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Market Won't Heal Itself

June 27, 2002

So WorldCom was cooking its books to the tune of more than $3.9 billion. News of this sort is becoming less shocking. WorldCom, whose troubles may also pull down long-distance carrier MCI, is probably headed toward the largest bankruptcy filing in the history of the United States. In the wake of dozens of other companies 'fessing up to crooked practices, the question on spooked investors' minds is: Who's next? And just where is the government?

It's hard to think of a more conclusive end to the booming 1990s, when small investors were repeatedly assured by all the investment houses that being in the highflying end of the stock market was the only way to prepare for their golden years.

Market historians already point to the slavish worship of the entrepreneur and the stock market that took hold. WorldCom, like so many technology companies, emerged from obscurity to become a sudden financial giant. The surprise may be that it took so long to go poof.

There were plenty of abettors, like the accountants and consultants of Arthur Andersen who colluded with Enron to mislead investors. (We don't know yet what accountants did for WorldCom.) And then there are the charlatans like television pundit James Glassman, who published "Dow 36,000" on the eve of the collapse of the stock market.

No one should have been oblivious to the inherent risks of buying stocks, but the American economic system rests on investor confidence that the market is not rigged in favor of a few corrupt individuals. That confidence has evaporated along with the reputations of national companies like Rite Aid, Adelphia and Merrill Lynch, tugging the Dow briefly below 9,000 Tuesday.

The business icons of the 1990s have been smashed, and good riddance. But before the bits and pieces are swept under the rug, a reckoning must take place. It's no coincidence that many of the most audacious companies were also big political contributors.

The 17 companies being scrutinized for financial irregularities by federal investigators, from WorldCom to MicroStrategy, gave Democrats almost $2.2 million and the GOP more than $2.9 million in the last 18 months, according to the Center for Responsive Politics.

But at least House Minority Leader Richard A. Gephardt is gearing up to demand action. House Majority Leader Dick Armey is still polishing his fiddle amid the flames, quashing any crackdown on companies that evade taxes by having mailboxes in Bermuda.

If any lesson is clear, it's that the American economic system cannot regulate itself.

Congress must start with legislation to increase funding for the Securities and Exchange Commission so it can regain its watchdog role. It must rein in accountants who serve as analysts for the companies they are supposed to be supervising. Otherwise, investors will continue to believe that a clean stock market is no more attainable for the average Joe or Jill than Martha Stewart's gleaming kitchen.

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