Corporate Financial Con: We all Benefit

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I love scandals. To be precise, I love the corporate financial scandals with huge elements of corporate fraud at the centre of it all. The ones that take five to ten years to uncover and leave the stock markets reeling – free fall style- after they’ve been uncovered; which stock markets had it climbing when the “con” was biting.

I love the scandals that call into question the morality of man which is essentially this: why do we question the actions of the “fraudsters” when they are caught and all goes south , but it’s all good with us- as long as it’s all good with them? These fraudsters are my heroes. Well …something akin to financial martyrs, at any rate. They are the scapegoats of the first and second generation investors to the fourth and sixth generation investors who arrive
after “the gig is up”.

Much as we hate them and say they are bad men (strangely enough, they all seem to be male) ,who are taking us for granted and have swindled our money, in all fairness they are doing this not only for themselves (to earn big bonuses) but for the investors (first and second generation) so as to earn them higher dividends and share prices. We have never sat back and analysed the impact these bad men have had on our economies while they spun their web of corporate financial deceit. The impact they had on the economy and ultimately to our wallets and bank accounts.

Most of the people that cry foul are those that have been directly benefiting and then ended up directly losing upon the demise of the “con”. When the fraudsters like Bernie Madoff were spinning their web for the 15 or so years, the people that invested with him did not at all question their luck of having a fund whose Return on Investment was much higher than any they knew. When Madoff had been arrested and the investment fund stopped running smoothly-so to speak-that’s when they started to make noise.

The impact of corporate financial deceit is sometimes advantageous for the economy .For not only do the fraudulent profits get taxed more by the government ,but the shareholders of these companies also get higher dividends on the fraudulent profits. The persons outside the company’s shareholding, upon realizing the extra dividend payout, wish to join in on the party and thus buy shares in the company. In the following years, they earn lots of profits or even more when they offload their shares.

So you see. All is good till some goody-two-shoes blows the whistle on the entire operation thereby selfishly, for being true to himself or herself, lets loose a pack of terrified shareholders onto the stock exchange all wishing to sell off their hitherto profitable shares because they now know or feel that no one is going to be interested in them any longer (kind of defeats the purpose of trying to sell the shares in the first place); and thus the company share price plunges head first to zero.

The question then begs to be asked. Since we benefitted from the con in years gone, are we now morally obligated to return these profits? If we decide so, to whom sould we return them? The company! But we own it! So why do we arrest the people that made the share price go up during the con when the con is uncovered, and demand they pay us back the salaries we paid them when they made our share prices and dividends triple?

My intention is not to condone the cons in corporate finance but to make us realize we are all part of it.
Rafa’ili

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