On Thursday, May 25, 2006, a federal court in Houston, Texas, convicted former Enron executives Kenneth Lay and Jeffrey Skilling of fraud and conspiracy related to the 2001 collapse of that company. Immediately afterward, in a separate matter, a U.S. District judge found Lay guilty of bank fraud and making false statements. The 161-point rise in the Dow Jones industrial average on the 25th and 26th was widely attributed to these court verdicts. Said the chief investment officer of a major financial advisory firm: “The markets were relieved that these two powerful, wealthy, corporate leaders wouldn’t be able to walk away from such a big scandal. There was a little bit of relief to know that there is accountability in the financial market system.” In keeping with convention, the public’s obsession fixated exclusively on the 165 and 185 years maximum possible prison sentences the two convicted felons respectively face.

First, let’s focus on financial accountability. It’s uncertain how much of Kenneth Lay’s fortune remains. The $23 million initially set aside for his defense is gone, with an unspecified portion of his lawyer’s costs still unpaid. His net worth was recently calculated at negative $250,000. As for Skilling’s assets, in 2004 the government located and froze $57 million, including his $5.1 million Houston mansion. Whether either man can raise any funds is questionable. On the other side of the ledger are the losses for which they are culpable. The demise of Enron wiped out $60 billion of stockholder value. Another $2.1 billion in pension plans evaporated together with 5,600 jobs. How these convictions instill “accountability in the financial market system” escapes me.

As for appropriate prison terms, what is the significance of hundreds of years incarceration for 64-year-old Lay and 52-year-old Skilling? I’ll acknowledge that proclaiming such sentences may provide visceral satisfaction, but what else is accomplished by meaningless gestures?

Finally, how are the public’s interests served in the aftermath of this corporate calamity? In an attempt to reassure the nation, Congress hastily enacted the Sarbanes-Oxley Act of 2002, designed to prevent deception in the management and accounting of public companies. I’ve reviewed the legislation and concluded that its provisions are little more than symbolic chest thumping. No measures exist today that would prevent a repetition of the Enron debacle.

A concluding thought:
To expect that well-meaning laws and guidelines will somehow induce corporate America to respect the public good is unrealistic. The ability of corporate insiders to manipulate all aspects of their companies, and profit from such transactions, is the principal reason that public corporations exist.

On Friday, April 7, 2006, the worldwide price of gold hovered at $600 per ounce, having experienced an increase in price of more than 15 percent since the first of the year. Now, after hitting a 25-year high, many analysts see the sky as its limit. A search of the major portals gives pretty uniform predictions on gold investment. The following are typical comments:

• Gold is an ideal investment for the prudent investor.
• There is no question gold is headed for $1650.
• Gold is one investment that investors may soon be willing to pay almost any price to get.

The justification for investment in gold and other precious metals is long-standing. Regarded as a universal hedge against inflation and currency devaluation, it has historically been viewed as the investment of last resort. Although attaining a record high of $850 in January 1980, it thereafter plummeted in value, to languish in the $250-$400 range for years.

The current view of the investment community seems to be that gold is now on the preferred buy or hold list, this in keeping with the time-honored adage that nothing succeeds like success. As for contrary views, I found none. At the risk of alienating the true believers, I’d like to pass on another opinion.

I presently own no gold . . . nor have I ever. Despite recommendations to the contrary, there is no sound justification for investment in precious metals, whether as the base metal, the specie, or stock in related companies. The markets for gold, silver, and the like long ago entered the pseudo-religious realm, with adherents extolling their virtues, much as with Scientology or transcendental meditation. These markets are, by their nature, subject to manipulation, so that performance cannot rationally be predicted.

A concluding thought:
I understand that I’m out of step with the world of investment. If entertaining these thoughts brands me a curmudgeon, I plead guilty.

USA Today’s prominent April 10th front page headline set the tone: What’s behind soaring CEO pay. Its Money section then devoted three pages to exposing the presumably obscene pay that scores of top corporate officials received in 2005. Charles Prince III of Citigroup $22,927,089; Kenneth Lewis of Bank of America $24,125,711; Samuel Palmisano of IBM $32,418,045; it goes on.

Throughout the article you’ll find terms like “windfalls” and “huge payout,” as well the statement “boards are ignoring performance guidelines to reward executives . . . it’s still business as usual at most companies.” The impression given is one of a massive ripoff of America.

The outrage that executive recompense evokes seems to be a tempest in a teapot. Admittedly, a certain amount of arrogance is endemic to the corporate world, and it’s a fact that the principal reason CEOs receive the handsome sums they do is because they can. Nonetheless, corporate management that disregards its shareholders normally finds itself replaced.

What the article ignores is that only stockholders that voluntarily hold shares in a company are affected by a CEO’s compensation. Whether it’s the salary and other perks that senior officials receive, or the board of directors’ general policies, dissatisfied shareholders have the option to dispose of their stock at any time. The call, by some, for increased scrutiny by regulators or imposition of SEC mandates is unwarranted.

A concluding thought:
I understand USA Today’s interest in this most provocative subject. Accusations of impropriety are attention-getting, and large dollar amounts are titillating. The reality that total annual remuneration of the CEOs above represents ½¢, ½¢, and 2¢ per share respectively sounds far less impressive. Our nation’s foremost newspaper did not achieve its prominence without a clear understanding of exactly what its readers enjoy reveling in.