Scandals Keep Many Wary of Wall Street

KENNETT, Mo. —  When Doyle Privett and his fellow investment club members get together to pick a company’s stock, one concern is never far from their minds: They want to be sure the company won’t plunge into an abyss of financial scandal.

“It’s one of the things we talk about,” said Privett, an accountant in this small town near the Arkansas and Tennessee borders. “Has anybody heard anything? Do we know who runs this company? Have they had problems in the past? Have there been any accusations?”

A few blocks away, insurance agent and financial advisor Glenda Beach hears the refrain over and over from clients who want a safe place to nurture their hard-earned savings. Every day, another customer frets that “the bigwigs could take all my money and run off with it,” she said.

Factory worker Ron Hicks can’t figure out how his retirement account, tied to stock investments, evaporated in recent years. “Where did the money go?” he demands. “Who’s got it? Can you tell me?.... It’s got to be somewhere.”

More than two years after Enron Corp. became an emblem of corporate fraud and trickery, opinion surveys show that throughout the nation the public’s faith in the financial system remains shaken -- a distrust that undermines people’s sense of financial security and helps fuel a hunger for leadership that will set things right.

This unease could prove a factor in the presidential election because it ties directly into voters’ concerns about the economy in a year that has seen stagnant job growth and the stock market sinking again.

Democrats, led by presidential hopeful John Kerry, complain that major corporations have lost their civic moorings -- cheating stockholders, short-changing employees, shipping jobs overseas -- and they blast the Bush administration for being too cozy with rich executives.

Campaigning in Iowa in January, for example, Kerry promised to “break the grip” of corporate interests on government and “drive the forces of greed and privilege from the precincts and pinnacles of power.”

For its part, the White House has worked vigorously to insulate itself from criticism, through anti-fraud enforcement, regulatory actions and statements of concern. Yet there are at least some signs that the scandals could take a political toll.

In January, a Wall Street Journal/NBC News Poll found that voters believed Democrats would be better than Republicans at “strengthening laws against corporate corruption” by a margin of 39% to 23% (with the rest mostly undecided).

“I think the administration has protected itself as much as it can” from being tarred by the scandals on Wall Street and elsewhere in corporate America, said Lawrence R. Jacobs, a political scientist at the University of Minnesota, noting Bush’s visible support for enforcement actions. But the backdrop of financial misdeeds, Jacobs added, “is kind of a noxious gas in the air that the administration can’t really get out from underneath.”

Indeed, the notions of finance and foul play are linked as never before in popular culture, from the media circus surrounding Martha Stewart’s trial to “The Simpsons” television show, where federal agents recently hauled Homer Simpson to jail for stock fraud. Singer David Crosby even composed an anti-Enron anthem that declares: “They want it all, they want it now, they want to get it and they don’t care how.”

In this month alone, the wave of financial scandal stories has been unrelenting -- Martha Stewart’s conviction for lying to investigators about her stock trading, the indictment of former WorldCom Chief Executive Bernie Ebbers, a $675-million settlement by Bank of America Corp. and FleetBoston Financial Corp. for mutual fund trading abuses and the trial of two Tyco Corp. executives for allegedly looting more than $600 million from shareholders.

In one recent public opinion poll, 74% of those surveyed described the image of big companies as “not good” or “terrible.”

“Collectively and individually, corporate reputations are declining -- a decline that stems from a lack of trust,” said Joy Marie Sever, senior vice president at Harris Interactive, which conducted the February survey with the Reputation Institute, a private research organization.

The backlash to scandal is not immediately obvious in Kennett, a town of 11,200 in the Missouri “Bootheel,” which dips southward between Arkansas and Tennessee. This is farm country -- pancake-flat turf bristling with cotton, soy, corn, rice and melons.

High-level financial chicanery seems out of place in this close-knit community where families bump into each other at the Sonic burger drive-in and swap news over coffee at Cuff & McCormicks. It seems just about everybody knows Kennett’s most famous native, singer Sheryl Crow.

When it comes to financial travail, people are more likely to talk about a school funding crunch that recently cost the football coach his job than about mischief in the boardroom. Or they might point to the decline of downtown, where the once-bustling courthouse square is now riddled with empty storefronts, many owing to the Wal-Mart Supercenter that opened a few years ago down the road.

Yet it soon becomes clear that corporate scandal has left its mark in this bellwether political state.

People in the Bootheel feel betrayed that the far-off misbehavior helped weigh down the stock market, shrinking their savings, squeezing their pensions, rattling their trust.

They are people like Keith Mitchell, a pharmacist on the courthouse square for more than three decades, who tapes his home number to the store’s front door in case any customers have after-hours emergencies.

Mitchell, 65, recalled how today’s sleepy square once had four drug stores, three pool halls -- “it may have been four” -- two grocery stores, and maybe a dozen clothing and department stores.

But if times have changed, his values have not, and disclosures of cheating still rankle: “If I buy gas that says it’s 90 octane, I assume it’s 90 octane,” said Mitchell, who used to trade stock several times a week. “I’d assume that people in powerful positions would run their business in a manner that the standards were set for, and I shouldn’t be afraid they’re going to steal a nickel or stick a knife in your back.”

Dennis Rainey, a 42-year-old sergeant in the Missouri Highway Patrol, manages to set aside $50 a month to invest through a payroll savings plan. Revelations of misconduct, he said, have made him “a little afraid” to put in more, while also jarring his sense of right and wrong.

“If I go out and commit crimes, I should have to pay for my actions -- just the same as any CEO of any corporation.”

Sol Astrachan, 74, has been particularly disturbed by reports that brokers received financial rewards for promoting certain mutual funds, and that Wall Street used hyped-up research to make companies look good and boost sales.

“Here we expect these things to be on the up and up,” Astrachan, a former mayor and department store owner, said over a table at the Dairy Queen. “We expect them to be honest, regulated. We don’t expect the falseness of what’s going on.”

Some here concede that they took risks upon themselves by joining the giddy upward market ride in the 1990s. In an era of 401(k) plans and other investments for the masses, it is not so simple for the Main Streets of America to view Wall Street with total contempt.

“You’re responsible for your own actions, too. You can’t lay everything off on corporate greed,” Flo Colhouer, a homemaker and community volunteer, said on a recent sunny morning in her living room.

Just how these views will play out in the fall election isn’t clear.

Republican pollster Bill McInturff pointed out that public disapproval of special-interest influence in Washington applies to both major parties. Trying to pin any of the infamous corporate misdeeds to Bush or his policies just won’t work, he said.

“I think it’s much harder than you’d imagine to bring this forward in a general election campaign,” McInturff said.

But others insist the widespread scorn for corporate misdeeds can only hurt the incumbent.

“The Bush administration isn’t responsible for the corporate scandals, but it has done its darndest to help corporate America on every other front,” said Bruce Reed, president of the centrist Democratic Leadership Council and top domestic policy advisor to former President Clinton.

“This has enormous potential as an issue, as long as Democrats are careful not to go too far and sound like they’re anti-business,” Reed said.

Privett, the investment club member, is a Republican who has voted for people from both major parties. What he’s looking for this time is a candidate who is serious about cracking down on corporate scoundrels -- somebody who “would reassure me of the fact that they are genuinely concerned about it, that they realize middle Americans see this as a very big problem.”