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Alternative Investment
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value of trust in the age of enron February 2002 Recent accounting scandals involving Enron, Arthur Andersen, Global Crossing, Qwest, Xerox, major investment banks, and others have shaken investor confidence to its core. The foundation of trust that enables capital markets to function properly has been seriously undermined by some of capitalism's most important participants for the sake of short-term gain. The market will adjust for this information, just as unemotionally as it does for any other. From an investment point of view, accounting corruption is just another kind of risk. Free markets, which are very good at pricing risk, will adjust asset prices downward to discount the value of reported earnings. Stocks will become cheaper because the quality of earnings is suspect. Loss of trust will make us poorer not just morally, but actually, in real dollars. |
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