November 01, 2002
The Ever-Mendacious Wall Street Journal Editorial Page

You never read the Wall Street Journal's editorial page expecting it to tell any story honestly and straightforwardly.

For example, if you took the editorial below at face value, you would believe that lawsuits against U.S. Technologies' [the "company being sued for possible fraud"] and its CEO Gregory Earls are "phony," for "trial lawyers sue good companies every day alleging 'fraud'." And if you believed this, you would be wrong.

As every reader of yesterday's Washington Post's business section knows--but as the Wall Street Journal editorial page cannot bring itself to say--Delaware Vice Chancellor Jack Jacobs has found "credible evidence" that Gregory Earls has "a pattern of defrauding investors", that his misrepresentations in one current case "may rise to the level of criminal conduct," and that "the ever-increasing pattern of fraud claims against Earls lends further credibility to the other evidence..."

So: if the Wall Street Journal editorial page were to tell you that there is plenty of milk in the refrigerator, you would be well-advised to open the refrigerator and take a look for yourself before heading out to the grocery store.

But that's what makes this editorial interesting. Even using all the skills at distorting the facts that they have, they still cannot find a way to make Harvey Pitt look good. This makes it clear that the Wall Street Journal editorial page is now as eager to get Harvey Pitt off of the SEC and out of government as everybody else:


WSJ.com - In the Pitts: ...We're beginning to admire the White House and other defenders of Harvey Pitt. They've stood bravely by their man, notwithstanding the SEC Chairman's apparent determination to embarrass them. In the latest banana-peel episode, Mr. Pitt has ordered a probe into his own appointment of William Webster to lead the new accounting standards board. The New York Times reported that Mr. Webster had told Mr. Pitt that he was a member of the audit committee of a company being sued for possible fraud. But Mr. Pitt didn't bother to tell his fellow SEC Commissioners about this before they voted, 3-2, to approve him last Friday. Now, trial lawyers sue good companies every day alleging "fraud," and most of those suits are phony. The problem here is Mr. Pitt's credibility; you don't have to be an ethicist to think he owed his colleagues the Webster news before they made a highly public and contentious vote.

Democrats are ecstatic that they can howl again for Mr. Pitt's head five days from Election Day. Republicans dismiss this as politics, which it is, but politics and honesty also matter to markets. Mr. Pitt's lack of credibility is one reason we're all now living with the new regulations of Sarbanes-Oxley. He and his fellow Republicans resisted any accounting reform for so long that when the WorldCom fraud broke no one believed their enforcement pledges. They then ran for political cover and stuck everyone in business with the regulatory bill. Mr. Pitt is proving to be an expensive man to defend.

Posted by DeLong at November 01, 2002 11:47 AM | Trackback

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The dishonesty of the WSJ editorial board, although less egregious under Gigot than under Bartley, has always been quite remarkable to me, so I agree here with Brad: even the WSJ has now realized that Pitt must go. Why the Bush White House got itself caught in knee-jerk support for Pitt (and Webster) after this approval fiasco, though, is beyond me.

Posted by: howard on November 1, 2002 12:00 PM

The dishonesty of the WSJ editorial board, although less egregious under Gigot than under Bartley, has always been quite remarkable to me, so I agree here with Brad: even the WSJ has now realized that Pitt must go. Why the Bush White House got itself caught in knee-jerk support for Pitt (and Webster) after this approval fiasco, though, is beyond me.

Posted by: howard on November 1, 2002 12:01 PM

confusing - should the word "not" be omitted?

- if you took the editorial below at face value, you would believe that lawsuits against U.S. Technologies' [the "company being sued for possible fraud"] and its CEO Gregory Earls are [not] "phony," -

Posted by: on November 1, 2002 12:32 PM

All that matters now for the WSJ editorialists is a Republican Congress. Then, such foolish matters as accounting reform can be properly forgotten. WSJ and Heritage Foundation can tell us all how to think but for a lone Senator.

Posted by: on November 1, 2002 12:54 PM

Yes, accounting reform and better corporate governance really do matter!

Posted by: on November 1, 2002 01:41 PM

Let's talk about the dishonesty of Newspapers -- the New York Times comes to mind. They "scoop" a story on Webster and US Tech that was spoon-fed to them to try and make Webster look shady: e.g. Webster's firm is being sued in private civil litigation and the comments of a Delaware chancery judge that are being widely quoted are not even a finding, although they are being quoted as if US Tech has been found guilty of something. The NYT does not even bother to mention in any of this reportage that the candidate they and their Congressional logrollers are pushing, John Biggs, was on the audit committee of a fim that actually paid to settle WITH THE SEC over the deceptive nature of its SEC filings.

What is worse - a company (Webster's affiliation)that is sued by ambulance chasers and admits late filing of SEC papers (with no sanction from the SEC), or a company (Biggs' affiliation) that is twice investigated and pays $500K to settle SEC complaints over misleading financials?

To its credit, the WSJ newspages report that Pitt had both Biggs and Webster vetted by the SEC Chief Accountant's office over both these matters and neither was deemed significant enough to disquaify the candidates (yes, good companies are often sued and this is not necessarily a reflection on the integrity of the director). Pitt went with Webster and, given Biggs' reaction since, I'm glad he did. The NYT is participating a smear campaign along with Sarbanes and other democrats and I'm glad that Pitt and the White House will not be intimidated. There's plenty of mendacity around but it's not at the WSJ!

Posted by: Josef on November 1, 2002 02:08 PM

normally, i try and stay out of using comments sections for back-and-forth, but Josef's comments are just so silly....

The issue at hand is whether Pitt should have informed his fellow commissioners of Webster's background.

Webster was an unqualified candidate for the position in the first place, but that's minor - lots of unqualified people get appointed to lots of positions in Washington (and ambassadorships around the world).

But nothing Josef says even addresses this issue. He just throws up a cloud of dust, the usual blowhard claptrap.

C'mon Josef, at least give it a try - say something about the real issue.

P.S. I'll join DeLong and assert that the editorial (and certain of the op-ed stable) page of the WSJ is the most mendacious in all of mainstream media, but that's not really the point either. The point is that even the Journal recognizes that Harvey Pitt misbehaved.

Posted by: howard on November 1, 2002 04:14 PM


If you've followed anything in Delaware chancery court, a Delaware chancery judge stating that he has found "credible evidence" of "a pattern of defrauding investors" against a CEO is more noteworthy than the WSJ editorial board doing a suck-up piece on Hillary Clinton.

According to http://www.lyinginponds.com/ the WSJ Opinion Journal is the MOST partisan of the big three. With net positive references to the parties: WSJ +21 R; NYT +13 D; WaPo +3 D.

Their summary:
"None of the WSJ OpinionJournal pundits wander off the Republican reservation. The New York Times pundits are by far the most anti-Bush. The Washington Post has two Michaels (Kelly and Kinsley) at opposite ends of the ideological spectrum in or near the top ten."

Posted by: R. Nader on November 1, 2002 05:14 PM

Josef also fails to consider the follow up reporting, but to give him an easy out, maybe he hadn't seen it. According to all the parties at U.S. Technologies, nobody from the SEC contacted them to do any due diligence or investigation about this matter in relationship to Judge Webster. That's no way to run a railroad.

Posted by: Dave Roberts on November 2, 2002 12:46 AM

Even the oily Republicans are beginning to realize what a disgrace Pitt is. http://www.nytimes.com/2002/11/02/business/02ACCO.html .

Perhaps I'm getting my bloggers mixed up but... doesn't someone around here owe Paul Krugman an apology?

Posted by: Dave Romm on November 2, 2002 04:39 AM

The New York Times simply printed the truth.

The problem lies with Harvey Pitt and accounting executives who wish to limit corporate accounting reform at all costs and have been lobbying fiercely to do just that. The program is never give a middle class investor an even break. Who cares how many workers and investors are hurt because of accounting charades....

Posted by: on November 2, 2002 02:57 PM

The WSJ's editorial page is notoriously partisan about politics. I agree that the editorial page is about opinions rather than news. Even, then has anyone on the WSJ editorial team heard of a term "independence"? Compare the WSJ w/ the Economist -- and you notice the marked difference. Notice how this WSJ editorial actually gives Bush and his team a pat on the back ("deserve credit for defending their man" ) for standing behind Pitt. Huh? Pitt's actions in this Webster imbroglio are indefensible. Mr Pitt will be shown the door the very moment the elections are over.

Posted by: Prashant on November 3, 2002 07:43 AM

The WSJ's editorial page is notoriously partisan about politics. I agree that the editorial page is about opinions rather than news. Even, then has anyone on the WSJ editorial team heard of a term "independence"? Compare the WSJ w/ the Economist -- and you notice the marked difference. Notice how this WSJ editorial actually gives Bush and his team a pat on the back ("deserve credit for defending their man" ) for standing behind Pitt. Huh? Pitt's actions in this Webster imbroglio are indefensible. Mr Pitt will be shown the door the very moment the elections are over.

Posted by: Prashant on November 3, 2002 07:43 AM

Josef

I don't get your criticism of the NYTimes. You are criticizing them for reporting a story that is 100% true because...well, that's why I don't get it. But your statement that Briggs was a director of a company investigated by the SEC is interesting. Do you have a link for that information? Seems to me that if he was on an audit committee that oversaw accounting statements that were later restated, he should be disqualified too. There truly is no shortage of qualified candidates for this post. They interviewed more than 400 candidates. We don't need someone with a spotty record, and a person with a spotty record and no knowledge of numbers is worse.

Posted by: pj on November 3, 2002 09:46 AM

"The NYT is one big editorial. Their news pages have no credibility anymore."

What rubbish.... The NYTimes is the finest paper in the world. The Times bothers only those who are afraid of a balanced, deep, extensive involvement in the affairs of our days.

Posted by: on November 3, 2002 10:11 AM

There appears to be a pattern of offending here, Josef ...

>>What is worse - a company (Webster's affiliation)that is sued by ambulance chasers and admits late filing of SEC papers (with no sanction from the SEC), or a company (Biggs' affiliation) that is twice investigated and pays $500K to settle SEC complaints over misleading financials?<<

The answer is, although you don't make it clear, that the first is worse.

First off "no sanction from the SEC" is more or less entirely a lie. The company in question was delisted from NASDAQ. I do not propose to get involved in semantic debates about whether this sanction was "applied by the SEC", but it is a fact that the SEC has extremely limited jurisdiction over a company which is no longer offering securities to the public because it has been delisted by its exchange for poor audit controls.

And second, cash settlements with the SEC specifically do not involve the admission of wrongdoing. The SEC uses them to punish borderline activities precisely in those cases where it doesn't believe it can prove that something has been done which was a breach of audit standards. When it thinks it has a strong case, it takes regulatory sanctions like ... well, like delisting a company.

This, like almost everything Josef has posted on this subject, is mendacious in the extreme.

Posted by: Daniel Davies on November 4, 2002 12:40 AM

Along with the disgraceful 'defense' of Pitt, the Journal editorial also found a good word to say about Bush - they are 'good guys' for 'standing by their man' even when he is provably wrong. Remember the vitriol heaped by these same Editorial pages on dems for 'standing by their man' Clinton?

I now read the editorial pages with the exact same mindset I reserve for Limbaugh or Hannity. These pages have become so partisan, that they are sometimes in the ridiculous position of contradicting their own reporters and news stories carried elsewhere in the Journal!

Posted by: Suresh Krishnamoorthy on November 4, 2002 06:49 AM

I am going to keep this discussion at least one notch above usenet...

Posted by: Brad DeLong on November 4, 2002 03:50 PM

GREETINGS:IN NEW YORK CITY,9:00P.M. ON CNBC WALL STREET JOURNAL'S PROGRAM,FRI,NOV.29,2002,I OBSERVED THE WALL STREET JOURNAL EDITORIAL BOARD DISCUSS WHETHER THANKSGIVING IS A RELIGIOUS HOLIDAY. I'M PARTICULAR INTERESTED IN ONE OF YOUR STAFF'S PUBLISHED DEFINITION OF THANKSGIVING. PLEASE FORWARD ME AN EXCERPT OF THAT THANKSGIVING DEFINITION AND THE AUTHOR'S NAME.

THANKS IN ADVANCE,

ALEX MALLOY

Posted by: ALEX MALLOY on November 29, 2002 07:49 PM

GREETINGS:IN NEW YORK CITY,9:00P.M. ON CNBC WALL STREET JOURNAL'S PROGRAM,FRI,NOV.29,2002,I OBSERVED THE WALL STREET JOURNAL EDITORIAL BOARD DISCUSS WHETHER THANKSGIVING IS A RELIGIOUS HOLIDAY. I'M PARTICULAR INTERESTED IN ONE OF YOUR STAFF'S PUBLISHED DEFINITION OF THANKSGIVING. PLEASE FORWARD ME AN EXCERPT OF THAT THANKSGIVING DEFINITION AND THE AUTHOR'S NAME.

THANKS IN ADVANCE,

ALEX MALLOY

Posted by: ALEX MALLOY on November 29, 2002 07:49 PM

GREETINGS:IN NEW YORK CITY,9:00P.M. ON CNBC WALL STREET JOURNAL'S PROGRAM,FRI,NOV.29,2002,I OBSERVED THE WALL STREET JOURNAL EDITORIAL BOARD DISCUSS WHETHER THANKSGIVING IS A RELIGIOUS HOLIDAY. I'M PARTICULAR INTERESTED IN ONE OF YOUR STAFF'S PUBLISHED DEFINITION OF THANKSGIVING. PLEASE FORWARD ME AN EXCERPT OF THAT THANKSGIVING DEFINITION AND THE AUTHOR'S NAME.

THANKS IN ADVANCE,

ALEX MALLOY

Posted by: ALEX MALLOY on November 29, 2002 07:51 PM
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