And now comes Worldcom. The breathtaking scale of the No. 2 long-distance carrier's collapse should force a reexamination of what really happened during the now forgotten tech boom of the 1990s. Was it real, or simply a house of cards? Each new financial revelation points to the latter.
The collapse of Worldcom, corporate parent of plucky MCI Corp. and a favorite in most investors' stock portfolio, is worse than the fall of Global Crossing and others. Never before have so many high-tech investors been hit so hard.
Worldcom's ousted boss Bernie Ebbers and many of his rivals apparently decided that faking revenues by stating $3.8 billion as capital investment rather than operating costs was OK in the go-go era before the tech crash. To them, inflating their cash flow to report profits instead of losses was merely "aggressive accounting" designed to help meet quarterly earnings projections demanded by Wall Street.
We now know it was also an updated version of Commodore Cornelius Vanderbilt's dictum, "What do I care about the law? Hain't I got the power?"
At least Vanderbilt could keep the books, and did so in his head.
A former Justice Department official quoted in The Washington Post summed up the company's attitude: "Nobody could tell these guys anything," he said. "It was as if they actually believed they were masters of the universe because they had taken this crappy little long-distance company and turned it into something they could call Worldcom."
This latest and greatest of accounting scandals reinforces the growing suspicion that corporate governance is a sham, that the institutional failures stretch from the board room to the counting room, from the Wall Street brokers and analysts to the business press which was asleep at the switch.
The shenanigans of telecom equipment suppliers were reported, some of them here at EE Times by our colleague Loring Wirbel. Nearly all of it was ignored. Don't let the facts get in the way of a good stock tip, the prevailing view seemed to be.
But admit it. Didn't many of us have an uneasy feeling that something had to give sooner or later? We just didn't understand how far.
Now the government says it will go after corporate wrongdoers who are undermining the financial markets. The Securities and Exchange Commission has filed fraud charges against Worldcom. Federal Communications Commission chairman Michael Powell put out a statement on Wednesday (June 26) saying he would meet in New York with telecom industry executives and other financial geniuses who helped us into this mess. Powell pledged to get to the bottom of the telecommunications melt down.
"We are closely monitoring the situation and are doing everything possible to ensure and protect both the stability of the telecommunications network and the quality of service to consumers," Powell said in the statement clearly designed to calm the jittery markets.
But it will take more than meetings and press releases to shore up investor confidence in the technology sector, to say nothing of the thousands of Worldcom employees who will get the ax. They are the real victims of Worldcom's corporate hubris, the folks who thought they were changing the world.
Someone other than laid off workers must pay for these crimes.