Archie Bunker would approve of Sotomayor

With the current opening on the Supreme Court, there has been a great deal of debate about the importance of diversity; particularly regarding the make up of the Supreme Court. President Obama has nominated Sonia Sotomayor. Her selection would make her the first Hispanic and the third woman justice.

Why all the fuss over diversity? People, especially political pundits, are all up in arms over the subject. They act as if this is a new concept. Far from it. That great diversity consultant, Archie Bunker, proposed diversity nearly forty years ago. It was in an All In The Family episode entitled The Election Story and aired October 30, 1971; season two episode six. At the time Archie was trying to convince his son-in-law Michael “Meathead” Stivic, the superiority of the local Republican ticket. The exchange went like this:

Archie: I call this representative Government. Salvatore, Feldman, O'Reilly, Nelson. It's an Italian, a Jew, an Irishman, and a regular American. That's what I call a balanced ticket.

Meathead: Why do you always have to label people by nationality?

Here is where Archie Bunker defined the importance of diversity and began an entire movement. His response was historic.

Archie: 'Cause how else you gonna get the right man for the right job?

Mind you, if Archie were to make a statement like that today, the PC police, i.e political correctness, would make him rephrase it: 'Cause how else you gonna get the right person for the right job?

Archie can be forgiven; he was way ahead of his time. Consequently, we'll just look at the content of the quote, as well as his character, and consider the language to be a product of its time.

Considering the quote in the context of the present, we can favorably compare it with the one from Sonia Sotomayor:

“I would hope that a wise Latina woman with the richness of her experiences would more often than not reach a better conclusion than a white male who hasn’t lived that life.”

Isn't this basically what that icon of American culture, Archie Bunker, said one and a half score and seven years ago. So why are Republicans so upset over her statement? In fact, isn't this what many modern day diversity consultants say is the reason diversity is so important? Al Gore, when running for President in 2000, stated clearly that he wanted a cabinet that looked like America. They believe they have an original concept when in fact, they're merely re-iterating Archie Bunker. Why would Republican pundits be so upset with the diversity movement when it has its origins in Archie Bunker.

Like Sotomayor, Bunker went on to supply empirical evidence to support his belief.

Archie: For instance, you take Feldman there. He's up for treasurer. Well, that's perfect. All them people know how to handle money. Know what I mean?

Meathead: No, I don't. (Author's note: Archie didn't name Michael “The Meathead” for nothing.)

Archie: Then you got Salvatore runnin' for DA. He can keep an eye on Feldman. You know I wanna tell you somethin' about the Italians. When you do get an honest one, you really got somethin' there.

Meathead: Oh, come on Arch.

Archie: Here you got O'Reilly, the mick. He can see that the graft is equally spread around, you know. You got Nelson, the American guy. He's good for TV appearances. Make the rest of them look respectable, you know.

As the saying goes, those who ignore history, are doomed to repeat it. I'm not sure what that has to do with the nomination of Sotomayor, but then again, I'm not sure what diversity has to do with making unbiased decisions on the Supreme Court. Perhaps Archie Bunker was being prophetic when he said to the Meathead, “The Supreme Court ain't got nothing to do with the Constitution.” God forbid, Archie. I'm not sure which episode that was in, but you can look it up. As for the episode The Election Story, click on the link.

Die Hard Accounting Methods

I recently watched the movie Die Hard 2: Die Harder. One scene in the movie made me think of our current economic collapse and the accounting scandals of the past several years. The scene is the one where Colonel Stewart, played by William Sadler, pretends he's the control tower and contacts a plane flying over Dulles Airport. First he calibrates the instruments. He lowers the reading of sea level by 200 feet. This makes the runway appear 200 feet lower to the pilot. He then guides the pilot in for a landing. By the time the pilot realizes the situation, he crashes into the ground.

When watching this scene, it occurred to me that this is a visual metaphor which answers the questions: What is accounting fraud and why is it so bad?

Most people, outside of the accounting and finance professions, probably look at financial statements the same way they would hieroglyphics. Naturally, understanding accounting fraud would therefore be difficult. Those committing the fraud and those defending the guilty are aware of this and use this fact to their advantage. Many defenders claim that regulation of accounting fraud is bad for business and the economy; even creating a term for it: creative accounting. I suspect some of these people are aware they are hoodwinking everyone. Sadly, some, due to their own ignorance of accounting, probably believe their own words.

Accounting fraud masquerades as creative accounting and is in a word: counterfeiting. That is a term no one seems to use when these corporate scandals surface. The term “the bottom line” is one that is familiar to many people. Even if they do not know it's origin. It's an accounting term that refers to the bottom line on the income statement. It represents an entity's income or loss for a given accounting period. This brings us back to Colonel Stewart.

Like Colonel Stewart, practitioners of “creative accounting” make adjustments to financial statements in order to “recalibrate” the bottom line. While this may make an entity look better on paper, the fact is, an entity cannot be made financially sound as a result of accounting gimmickry. Eventually, reality sets in and a troubled entity will, like the jumbo jet in Die Hard 2, crash and burn.

If an entity is healthy, poor accounting practice could make it unhealthy. Those guiding it could be making decisions on erroneous data; much like a pilot flying with inaccurate instrument readings. In addition, investors are duped into investing into a corporation based on an inflated bottom line.

What happens with accounting fraud, the financial statements are altered through accounting entries to make the company look better to investors. Insiders trading the stock use the stock market as a place to launder the inflated stock. Uninformed investors are then left holding the stock while stockholders who are aware of the true financial position of the company have sold their shares at the inflated prices.

This is exactly what Ken Lay, the CEO of Enron did. He was busy selling his shares of Enron while at the same time issuing statements and e-mails which encouraged employees to buy Enron stock. They bought because he claimed it was a good buy; he knew different.

This is similar to what a counterfeiter does when laundering counterfeit currency. Ken Lay exchanged his “counterfeit” shares for genuine U.S. Dollars. The effect on the national economy is the same as counterfeiting. If we lived in a paperless economic system where there was no currency, counterfeiting would be conducted in the same manner Ken Lay used. You would counterfeit earnings or services and convert them to currency.

The same thing happens with the Ponzi schemes like the one Bernie Madoff pulled off. He inflated the earnings in his fund by moving money around among his individual investors. This created the illusion of enhanced performance of the overall fund. Again, he counterfeited the results. Time and a dramatic drop in the stock market revealed the actual returns his fund was getting.

The last time “creative accounting” was in vogue was during the roaring 1920's. In October of 1929, the stock market crashed. Then, as now, the Stock Market after the crash, reflected accurately, the true price of the market. The prices before the crash reflected inflated figures. The stock market crash of 1929 helped usher in the Great Depression of the 1930's and prompted the creation of the Securities and Exchange Commission.

Recently, the Dow Jones Industrial Average dropped below the 8,000 range from its all time high. As in 1929, this is the market seeking its true level. It fell from a level inflated by accounting fraud. What caused the crash then and now was a sudden adjustment to the true level of the stock market. A level significantly lower than the one artificially created by accounting fraud.

Who is responsible for policing counterfeiting in this country? According to the U.S. Constitution, Congress. Article One Section Eight reads: “Congress shall have the power to provide for the punishment of counterfeiting the securities and current coin of the United States.” By definition, accounting fraud violates the principals of the Constitution. So much for the theory that government should not interfere with free markets.

Unfortunately, the most notorious counterfeiting ring in the country works out of Capitol Hill. It doesn't matter which party is in power, Congress has acted the same. A stimulus plan, which consists of increasing the national debt by trillions, may have the same effect that “creative accounting” has had on the health of our nation's economy. Some believe the printing of more money to solve the current economic problem is like throwing gas on a fire. Others may view it as a “die hard” move.