Greenspan concerned about corporate accounting scandals
WASHINGTON (AP) – Federal Reserve Chairman Alan Greenspan, after condemning business executives who mislead investors, said Wednesday he doesn’t believe the CEOs of all publicly held companies should be required to verify the accuracy of company finances with federal regulators. It would be OK if public companies wanted to provide the information voluntarily to the Securities and Exchange Commission, Greenspan told a House committee. But he also indicated that they should not be forced to do so.
The SEC has asked roughly 1,000 top CEOs to certify that their financial statements are accurate.
In his written testimony to the House Financial Services Committee, Greenspan reiterated his view that accounting problems stemmed in part from corporate greed and blamed that for undermining investor confidence in corporate America.
He had told the Senate panel earlier that “an infectious greed seemed to grip much of our business community.”
On the economy, Greenspan, continuing to strike a soothing tone, told House lawmakers: “At this moment, we are still on path … we are poised for a reasonably good expansion.”
Greenspan also said he wasn’t terribly worried by the prospect that more U.S. corporations might revise earnings downward.
“I do believe there are going to be significant restatements and I agree with you that the number that are going to be restated up won’t take you very long to read,” Greenspan said.
But those restatements aren’t likely to damage the U.S. economy, he said. “I’m not concerned about any impact,” Greenspan said. “If we get a lot of restatements, which I presume we may very well, I’m not sure that’s all bad.”
Greenspan said it wasn’t critical for Congress to complete action on a package to combat corporate fraud before it breaks for a summer recess. But he cautioned: “If you wait too long, you’ll probably lose the window of opportunity.”
He also said he didn’t believe it would be a good idea for Congress to regulate financial analysts, some of whom have come under fire for pushing companies that eventually were found to be in poor financial health. “I would leave it to the private sector to handle,” he said.
The market decline threatens to lead consumers to spend less. Businesses, whose profits took a hit during the slump, could become even more reluctant to make big commitments in capital investment, a necessary ingredient to the economy’s full recovery.
“The effects of the recent difficulties will linger for a bit longer, but as they wear off, and absent significant further adverse shocks, the U.S. economy is poised to resume a pattern of sustainable growth,” Greenspan predicted on Tuesday.
Thus far, consumers, whose spending accounts for two-thirds of all economic activity, have been holding up despite the spotty recovery and the sour stock market, Greenspan said. Weak stocks have yet to crimp consumer spending because of offsetting boosts from low interest rates, solid appreciation in home values and extra cash from refinancing.
In contrast, business spending has remained weak, he said. It was deep cuts in capital spending that helped push the economy into recession last year.
Against that backdrop and given that inflation has remained low and is not a risk to the economy, Fed policy-makers have opted to hold short-term interest rates at 40-year lows at each of their four meetings this year.
Growing numbers of economists believe the Fed will keep rates unchanged through the rest of the year.
To restore investor trust shaken by the accounting scandals, Greenspan said chief executives must be held accountable to report accurately on the financial conditions of their companies and should be penalized for not doing so.
He welcomed stiff penalties included in a Senate bill passed Monday to combat corporate fraud. The House on Tuesday passed new criminal penalties for business fraud in legislation that GOP leaders said was tougher than the Senate bill. Democrats disagreed.
“Manifestations of lax corporate governance, in my judgment, are largely a symptom of a failed CEO,” Greenspan said, in some of his harshest comments to date on the scandals.
Greenspan said checks and balances on corporate governance that worked well in the past might have been hurt by the go-go mentality of the 1990s that “arguably engendered an outsized increase in opportunities for avarice.”
The Fed chief repeated his support for companies to treat lucrative stock options for top executives as business expenses. But he indicated that decision should be left to the private sector, not be forced by Congress.
Recent announcements by Coca-Cola Co. and others suggest that companies are moving in that direction on their own, he said.
Fed policy-makers’ forecast is for the nation’s unemployment rate, now at 5.9 percent, could edge up to as high as 6 percent this year. That’s an improvement from the Fed’s earlier forecast and significantly below the 7.8 percent jobless rate hit in the last recession, in 1990-91.
Consumer prices as measured by a price gauge tied to the gross domestic product are predicted to increase by about 1.5 percent to 1.75 percent, little changed from an earlier estimate.
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On the Net: Federal Reserve: http://www.federalreserve.gov.