by Martin Weiss 9/18/06

Washington’s Enron-style accounting is now so widespread and so deeply ingrained, the nation could be bankrupt and not even know it.

You go to work. You save and invest. You vote in the November election. And you assume that everything is business as usual. Then, one day, you wake up to the shocking discovery that it’s not.

Inflation is at least three percentage points worse than what they’re telling you. Unemployment and the budget deficit is over double. The national debt is at least five times bigger than official tallies.

Almost every number coming out of Washington has been thoroughly massaged and greatly distorted, almost always with a bias toward sweeping the dirt under the carpet and sugarcoating the truth.

This is not a conspiracy. It just happens naturally. But that doesn’t diminish the potential impact on your money. It’s easily the greatest scam of all time.

Every single administration – from John F. Kennedy to George W. Bush – has succumbed to the same temptation to “reform” the data collection process … “streamline” the reporting procedures … and continually implement minor, incremental changes – all to make things look a bit better.

Each new change has been grandfathered in by the next administration.

And the cumulative effect of all these small changes over time adds up to a gross distortion of reality that could directly threaten your financial future.

Look Back to Recent History,
And You’ll See What I Mean.

At Enron, 21,000 employees – and many more investors – assumed that the company’s books were real. Then, one day they discovered it was all a hoax.

And it was over.

We saw the same thing happen at Adelphia Business Solutions, Global Crossing, Kaiser Aluminum, Kmart, McLeodUSA, National Steel, WorldCom, and scores of other major, household-name companies. Every one had distorted its numbers. Every one went bankrupt. Each left a trail of ruined lives in its wake.

The distortions were so bad even many of Wall Street’s least biased analysts missed the boat. Indeed, in a special report I presented to the National Press Club, I demonstrated that …

Among 50 major Wall Street firms we reviewed, 94% continued to publish “buy” or “hold” ratings on these failing companies right up to the day the companies filed for bankruptcy.

Worse, America’s largest auditing firms looked the other way, or even directly assisted in the accounting distortions. In a report I submitted to Congress, I showed that …

Arthur Andersen, America’s most prestigious auditors, gave a clean bill of health to 11 companies involved in accounting irregularities. Deloitte & Touche and KPMG each gave a clean bill of health to five companies involved in accounting problems. And overall, the nation’s major auditing firms gave a clean bill of health to 42.1% of the public companies that filed for bankruptcy soon after their audits. Overall, the auditors failed to warn the public about companies that were worth a total of $225 billion at their peak. Investors lost nearly every dime.

Today, Fannie Mae, the company that controls most of America’s secondary mortgage market – a company without which the entire housing industry would crumble – is also knee-deep in accounting distortions.

Ford, General Motors and Chrysler, which can make or break America’s industrial economy, may or may not have major accounting issues. But their assurances to shareholders and employees, made just a few months ago, are crumbling just the same.

And this is in “good times,” when the economy is apparently strong, when inflation and unemployment are supposedly moderate.

Something doesn’t fit. Something’s terribly wrong with this picture, and it’s this: The government’s distorting the real truth about the U.S. economy and its own books.

How Washington’s Enron-Style Accounting Makes
The Great Corporate Scandals of This Decade
Look Like Little White Lies by Comparison

Much like major auditing firms review the books of a GM or IBM, the U.S. Government Accountability Office (GAO) audits the books of Uncle Sam, including its departments and agencies.

But in its latest year-end media advisory, the GAO plainly states that

“For the ninth straight year, the U.S. Government Accountability Office (GAO) is unable to provide an opinion as to whether the consolidated financial statements of the U.S. government are presented fairly, in all material respects, in conformity with generally accepted accounting principles.”

In other words, the same government that is aggressively pursuing corporations for bad accounting is the most guilty of similar practices.

In an earlier report to Congress, GAO Director and U.S. Comptroller General David M. Walker bluntly explained it this way:

“The current system of federal financial reporting provides an unrealistic and even misleading picture of the government’s overall performance and financial condition … A key lesson from Enron, WorldCom and other business failures is that our free-market system depends on public confidence in the accuracy of … financial information.”

But, unfortunately, Washington has so far failed to learn that lesson.In several departments of the executive branch, especially Defense, balance sheets don’t balance and taxpayer money disappears. So beyond the deficit manipulations that we know about, there could be many others that are unknown, even to the federal auditors.

This is easily one of the greatest scandals of our time, and yet it’s rarely discussed and often forgotten.