‘Rajah’ directors on notice

TREASURER Peter Costello’s 41 proposals to give the Australian Securities and Investments Commission bared teeth will get an armchair ride through parliament.

Few in big business, the accountancy or financial services professions, or the financial services industry will want to be seen obstructing him in the current spooky environment. Mr Costello, aided by Western Australian Senator Ian Campbell, has decided against rushing in new laws we do not need in favour of practical measures to put the screws on corporate governance.

Directors who live like rajahs and auditors tempted to look the other way are now severely on notice. Shareholders will now be kept more in the loop.

It is curious though that sirens are now going off in government offices all over the world in response to investors’ outrage. You would think something new had been discovered. Corporate crime has been a spectator sport since limited liability companies were invented.

The stock market is a constantly moving drama. There are frequent costume and scene changes. Many highly rewarded stars briefly hold the stage, only to be booed off when box office takings slump.

In the swinging sixties it was “do you sincerely want to be rich” Bernie Cornfeld whose Fund of Funds relieved punters of $US2.4 billion, before Robert Vesco stole what was left and fled to Costa Rica.

It took the global managed funds industry nearly 20 years to recover from that one. Then there was take-over king Jim Slater, the founder of a huge conglomerate built with inflated paper, which spawned many lookalikes. Slater went broke in 1974, and took half the city of London with him. One of his former lieutenants served a prison term in Singapore.

The 1980s were a ripper. Junk bond genius Michael Milken, and his Drexel Burnham Lambert broking house, launched scores of leveraged corporate buyouts. Many crashed in flames that consumed whole industries. Milken went to jail. He was soon followed into the clink by Ivan Boesky, the biggest insider dealer in history, and his whistle blowing sidekick Dennis Levine.

Anyone who watched the 1987 film Wall Street, which won Michael Douglas an Oscar, should have thenceforth regarded the share trading caper with deep suspicion.

Incompetence and fraud on ‘main street’ triggered the Savings and Loan fiasco, which cost US tax payers hundreds of billions of dollars. Australia wrote its own pages into history, with Alan Bond and Christopher Skase.

All of this was but a curtain raiser for the naughty nineties. Never has the adage: “If you do not learn from history, you are condemned to repeat it”, proved more true.

Securities and market regulators nodded off when companies with no discernible product, track record or management expertise, sold their shoddy wares to the public. At its peak, the Nasdaq asylum boasted a capitalisation of more than $US10 trillion – higher than the nation’s total GDP.

Appalling malfeasance among company directors, bankers and brokers might never have come to light were it not for the traditional stock market response to an orgy of speculation – an ear-splitting crash.

If you want my opinion, or even if you do not, the dreadful wealth destruction in recent times owes much to 1999 repeal of a law called The Glass-Segal Act. This legislation was enacted in 1932 to ensure that US banks restricted themselves to current and savings accounts, home mortgages, lines of credit and so on. They were legally barred from having anything whatsoever to do with the racy business of stockbroking, just as stockbrokers were not allowed to even look like banks. Somewhere along the line, these admirable intentions have been hijacked. Many of the world’s biggest brokerage houses are now owned by banks. This has created a double catastrophe. Bankers used to be regarded as conservative, not to say unimaginative, preoccupied with boring matters such as adequate collateral. This breed have been swept aside by young ‘investment bankers’ who have MBAs, but were in diapers when the great robber barons brought off their coups.

The stockbroking and corporate finance units of megabanks have access to gigantic sums of money from their parents, and squillions more from investors. Toss weak or corrupt executives into that mix, and you have a recipe for disaster labelled ‘made in America’. The rest of us have had to hold our nose and swallow it.

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