In our world of growing economic uncertainty (thanks bailout!), let’s take a look at some posts from my past that shed a little bit of light onto today’s economic issues:
- AIG and General Re Fraud
- U.S. GAAP vs. I.F.R.S vs. Unified GAAP
- The Rise of Corporate Fascism in America
- Modern Globalization: The Perversion of the Word Free
- You Can Change the World, But Do You Know How to?
- Notes on the Bank Bailout Bill, Economy & Other News
Right near the start of this blog, this post about AIG and General Re corporation points out that AIG simply put, is a corrupt corporation. The post is a revision of an essay I wrote (with a classmate–group project style) for an accounting course at the Northeastern University, in it we discussed how AIG essentially purposely accounted for insurance premiums as pure revenue in an attempt to inflate the value of AIG. The purpose of the essay was to examine if the Sarbanes-Oxley Act would prevent accounting fraud; we concluded that:
AIG intended to commit fraud, planned how to cover the fraud, committed the fraud, and then put into action their cover up plan. No act, no matter how strict, can force someone to tell the truth and to play the game fairly.
Hopefully now you understand why I was so furious at the federal government rewarding AIG with federal loans.
In this essay I examine the differences between the US, Generally Accepted Accounting Principles, accounting system and the more commonly used international system, International Financial Reporting Standards. The crux of the essay is that the US G.A.A.P. system relies on rules while the I.F.R.S. relies on principles. This seemingly small semantic detail actually creates a huge difference, as the US system is open to interpretation and loopholes while the I.F.R.S. provides guidance and covers more area and thus leaves less loopholes. An apt analogy is that the G.A.A.P. system promotes the letter of the law while the I.F.R.S system promotes the spirit of the law. In reality, we see many, many more instances of accounting fraud in the US and in my amateur opinion it is due to the loopholes in the US system. A telling sign is that the US is adopting more and more international standards as we move towards a global accounting system.
In this post I look at the rise of power by the corporations, from gaining person-hood to an ever increasing influence over government. The next two paragraphs are quoted directly from the posts and explain our current economic crisis damn well:
The State is not only implicit in the growth of power in corporate management, but also suffers a loss of power to promote that growth. By replacing charters with incorporation laws, the State gave up its power to supervise capital contributions to corporations. Thus corporations began accepting property in exchange for stock rather than being forced to accept cash for stock. As property must be appraised, mis-valuations were a natural aspect of this exchange and could be used fraudulently, as long as the corporate management appeared ignorant.
Thus, the corporation itself, and to a lesser extent it’s management, took power from the other two parties, making itself the most omnipotent force on our planet. Yet the State would not stand idly by while it’s power was used by the corporation. So the State separated itself from the public, from the people, as they were merely interested in living their lives, and did not care much for this whole power competition. As State and corporate battled, they eventually found out they had a lot in common and decided to unite, and conspire to obtain the last remaining morsel of power from the public, from the people.
We’ve seen direct evidence of this separation of the government from the people the last few days as the majority of Americans decried the bailout yet congress still jammed it down our throats.
Over the past few weeks, many people have screamed and yelled and shouted that the free market is to blame for every evil brought upon the world. Yet, we have not seen a free market here in the United States nor on the global scale in a very, very long time. The argument is simple, we are currently living in a free market system, why can I not buy a Cuban cigar?
Or put another way:
While, I wholeheartedly agree that free economic trade between nations will lead to benefits for all nations, the current globalization strategy does not promote free trade, but rather institutes pseudo-free economies with control shifting out of individual nation’s hands and towards global organizations with the interests of the most prosperous nations as a priority.
If we actually allowed free trade, our current economic crisis simply would not have occurred. I do not disagree that there ought to be regulations (based on principles, not rules) but we should not ban items from being traded and then call it a free market!
We’ll end on a good, positive, optimistic note, and discuss how we can change the world for the better, with social entrepreneurship as a model. The grandfather of social entrepreneurship, Bill Drayton, is the focus of this post. We take a look at Bill’s work at the EPA and his role in founding Ashoka, a non-profit group that provide social entrepreneurs with the capital they so desperately need to achieve their goals. It’s amazing how little capital some of theses entrepreneurs need to create a huge positive impact on their communities and the story of Mr. Drayton and the social entrepreneurs he helps is an inspiring story for us all.
Though there are many reasons for the success of Ashoka and Bill Drayton, his belief in himself and his ideas allowed Bill to seize an opportunity and create an organization that empowers social entrepreneurs around the globe to improve their societies via business logic. Much like Bill’s vision of emissions trading took hold twenty years after the original idea, Ashoka’s vision of a world where individuals have the power and confidence to change their own communities and society at large is gaining ground quickly. Soon, hopefully, people will laugh at the thought of I’m just one person, I can’t change the world.
OK, technically this post is not from the past (it’s actually from the future!) and it’s not even from this blog, but I’m adding it in (after the fact) in case any of you would like to see my take on the past week’s worth of economic news head on over to My Last Name Means Money. There’s quite a bit to digest, from CEO face punches to the next economic crisis down the road to discussions of how corporations would be better off without their CEOs! Check it out if you’d like to get caught up on the most important economic news of the week in one spot, and without (too much) fear mongering!
Hopefully you find at least one of these classic posts intriguing and thought provoking. If there’s enough of a positive response I’ll consider running another of these posts from the pasts down the road.
Have a great weekend everyone and I’ll see ya on the other side!