Friday, July 22, 2011

Two worlds... two sets of rules

A thought or two regarding local, state and federal book-keeping:

The Congress that passed Sarbanes-Oxley concluded that the only way to ensure transparency in corporate numbers was to require corporate officers to certify that their numbers were correct. The penalties for falsely certifying are substantial -- fines of as much as $5 million, and up to 20 years in prison -- on the theory that the fear of personal liability will reduce the incentive to exaggerate future revenue or conceal future liabilities.

By contrast, congressional appropriators and federal agency heads, are under no similar constraints. True, the government does have its own accounting principles. But nobody faces liability if the numbers are off. Nobody has skin in the game.

Consequently, if we need Sarbanes-Oxley (as its supporters still insist) to give us reassurance that we can believe corporate America’s numbers, ought we not to have something similar (as Peterson among others has argued) to reassure us that we can believe the numbers coming out of Washington?

Well, there's skin in the game, alright, but only in the sense of not being allowed back into the Puzzle Palaces of D.C., Sacramento, San Diego, etc. where you get to make up the rules as opposed to not having to worry about serving hard time as a result of any misbehaving in the private sector.

To wit: How is it that GSEs (Government Sponsored Entities) "Fannie Mae" and/or "Freddie Mac" have not replaced "Enron" in our cultural lexicon for criminal financial malfeasance?

Guess Fannie Mae and Freddie Mac won't fit on a bumper sticker.

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