Clicking on banner ads enables JWR to constantly improve
Jewish World Review Dec. 10, 2002 / 5 Teves, 5763

James K. Glassman

Jim Glassman
JWR's Pundits
World Editorial
Cartoon Showcase

Mallard Fillmore

Michael Barone
Mona Charen
Linda Chavez
Ann Coulter
Greg Crosby
Larry Elder
Don Feder
Suzanne Fields
Paul Greenberg
Bob Greene
Betsy Hart
Nat Hentoff
David Horowitz
Marianne Jennings
Michael Kelly
Mort Kondracke
Ch. Krauthammer
Lawrence Kudlow
Dr. Laura
John Leo
David Limbaugh
Michelle Malkin
Chris Matthews
Michael Medved
Kathleen Parker
Wes Pruden
Sam Schulman
Amity Shlaes
Tony Snow
Thomas Sowell
Cal Thomas
Jonathan S. Tobin
Ben Wattenberg
George Will
Bruce Williams
Walter Williams
Mort Zuckerman

Consumer Reports

Time to kill, not coddle |
With phony profits now expected to top $9 billion, WorldCom, Inc, the Mississippi-based telecommunications company, has earned the distinction of committing the worst accounting fraud in American history.

As a result, investors have marked down WorldCom's stock to pennies a share, the company has filed for Chapter 11 bankruptcy, and the Justice Department has charged five former executives with fraud.

Unfortunately, however, WorldCom still lives. Even worse, regulators and politicians are handling the company with kid gloves, deluded - in large part by WorldCom's own public-relations efforts - into accepting the fantasy that the firm's demise will cause irreparable damage to the U.S. telecommunications network.

In the latest outrage, the Securities and Exchange Commission last week announced a partial settlement that does not even require the company to admit any wrongdoing. The SEC reserved the right to punish WorldCom at a later date - perhaps with a fine - and WorldCom agreed not to violate any more securities laws (yes, I am not kidding).

At a time when Congress and the White House worry about losing the trust of investors, the SEC's soft-headed deal with WorldCom sends the opposite message: a slap on the wrist for the most rapacious corporate evildoer ever.

The priority should be WorldCom's disappearance, not its survival. The argument that the company is somehow "too big to fail" is absurd on its face. WorldCom handles only about 15 percent of all Internet traffic in North America, according to RHK, Inc., a research firm in San Francisco. If it were liquidated tomorrow, WorldCom's market share could easily be absorbed by current providers. The same is true for the company's long-distance business, which has dozens of competitors.

Maybe the regulators haven't noticed, but the big telecom problem these days is excess capacity. WorldCom's disappearance would make the market healthier, both ethically and competitively.

If the SEC is not up to the task, then one way to remove WorldCom, as my American Enterprise Institute colleague Gregory Sidak recently suggested in the New York Times, would be for the Federal Communications Commission to require the company to "show cause" why its licenses should not be revoked since, quite clearly, the company fails to meet the statutory good "character" test. If it lost its licenses and certifications, WorldCom would almost certainly be forced into liquidation - which is where it deserves to be.

The company's assets should be sold. This won't mean that thousands of jobs, millions of customers and billions of dollars' worth of equipment will disappear into thin air. To the contrary. In a free-market system, the valuable assets of a failed firm (human and physical) move from weak hands to strong hands. The great economist Joseph Schumpeter called this process "creative destruction." Zombies like WorldCom are a drag on any economy.

Instead, WorldCom is being handled in a gingerly manner that borders on farce. After the deal with the SEC last week, U.S. District Judge Jed Rakoff, complimented WorldCom on its "laudable progress" and is moving toward "a much more positive position and correction of past mistakes."

But why should such mistakes be tolerated? There has rarely been a case that deserved more severe punishment than that of WorldCom. The firm has admitted inflating profits by committing unpardonable sins like counting operating expenses as capital investments. Innocent investors in WorldCom today won't be helped by the company's survival. Their stock is already virtually worthless.

But innocent investors in other stocks in the future will definitely be helped by WorldCom's demise - which will serve as a clear warning to thousands of companies of the dire consequences of deceptive financial reporting.

The irony is that the WorldCom revelations in June were the catalyst for the Sarbanes-Oxley legislation that will likely add scores of new regulations on corporate accounting, some of them already producing adverse unintended results. We already have excellent antidotes for corporate misbehavior - if only regulators will apply them with courage and rigor.

But instead, we continue to hear such pronouncements as this one from Michael Powell, the FCC chairman: "This is a significant company whose assets are critical components of the entire network. It would be messy if they became unavailable," said Michael Powell, the FCC chairman.

Messy? Powell sounds curiously like John Sidgmore, WorldCom's outgoing CEO, who wrote in an op-ed piece, "It is in the best interest of our national security, American consumers, and the millions of WorldCom's customers and shareholders to make WorldCom's survival a top priority."

In fact, companies whose top managers lie, cheat and steal don't deserve to survive. It is better for well-functioning markets that they disappear quickly. WorldCom has already hung around for more than five months since its accounting fraud surfaced. That's far, far too long.

Enjoy this writer's work? Why not sign-up for the daily JWR update. It's free. Just click here.

JWR contributor James K. Glassman is the host of Tech Central Station. Comment by clicking here.


12/02/02: Time for a drug binge?
11/13/02: The world, your oyster
10/28/02: Why stocks don't stink
10/09/02: The debt bet
09/30/02: Caution, competition ahead
09/19/02: Shopping for opportunities
08/26/02: Stop the Dumb Bond jokes
08/20/02: Moving on from 'sustainablity'
08/06/02: Put Dow doubts to rest
07/29/02: Your money for your life
07/15/02: Have your cake
07/09/02: Competition cure-all
06/26/02: Rebalancing Act
06/21/02: Technology Back on Track
06/19/02: Star Power?
06/12/02: The Beautiful Line
06/10/02: Squashing broadband
06/06/02: Frank investing advice
06/04/02: Say it ain't so, George
05/29/02: He moves in mysterious ways
05/22/02: Reel in these stocks
05/15/02: It's a "small" world
05/08/02: Goldi-stocks
05/02/02: Japanese stock growth?
04/30/02: Trust the Bells?
04/24/02: Being there is best revenge
04/18/02: I'm a Seoul man
04/16/02: Analyze this
04/09/02: The Dot.Con con game
03/21/02: The companies you keep
02/28/02: Trusting monopolists
02/22/02: How not to get taken when buying stocks
02/06/02: Investing After 9/11
01/30/02: Blue Light Specials? Advice on snapping-up K-Mart or Enron stock
01/24/02: Dare to be obscure
01/16/02: Bank on this
01/10/02: What goes down...
01/04/02: An asset-focused investor finds 'deep value' stocks
12/26/01: High-Tech Funds Low On Tech
12/19/01: Tech Sector: Blodget, Meeker, and You
12/12/01: Enron's lessons: Be skeptical of experts
12/04/01: CLECs alive and well, but not if Tauzin-Dingell passes
11/15/01: The "Next Big Thing" in Technology?
10/30/01: A National I.D. Card? Yes; Run By Larry Ellison? No
10/25/01: Without Bayer, we're bare to bioterror
10/18/01: The Battle of Biotech
10/05/01: Two Techs for Tough Times
09/26/01: The Information War
09/05/01: Tech firms built to last through tough times
08/23/01: Stocks on the A-List
08/17/01: Labor and management finding online learning to their liking
08/08/01: Game makers poised to profit
07/19/01: Trade Promotion Authority: High-Techís Key Component for Competitiveness
07/12/01: Nothingís arbitrary about the contrarians
06/27/01: Look to Politics to Find Broadband's Market Cap Shortfall
06/22/01: Tech Commodity Buys Available for Mining
06/18/01: The Blackout Portfolio
06/14/01: The conservation myth stars as latest (sub)urban legend
06/07/01: Will America go high tech on the high seas?
06/05/01: 'Price gouging' doesn't cut it as reason for rising energy prices
06/01/01: Authentication tools opening up opportunities in online security
05/25/01: 'Price gouging' doesnít cut it as reason for rising energy prices
05/21/01: Banking on High-Tech Education
05/17/01: It's No Time to Go Wobbly on Kyoto
05/02/01: Diversify with techís leaders
04/26/01: To Revive The New Economy, Release A Chokehold   —   Break Up The Bells
04/24/01: Whoís To Blame For Broadband Crisis? Wired Article Points To Bells
04/19/01: The Bush Budget
04/12/01: To revive The New Economy, release a chokehold --- break up the Bells
04/04/01: Even as stocks have fallen, the Net keeps booming
03/28/01: Whereís The Profit In Biotech Future?
03/22/01: The Joy of Debt: The last thing we should want is a U.S. Treasury flush with cash
03/19/01: 'Defensive' Stocks in the NASDAQ
03/15/01: Bush administration must say no to Jane and Kyoto
03/08/01: Time to buy small caps? Consider these five great techs
03/01/01: Billís and Larryís continued political adventures
02/26/01: Chips on the Dips?
02/23/01: How Tauzin Can Keep His Word And Stop Telecom "Remonopolization"
02/13/01: Consumers, WAKE UP! Middlemen are ripping you off
02/02/01: Publicity-Seeking Politicians and Contingency-Fee Lawyers Corrupt the Law
01/26/01: DoubleClick, eBay And Their Promising Ilk
01/24/01: Will Cyberspace Look Like France or America?
12/27/00: Cut interest, taxes and regulation to save high-tech economy
12/20/00: Close, But No Big Czar
12/15/00: A Down Year? Maybe. But Letís Put It in Perspective
12/13/00: Clintonís sorry midnight race into history
12/07/00: Is Telecomís Future The Bells, The Bells, and Only The Bells?
12/01/00: Money talks and walks in election aftermath
11/29/00: Climate Treaty Deadlock Shows Lack of Consensus and Common Sense
11/23/00: Climate change participants donít listen to reasons for uncertainty
11/21/00: Will Regulators Create a Recession?
11/14/00: The Election and the Market
10/26/00: Hang on for the long term
10/25/00: On privacy, one size doesnít fit all
10/24/00: Perish the bearish thought
10/19/00: Beating hunger --- the biggest prize
10/13/00: Way to play biotech
10/12/00: Bush vs. Gore on Technology
10/11/00: Global Climate Scare: Fools Rush In
10/05/00: Avoid the Apple Trap
10/03/00: Goodbye, anti-Microsoft crusader --- and good riddance
09/29/00: Should You Invest in Tech IPOs?
09/27/00: Could technology end airline delays?
09/22/00: Donít Forget Small Caps
09/20/00: Is the New York Times Rooting for Disaster?
09/13/00: The Best Argument Against Net Regulation
08/30/00: Political Risk in Big Drug Stocks
07/27/00: Tech Dividends
07/25/00: Government Privacy Violators
07/20/00: If I Had to Pick One Tech Stock
07/18/00: Our Favorite Lawsuit
07/13/00: Silicon Valley East
07/11/00: Election 2000: Year of the Investor Class?
07/07/00: Adventures on the
07/06/00:The Difference Between Bill Gates and Larry Ellison
06/29/00: In the Chips
06/27/00: Free market wins in Federal Court!
06/22/00: Wireless Bargains?
06/20/00: Is Your SUV Warming the Planet?
06/15/00: Shopping for Government
06/13/00: Top 10 Tech Stocks
06/08/00: Riding the eBook Wave
06/06/00: "The Last Mile"
06/02/00: Keep Buying!
05/31/00: Who Asked the FTC to Regulate Online Privacy?
05/25/00: "When Itís Time to Sell"
05/23/00: End the "Telephone Tax"
05/16/00: Time Warner Gets a Bad Rap

© 2002, Tech Central Station