This morning my blood boiled. Listening to NPR I heard about Congress “investigating” steroids in baseball [1], while the Supreme Court basically said it’s perfectly OK to help cook books, and not face going to jail, directly to jail, without passing go or collecting $200.
What’s even scarier, is Congress won’t try to overrule the court, knowing that the President will veto the law. Even more reason we need a Democrat in the White House, and a D in OH-3.
To fill you in, here is parts of an article from the New York Times:
Supreme Court Limits Lawsuits by Shareholders [2]
WASHINGTON — Ruling in its most important securities fraud case in years, the Supreme Court [4] on Tuesday placed a towering obstacle in the path of shareholders looking for someone to sue when a stock purchase turns sour. The decision in the case, Stoneridge Investment Partners v. Scientific-Atlanta Inc., was a major and ardently sought victory for investment banks, accountants and vendors — the deep pockets that have become nearly automatic targets of class-action lawsuits that accuse them of having engaged in a fraudulent scheme with the company that actually issued the stock.
The notion of “scheme liability,” as the theory behind such lawsuits is known, now appears to be dead.
The 5-to-3 decision held that in order to proceed with such a lawsuit, plaintiffs must be able to show that they had relied, in making their decision to acquire or hold stock, on the deceptive behind-the-scenes behavior of these financial institutions, often called secondary actors. But behavior that was never communicated to the marketplace cannot be said to have induced reliance, Justice Anthony M. Kennedy [5] wrote for the majority…
The case, which was dismissed before trial in the lower courts, involved an accusation of a deceptive arrangement between a cable television company and two suppliers that gave the company’s books the illusion of an additional $17 million in revenue.
That is a tiny fraction of the amount at stake in similar lawsuits, like the $40 billion class-action lawsuit by Enron shareholders against the investment banks that advised the company. The federal appeals court in New Orleans dismissed the lawsuit last March on grounds that were similar to the approach the Supreme Court took on Tuesday….
The facts in the case were not in dispute. Charter Communications persuaded Scientific-Atlanta and Motorola [6], two suppliers of cable boxes, to inflate their prices and to use the windfall to buy advertising on the cable system. Charter then booked the inflated price as a capital expense, while treating the advertising purchases as revenue, thus appearing to meet Wall Street’s revenue expectations. When Charter’s true financial picture came to light, its stock collapsed and a shareholder, Stoneridge Investment Partners, filed the lawsuit.
The case produced a battle within the Bush administration. The Securities and Exchange Commission supported the plaintiffs, while the Treasury Department supported the defendants. Treasury prevailed, and the S.E.C. was denied authority to file a brief. Justice Kennedy’s opinion on Tuesday closely tracked the brief that Solicitor General Paul D. Clement eventually filed.
This is proof positive that the financial markets are little more than a casino with current regulation and laws. The odds only favor the companies that can siphon off funds for CEO pay and parachutes, and the brokers who make money on the churn.
How can any investor, institutional or private, trust a market where it’s ok to cook the books? This is part of the reason the dollar is falling like a rock, and the key answer to why markets no longer exhibit rational behavior. If markets aren’t returned to being sources of long term capital for business models based on making tangible goods and services- instead of making money off making financial paper, we won’t have an economy left.
While Congress should be up in arms, they are busy investigating steroids use by overpaid athletes. Congress won’t put a stop to the Wall Street Casino because they have to count on the insanely wealthy to donate to their insanely expensive campaigns.
Until we take the money out of politics, we won’t see money going back into real investment.
After all, the Supreme Court just said it’s OK to profit by lying- it’s the Washington way.