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Paine offered “simple facts, plain arguments, and common sense” of the American condition—that it would only deteriorate should some temporary reconciliation be achieved. To back this contention Paine cited several conventional arguments, all demonstrating the divergence of British and American interests. But perhaps his most compelling point—not much noticed since—reminded Americans that blood had recently been spilled, and with its loss American affection for the “mother country” had drained away. American passions had been engaged in the struggle, and the passion that was directed toward Britain was hatred. The conclusion to this analysis seemed obvious: “Reconciliation is now a fallacious dream.”19 Much of what Paine wrote had already been said in the nine months following Lexington. The events of those months, giving evidence of the stubbornness and hostility of king and Parliament, made belief in reconciliation difficult to sustain. Common Sense helped Americans see just how far they had come in the struggle to protect their rights, made them see that they could not go back to the old relationship of 1763. If Paine was right not the king, nor the Parliament, nor the English people had any desire for the old arrangements. A part of what Paine was saying had been said by pamphleteers for a dozen years—there was a conspiracy afoot to enslave the colonies. But Paine went farther: he showed that the conspiracy inhered in the very structure of the Anglo-American arrangements. Because the conspiracy could not be separated from the monarchy or from the British constitution, the Americans, it seemed, had no choice. They must declare their independence. A declaration of independence might be only common sense, but Paine clearly believed that it would be more—it would indeed be a break in history. He told Americans of the importance of what they were doing in only a few sentences: “We have it in our power to begin the world over again. A situation, similar to the present, hath not happened since the days of Noah until now.”
The Glorious Cause
Robert Middlekauff
The second implication is that an S&L running an ADC Ponzi was certain to report extraordinarily high “income” as long as the auditor allowed it to classify the deals as loans instead of as investments. Every control fraud was able to get its auditor to misclassify its ADC deals as loans, so that caveat had no effect. It was simply a matter of math (and some additional abusive accounting). ADC Ponzis booked most of the points and fees that they self-funded, i.e., paid themselves as immediate income. Roughly 3 percent of the total loan amount instantly became income.5 ADC Ponzis recognized the self-funded interest as income every month or quarter when interest came due, crediting the borrower for paying interest to the S&L from the interest reserve. Because of the high fees and interest rates, all of it self-funded, a control fraud was certain to report high profits. The extremely rapid growth rate of the ADC Ponzis guaranteed that these profits would be extraordinary. Any S&L that grew rapidly and made primarily ADC loans was mathematically guaranteed to report extraordinary profits. This is why the worst control frauds invariably reported that they were among the most profitable S&Ls. Indeed, one of the best ways to spot control frauds was to concentrate examination efforts on the S&Ls reporting the highest profits.
The Best Way to Rob a Bank Is to Own One
William K. Black
There was even the unwritten but well-understood goal of getting the share price of Finova to $60. Compensation packages were tied to achievement of that share price. Now, it is a basic principle of Accounting 101 that bad loans and their write-downs get in the way of loan-portfolio growth. Finova employees who knew the extraordinary numbers goals and that their compensation packages were tied to those goals soon discovered that the downside to this principle of portfolio growth could be no bonuses at all. The result was that Finova divisions were carrying loans that should have been written down, and in some cases, Finova capitalized expenses related to repossessed property so that the portfolio value would go up despite the clear uncollectibility of the loan. A bad loan is not an asset, but in this world of promises of continued double-digit growth, employees do rationalize. For example, Finova had one loan to finance a time-share RV golf resort in Arkansas. The loan of $800,000 for this tempting Garden of Eden, complete with wheels and sewerage hookups, was made in 1992. By 1995 the loan was in default and the property was worth only $500,000. However, no one wanted to take the hit to the portfolio, so the loan was carried as an asset and then some as the managers capitalized expenses for the golf course and its restaurant. By the time this accounting impropriety was uncovered, the loan was being carried as a $5.5 million asset. As one of the managers I interviewed said, “All of Arkansas isn’t worth $5.5 million.” By 1999 the auditors began to ask questions, and there were other loans, of significantly higher amounts, that had questions, baggage, and problems. Ernst & Young refused to certify the company’s financial statements until it wrote down a $70 million loan to a California computer manufacturer that had gone bad months and possibly years earlier. Shareholder lawsuits filed against the company alleged that the write-down was postponed because bonus and compensation packages that were tied to the share
The Seven Signs of Ethical Collapse
Marianne M. Jennings
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