

The Rot Within: Our Culture of Financial Fraud and the Anger of the Honest (October 15, 2010)





Misrepresentation, fraud and gaming the system are all heavily incentivized in the U.S. culture and economy, and honesty is punished. This truth is finally being revealed on a grand scale. The coming implosion of the U.S. economy has been richly earned. Today I am publishing a commentary by an accountant with decades of experience in high-level global consulting firms and Fortune 50 U.S. corporations. What he has observed is unknown to the vast majority of Americans. I have documented the poisoning of the nation's culture and economy by a "game the system"/exploitation mentality: The Coming Collapse of the Real Estate Market Runaway Feedback Loops, Wealth Concentration and Gaming-The-System Imagining A Middle Class Does Not Create One With accountability effectively lost, cheating, lying, misrepresention, embezzlement and fraud, both petty and monumental, have all been incentivized. Thus the "little people" game the welfare/entitlement system and the Financial Elites game the mortgage market, and everyone gamed whatever piece of the housing bubble they could grab. Where does that leave the honest citizenry? At an extreme disadvantage. Lying, sins of omission, misrepresentation and doing the bidding of evil organizations gets you bonuses and career advancement, while refusing to game the system as instructed gets your fired. How does that make honest people feel? How about righteously angry? I'd like to provide some context for this commentary from the Survival+ critique. Here is how I would summarize an integrated understanding of our plight: 1. Humans are selected to seek windfalls and exploit them. I call this windfall exploitation. It is neither good nor bad, it is simply a profoundly advantageous strategy in a hunter-gatherer-wanderer environment. Individuals can maximize their gain by exploiting windfalls alone, but some windfalls are better exploited by groups. This is the basis of cooperation, which is expressed in both capitalist and socialist systems. 2. The natural resources windfalls have all been exploited. In general, the natural resources are in depletion and there is active competition for them which reduces the windfall. 3. Neoliberal Capitalism developed a solution for this paucity of natural windfalls: the partnership of the Financial Elites and the Central State. The Central State gathered powers of taxation and control which enable it to "enforce" the collection of the national income which can be channeled to its cronies in wealthy (and hence politically powerful) cartels. The investment banking/mortgage banking industries are the example of this dynamic par excellence. (Please see The Coming Collapse of the Real Estate Market for more.) 4. The last significant windfall available to advanced global Capitalism was the financialization of the global economy. In the U.S., we see this clearly in the financial share of corporate profits; from a pittance in the "real growth" decades of the 1950s and 60s, finance-derived profits came to dominate Corporate America's profits. 5. This financialization effected a net transfer of public and private income streams and wealth from the citizenry and State to the coffers of the financial Elites. As actual productivity and wealth-creation declined, so did wages and incomes when priced in purchasing power. To offset that decline, people, companies and governments replaced income with debt: they borrowed to fill the gap between their desires/commitments/spending and their net income. The financial Elites were happy to supply the debt and capture the income streams of servicing that debt. By securitizing those debts and writing derivatives against them, the Elites created a stupendously profitable windfall to exploit. The Central State and its central bank were happy to comply, as they are in partnership with the Elites which enrich and empower them. 6. The net result of this expansion of credit is asset bubbles. When the asset bubbles pop, the debts remain, impoverishing the over-indebted holders of the busted assets. 7. Unfortunately for the Financial Elites, this destruction of assets and debt feeds runaway feedback loops which threaten the entire foundation of their wealth and control. 8. The strategy of both the Financial Elites and the Central State (its willing partner in exploitation of the citizenry) is to conjure up simulacra to replace the truth, which is fatally dangerous to the status quo that is now completely dependent on maintaining a culture of financial untruths. The order of the day is thus necessarily propaganda, bogus balance sheets, toothless facsimiles of "reform" presented as "real reform," and endless frauds, embezzlements, lies, misrepresentations, omissions, etc., all of which have come to full flower in the credit-housing bubble/mortgage-forclosure debacle. This is why the Financial Power Elites and the Federal Government are both wedded to lies, half-truths, misrepresentation, omissions, fraud, corruption and the full panoply of propaganda. To tell the truth is to bring down the entire status quo. Here is our accountant's commentary: I belong to a large number of finance organizations and sometimes I even assist clients with hiring a finance person. Since I have a lot of experience with finance and accounting, when I am interviewing these people I know when I am getting a BS answer and unlike most BS recruiters I do not steer away from controversy since I am truly looking for the most qualified for my clients and not who is just most marketable to them. After I start drilling down you would be amazed (or maybe you wouldnt) how many of these CFOs and Controller types were basically dismissed because they would not cook the books in some manner. Now maybe I have told you that I was asked to resign from one of the nations largest companies (a company that I worked hard for and saved from bankruptcy and due to my actions had created) in the US because I refused to book a revenue entry for over a million dollars which was unsupported and the CFO (I had been the CFO up until a merger) blew up with me when I asked him to send a memo telling me to record it. Funny, a few years and one acquisition later it melted down as one of the biggest accounting frauds in US history. My next gig as the CFO for a NYSE company I basically walked in and found what I would consider a $60 million dollar accounting fraud in one day (once again a mark to market issue draining cash flow and sucking the company into a dark hole). Corrected that accounting problem and the company began to prosper but since I thought the board and upper management was so corrupt I left (Chairman of the Audit Committee was found guilty at another large company for back dating options). The next public company where not only was I the CFO but prior to that a board member, I was basically asked to resign for BS reasons a couple of weeks later after I pointed out what the board was asking me to do was basically wire fraud and of course they backed off quickly and said they would get a legal opinion from our law firm (one of the top 10 in the US) to cover me. In the same meeting our outside legal counsel said he had a problem giving such an opinion and I pointed out that a legal opinion did not keep me from being both civil and criminally liable. It should be noted that this was another company that 2 years before I came in and took the reins as CFO/COO and pulled the company out of black hole of looming bankruptcy and made it profitable in the first time in its history since it went public and then refinanced the company. In summary a year after I left the company had burned through the money I raised and the Board sold the company for nothing. There is lots of bitterness out there with the straight shooting finance people. Many of them find themselves unemployable. This stretches from banks, Private Equity, Investment Banking, through the large accounting firms (the average partner in the large accounting firms any more is a pathological liar) to senior finance people in organizations. Right before Enron and MCI blew-up, I actually had a BS HR person tell me I was not flexible enough. I wanted to tell this idiot that I knew where flexibility got me and it was an orange jumpsuit. Bankers and Companies only hire the weakest and most pliable senior finance executives they can find. One other short story. A while back I was at a networking meeting with a large group of CFO and ex-CFOs. I asked this group how many thought that most CEOs wanted a weak CFO working for them. Approximately 70% of the attendees raised their hand! You have to remember that the only person who had steady access to the Board is the CFO. The point, the middle class is becoming torn and frayed and there is real anger out there. The common belief is that only the liars and thieves are moving ahead in this country. The anger of the honest will soon know no bounds, and the guilt of the complicit will settle like a silent pall over the nation: guilty as charged. Who will raise their hands to plead the guilt we all see and know?





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