designing, implementing and following lots of internal controls procedures at all levels of the organization prevents employees and managers from focusing on running the company.
Yet let us compare the bad stuff that happened before Sarbannes-Oxley, with the bad stuff that happened after Sarbannes-Oxley. It does not look as if the legislation prevents fraud and material misstatements.
Before Sarbannes-Oxley Enron did funny stuff with its books. A bunch of accountancy students went over its books, smelled something funny, word got out, investors and creditors panicked, suddenly Enron found itself unable to buy stuff except for cash on the barrelhead, and unable to sell stuff except for stuff it could actually deliver on the spot, unable to sell stuff except for what was in the barrel – which meant that Enron could no longer buy nor sell. Suddenly Enron’s paychecks started bouncing, and shortly thereafter, no one was showing up for work, the landlords were chucking their stuff in the street, and so on and so forth.
So, the federal government announced that something must be done, and created Sarbannes-Oxley, which theoretically forbade doing funny stuff with the books.
In the present crisis, a lot of strange accounting has come to light, strange accounting often curiously similar to that conducted by Enron – but due in part to Sarbannes-Oxley, only came to light after numerous financial institutions bit the dust, whereas before Sarbannes Oxley, it came to light before Enron bit the dust, and caused Enron to bite the dust.
The way real accounting works is that accountants ask people who actually operate the company where money and valuables are, and what was done with past money and valuables, what happened to the previous years money and valuables, and do some spot checks to make sure that the money and valuables reported to be there actually are there.
Theoretically this also happens in Sarbannes-Oxley but in practice it is is apt to be the other way around. Instead of listening, the godlike accountants tell people, and rather than the accounts reflecting reality, reality is supposed to be adjusted to reflect the accounts, much as peer review results in the scientific community telling the experimenter what he observed, instead of the experimenter telling the scientific community what he observed.
By examining Enron’s accounts carefully and cynically, people could, and did, discover that Enron was deeply in debt and losing money hand over fist, and was therefore unlikely to be able to pay for goods it had purchased, nor supply goods it had been paid for. There was no way that someone examining MF Global’s accounts could tell that MF Global had already pissed away its client’s money on European welfare bums. That is the difference that Sarbannes-Oxley made.