Out for Blood?

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For months we've seen stock prices slide as companies reveal they've been hiding losses while paying out millions to insiders.

Then came Wednesday's spectacular market rally, immediately after members of the family that founded Adelphia Communications were arrested, cuffed, hauled away and charged by the Feds for "looting a public company on a massive scale." The market had been tanking until the boom was lowered on the Adelphia gang. Then came the rally. Is there a connection?

You betcha. For weeks, traders had been watching in horror, as companies kept revealing how little so-called market "experts" really knew about corporate finances. But perhaps more worrisome was Washington's rush to unanimously vote in any measure to get bureaucrats in the boardroom and add to the costs of doing business. There was a feeding frenzy going on, and the only thing that was going to stop it was a pound of flesh. The fleshy hides of the Adelphia board will at least slow down the frenzy.

But for how long? Other corporate scandals will undoubtedly be revealed in the coming weeks. And legislation-prone politicians have seized on this issue as a campaign theme for the November elections. Will the market continue to suffer the heebie-jeebies as it waits for the next shoe to drop from inside the boardroom or from inside the Beltway?

It seems pretty clear the corporate world is cleaning up their act. Nothing sends a message to potential bad guys better than a public execution. That execution has come in two forms: 1) the Adelphia arrests and threats of more; and 2) the stock crash, which has wiped out corporate stock holdings as well as any hope for stock-option bonuses among executives.

As for Congress, they now have their scalps. While those scalps have to be assumed innocent until proven guilty, you can bet that "crusading" politicians will go home for summer recess claiming they've personally locked up the bad guys. True, folks like Sen. Patrick Leahy, D- Vt. want to push governmental "oversight" of business practices even further. But Republicans and Democrats of a free-market bent will quietly persuade their colleagues that enough is enough. America's got to get back to business. 

Still, there is a price to pay for the hasty legislation that both parties were so anxious to sign onto before summer recess. Even if the new regulations were all necessary, the cost of doing business is going to go up because of them. The best way to compensate for that is to cut the cost of doing business in other ways. Simplifying the thousands of pages of corporate tax law would go a long way to cutting costs. It would also make it harder for the bad guys to cook the books. The president could lead the way in this. He could also call for a major reduction in capital gains taxes. Speeding up the tax rate cuts might also assure that we don't slip back into recession.

The Adelphia arrests may have settled the markets. But the market still needs assurance that this nation has not gone sour on business. Recognition from President Bush that businesses need a break from the cost of new regulations would be a great way to start rebuilding confidence that has been lost on all sides.