Since 2001, we as a country have seen the greed of Wall Street, stock brokers, investment bankers, and public company executives take advantage of the average, hard-working American who needs a mortgage or wants a stable retirement. We have come a long way from the early 2000s, but we haven’t come far enough. I think it’s important to remember what happened before we talk about the changes that need to occur.
In the 1990s, there were huge growths in the economy largely because the explosion of the Internet and all of the startup dot com companies that seemly came out of nowhere. People thought that the financial markets could never fail and they just kept investing. Wall Street executives caught on to this naive belief and began to come up with ways to take advantage of the consumers.
One of the most highly publicized cases of corporate fraud was Enron. This natural energy company seemed to increase profits year over year and eventually grew to the nation’s sixth largest company in earnings. The only problem was that all of these earnings were completely fake. Enron never actually made these profits and used a specific accounting treatment to hide the fact that it wasn’t actually meeting its investor expectations. One notable interview with Jeff Skilling revealed that the company couldn’t even produce a balance sheet to show investors how cash was flowing through the company.
This was because the profits consisted of numerous back door deals with subsidiaries where the parent company would take investors’ money and treat it as revenues while moving its debt to the books of the wholly owned companies. The parent corporation couldn’t control its Account Receivables management and eventually had to declare bankruptcy. It took about 16 years for Enron to attain nearly 50 billion dollars of assets and it took only 6 short weeks for the façade to be torn down and it to declare bankruptcy.
This is a prime example of how we need to change the financial markets and institutions in our country. The Occupy movement demonstrated that we, as average Americans, can stand up to this corporate greed and stop them from stealing our pensions and retirement funds.
Another example of financial markets failing happened in 2008 with the largest corporate bankruptcy in history. Lehman Brothers was one of the biggest banks in the world with assets in the hundreds of billions. Over time they became gambling larger and larger amounts of money on debt and equity-backed securities with no contingency plan if they failed. All of these accounting practices were quite evident if investors would have looked at their adjusted trial balance.
Once the housing market burst, so did most of Lehman Brothers’ investments. Unable to secure a Federal bailout, one of the world’s largest banks went out of business forcing millions of Americans to lose their investments and thousands of people to lose their jobs.
This kind of lost of wealth can’t happen again to the middle class. We need to stand up to the legislators and make sure they hold Wall Street accountable for these problems.