Print this

Email this

Submit a Question

This was a speech for the little guy.

When President Bush stood up in a Wall Street hotel on Tuesday morning to deliver the most intensely anticipated presidential speech in years, he didn’t try to solve all the problems facing U.S. stock markets or companies or investment firms. He didn’t touch any of the highly important but eye-glazingly boring issues of corporate accounting that will have to be faced before long. He certainly didn’t suggest –- as he had done the previous day, in defending one of his own stock transactions from long ago –- that things aren’t always black and white in accounting, though that’s certainly true.

Instead, he painted a dramatically black and white picture of good guys and bad guys, and his message was that it’s time for the bad guys to pay.

It was the right message for the times, populist and personal in an age when most Americans own stocks and when CEOs have been elevated into icons, stars whose names and faces are familiar to us all. The great majority of Americans have felt the pain of the bear market these past couple of years. In one of the great changes in U.S. society, most households now own stocks directly. Most of the rest participate in the stock market through mutual funds they may own, or through an employer’s pension fund. So virtually everyone is hurting from the market’s decline, feeling angry and looking for someone to blame.

That’s not the worst of it. What has made Americans truly furious over the past ten months since the Enron disaster began is not just that some big companies have failed, which after all is not terribly surprising in a recession, or that the failures involved some accounting no-nos that most people find incomprehensible. What people cannot abide is that high-level executives in these companies got rich even while the trouble was happening but still invisible to the rest of us.

Executive wealth is a topic that has waxed and waned over the years, and it has always been clear that Americans on the whole don’t object to business people getting rich. For years Sam Walton was America’s richest person, and he was beloved. Even non-entrepreneur CEOs, such as Roberto Goizueta of Coca-Cola and Jack Welch of General Electric, made themselves billionaires or close to it, and that was fine with most Americans.

We don’t mind executive wealth. But what we absolutely hate and will not stand for is injustice. And that’s what people saw happening over the past ten months.

So that’s what President Bush went after. His big message was that he wants to punish –- painfully –- the people who committed the injustices. Those who perpetrate fraud will now face twice as much jail time as before. With Americans still recoiling from the image of CEOs scraping money out of a failing company’s trough before it’s all gone, Bush asked for SEC authority to freeze payments to top executives. To the extent they do get their hands on money as a result of fraud, he wants to take it all back.

As Bush spoke, people were still watching and reading reports of the previous day’s non-testimony by former WorldCom CEO Bernard Ebbers, who had borrowed a mind-blowing $408 million from the company, money that will be extremely hard for him ever to pay back. So Bush called for completely ending company loans to corporate officers. At the same Congressional committee meeting where Ebbers refused to answer questions, Salomon Smith Barney analyst Jack Grubman appeared. Though paid $20 million a year, and celebrated as the best telecom analyst on Wall Street (Ed. note: The celebrants included FORTUNE magazine, which named Grubman an All-Star Analyst in 2000), he had somehow failed to detect any trouble at WorldCom until the stock was down around $1 a share. Might his sturdy optimism have been connected to Salomon Smith Barney’s role as underwriter of billions of dollars of WorldCom securities? Conflicted analysts are another group America can’t stand, and Bush announced new rules restricting their behavior.

Bing, bing, bing –- the President took shots at each one of the perceived injustices that have made Americans so angry. Politically it was what had to be done. This is the leader’s function. Now, the bottom-line question: Will any of his actions or proposals help the markets? My guess is, only in the long term, at best. What most worries investors now is malfeasance that may have been committed already but hasn’t yet come to light. Obviously the President can’t fix that. And it’s hard to imagine that investors will be even marginally more confident in U.S. companies as a result of some proposals and executive orders; by now we’re all too skeptical. Unsurprisingly, the markets went nowhere in the immediate aftermath of Bush’s talk.

This much anticipated speech was mainly an exercise in ministering to the national psyche. And that has its value. But the only way investors will become more confident in companies is by seeing those companies earn back trust on their own. It won’t happen quickly.