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CNN Saturday Morning News
Interview With Terry Savage
Aired June 29, 2002 - 08:22 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: From Martha Stewart to this week's revelations about WorldCom and Xerox, it was a rough week for the stock market and for investors. It raised new red flags for a lot of skittish investors. Joining us to talk about what's become a crisis of confidence on Wall Street is Terry Savage. She's the author of "the Savage Truth on Money," and a financial columnist for the "Chicago Sun-Times." And not only that, she comes from the market. She's been there. She's done that. Good morning, Terry.
TERRY SAVAGE, AUTHOR: Good morning, Kyra.
PHILLIPS: All right. So let's look at the whole big picture here. With the Enron and WorldCom and Xerox. I mean, when it comes down to it, it's greed.
SAVAGE: The business report this week looks like the crime blotter. There was plenty of greed to go around. I mean, there was obviously greed on the part of management, but 10 ten years ago we told management that they needed to have their interest aligned with the shareholders, so we started paying management in stock and options. And sure enough, we rewarded them when the stock price went up, so they did just about anything in many cases to report profits, which makes stocks go up.
And you know, we had plenty of greed to go around. We had investors who bought those stocks, analysts who wanted to recommend them to get the investment banking business, banks who lent them money. So, we just finished an era where greed overrode common sense.
PHILLIPS: Is there any way at all, as an investor, before I invest in a company, what can I do to check this company out and just look for red flags? And I know you and I talked about this about what the auditors are supposed to do, but obviously it has not been happening.
SAVAGE: Well, ordinary investors cannot blame themselves. The securities analysts were fooled. The actual auditors were either complicit in these frauds or they were fooled. Management was complicit or they were fooled. And of course, the fact is that if they were complicit, they'll go to jail.
But as an individual investor, the whole idea of the financial markets is we get complete dissemination of truthful numbers. And we in so many cases now, we haven't gotten that. We have gotten outright fraud, and manipulating the bottom line by immediately -- by stretching out expenses so that the profits look bigger, by doing all kinds of real fraudulent activities.
So the ordinary investor, don't blame yourself, but we really want the people who are to blame to pay for it by probably going to jail.
PHILLIPS: And this WorldCom, the most recent situation uncovered by an internal audit. It seems like these auditors have the fear of God based in them. And so, are we just going to see a massive domino effect? Is this just the beginning of companies getting caught?
SAVAGE: Well, I hope not. And I still think this remains a relatively minor part of the entire spectrum of stock market companies. But you see all those clients of Arthur Andersen are now going to find new auditors. And all those new auditors don't want to start with any old bad news. So they'll be all casting very eagle eye on every company's balance sheet, trying to say let's get this out now so going forward it will be straight.
So we certainly may have more, but I think these have been massive frauds, not questions of accountable decisions. You know, decisions that might have been or might not have been.
And the real impact now, of course, is not just those companies. It's not all the financial markets, and it's the layoffs. This -- these frauds are going to affect people far and wide in America and around the world.
PHILLIPS: And you now have this big debate going on about regulation and government getting involved.
SAVAGE: Well, you know, it's interesting. I know for sure that the legal system has to get involved, because people have to go to trial and go to jail if it's necessary. But I'm not sure that government regulators are going to be any better at ferreting out fraud when you have dishonest, unethical people.
I think the market, unfortunately, is not only making those insiders who owned all the stock pay; the market is taking care of this, but everybody who invested is paying.
PHILLIPS: Terry Savage, I know we'll be talking again probably very soon. Thanks, Terry.
SAVAGE: You bet, Kyra.
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