Al Rosen, forensic accountant, examines a looming economic crisis


Story Transcript

PAUL JAY, SENIOR EDITOR: Al, the current recession some people say may become depression. Everyone’s got the jitters about it being the big one, a big one, a profound one, whatever dramatic language one wants to use. Are we beginning a big one?

AL ROSEN, FORENSIC ACCOUNTANT: No, I don’t think it’s a big one at this point. And my main thinking in this is just personal, is that because of the US election this year and the general effect that people aren’t going to want a mess in the US this year, that all sorts of extra precautions will be taken to try to keep the economy going, try to cut any major job losses. Now, am I worried about 2009 after US election? Yes. And that ripples out all over the world, whoever’s a trading partner with the US.

JAY: Almost like two different economies in a sense. There’s people who invest in the stock market—I should say two different worlds, maybe. There’s people who have put money in the stock market, who are sitting on the edge of their chairs as they see 10 percent, 15 percent of their equity going or coming or going, mostly these days going.

ROSEN: It’s been going, really, since the beginning of the year.

JAY: Yeah. And then there’s a whole another world, which is ordinary working people who already were suffering fairly stagnant wages, were having trouble just even keeping up with what was relatively low inflation. In the US, hit with terrible medical bills. Bankruptcy rates are very high, personal bankruptcy rates. How much will the world of ordinary people, first of all, how will they feel the impact in the short term? And then what might they expect in ’09?

ROSEN: Quite likely the job losses are going to be the scariest part for the second group so that they’re looking at it and saying, well, I’ve got to stop spending immediately. I’ve got to then try to get together with friends and share. And all of this leads to less purchases; therefore there’s less manufacturing, there’s less importing, and less spending. And it just ripples down that everybody who has a job in retail and have just been in there, say, the last couple of years has a cause for concern, because they could be laid off.

JAY: Over the last, probably, 20 years, perhaps a little more, there’s been quite a shift in the relative amount of wealth in the United States amongst ordinary people shifting to the top one or two percentile.

ROSEN: Yes.

JAY: We’ve seen a period of enormous corporate corruption, lower tax rates on the wealthy. What role does this play, if any, in recession?

ROSEN: I think it’ll probably curtail some of the overly generous packages. Like, what’s bothered me just in the last few weeks is we’ve had some Supreme Court decisions in the US which are trying to go against the investors and favoring the companies and the establishment. I think that’s a bad trend, and hopefully—.

JAY: What’s an example of one of those?

ROSEN: Well, they just said that people who were on the periphery and yet were involved in some of the Enron-like type operations, where they were party to the fraud but not directly connecting with the investors—the Supreme Court had this five-to-three vote and said that, no, we’re not going to hold the companies accountable who are just on the advisory fringe of the people who caused the problem. So unless you start to drag in the people who are conspiring and are thinking up—they’re being creatively crooked, if you want to call it that—then I think we have a big problem there. But otherwise let’s face it: the US consumer has just been–spend, spend, spend over a long period of time, especially since the 9/11 problem.

JAY: But a lot of it’s been–spend, spend, spend, borrow, borrow, borrow.

ROSEN: Yes. And on that basis they get in over their heads. Now, I’m disturbed that there hasn’t been more of an attack on the type of lending institution who clearly was giving these mortgages that could not be sustained over a period of time. But we’ve seen that in a number of the countries of the world. Like, I personally had quite a few other court cases where you give somebody a bonus to put out a mortgage. They don’t care if it’s a good mortgage or whatever it is; they’re going to keep on taking the bonus because they can take that money home with them.

JAY: Is part of the problem is that there’s just too much capital in too few hands and they actually have to just have to put it out there somehow, ’cause you don’t want capital just sitting on the shelf that has to be earning something for you? And is this partly because there’s just been so much more wealth moved to such few hands that most people don’t have money to spend, so you’ve got to recycle it back to people, and you loan it to them, and then they can’t pay off the debts?

ROSEN: But a lot of that, too, if I had to try to pin it down to my own, again, gut feel, after 9/11, when they wanted to cover up in the US, to not have a recession, and so on, there’s tons of money was just pumped out by the system through the general means, and on that basis you had this high liquidity. Yes, that created people having to spend this. On the other side, though, the people who are doing some saving are tending to put more and more of that money for many years now into a few institutions who do the investing for you. So, you know, that’s a whole new topic of where I think the system has broken down right across the world in terms of a very few people are running the money for others.

JAY: Is it an exaggeration to say that the reason the world economy seems so fragile—and if you look at investors it doesn’t take too much to get people panicked—is it an exaggeration to say that it’s sort of a house of cards built on not just state debt but consumer debt, especially the American driving engine of the world economy being the great consumer, so much is based on debt that this house of cards is going to shake? And if I’m hearing you correctly, it could be having a serious shake in 2009 after the election.

ROSEN: Yeah. I think it’s far more a problem in the US than it is, for example, in parts of Europe and India, sort of Asia generally, and so on. The Americans just have gone too crazy with this. And I think, again, to me, my mind says 9/11 too much, that that was a cause. The trouble is once you stimulate too much in an economy and you overshoot, then you’ve got correction problems. And if you keep on having corrections on corrections on corrections, that’s the part that’s most troublesome, because you box yourself into “What exactly can I do?” The US can’t keep running up monstrous deficits. Eventually people say, “I don’t want to buy your bonds. The interest rate’s not high enough.” And that part is a major effect, for example, to people in India, in China, and so on.

JAY: Are wages too low?

ROSEN: This is partly because to keep the inflation down in the US you had tons and tons of imports out of China, for example. And that idea was we can keep inflation down by buying cheaper goods. So in that sense, then, people’s wages in, for example, North America, haven’t kept up to what you think they should have been. But, you know, this should even itself out over time.

JAY: In the coming weeks or months, what will you be looking at to see if this thing is getting more profound, this crisis?

ROSEN: I think you have to look at the jobs, especially in the US, what’s happening. You have to look at the imports and exports of the competing countries. So anybody who’s a partner with the US, I would want to see what’s happening to the trading. You want to look at the expenditures on capital equipment. Like, if everybody suddenly says, “I think this is going to go for a year. I’m not going to replace any of my equipment,” and so on, then look at all the job losses that occur from that. So the ripple effect can be tremendous.

DISCLAIMER:

Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee their complete accuracy.


Story Transcript

PAUL JAY, SENIOR EDITOR: Al, the current recession some people say may become depression. Everyone’s got the jitters about it being the big one, a big one, a profound one, whatever dramatic language one wants to use. Are we beginning a big one? AL ROSEN, FORENSIC ACCOUNTANT: No, I don’t think it’s a big one at this point. And my main thinking in this is just personal, is that because of the US election this year and the general effect that people aren’t going to want a mess in the US this year, that all sorts of extra precautions will be taken to try to keep the economy going, try to cut any major job losses. Now, am I worried about 2009 after US election? Yes. And that ripples out all over the world, whoever’s a trading partner with the US. JAY: Almost like two different economies in a sense. There’s people who invest in the stock market—I should say two different worlds, maybe. There’s people who have put money in the stock market, who are sitting on the edge of their chairs as they see 10 percent, 15 percent of their equity going or coming or going, mostly these days going. ROSEN: It’s been going, really, since the beginning of the year. JAY: Yeah. And then there’s a whole another world, which is ordinary working people who already were suffering fairly stagnant wages, were having trouble just even keeping up with what was relatively low inflation. In the US, hit with terrible medical bills. Bankruptcy rates are very high, personal bankruptcy rates. How much will the world of ordinary people, first of all, how will they feel the impact in the short term? And then what might they expect in ’09? ROSEN: Quite likely the job losses are going to be the scariest part for the second group so that they’re looking at it and saying, well, I’ve got to stop spending immediately. I’ve got to then try to get together with friends and share. And all of this leads to less purchases; therefore there’s less manufacturing, there’s less importing, and less spending. And it just ripples down that everybody who has a job in retail and have just been in there, say, the last couple of years has a cause for concern, because they could be laid off. JAY: Over the last, probably, 20 years, perhaps a little more, there’s been quite a shift in the relative amount of wealth in the United States amongst ordinary people shifting to the top one or two percentile. ROSEN: Yes. JAY: We’ve seen a period of enormous corporate corruption, lower tax rates on the wealthy. What role does this play, if any, in recession? ROSEN: I think it’ll probably curtail some of the overly generous packages. Like, what’s bothered me just in the last few weeks is we’ve had some Supreme Court decisions in the US which are trying to go against the investors and favoring the companies and the establishment. I think that’s a bad trend, and hopefully—. JAY: What’s an example of one of those? ROSEN: Well, they just said that people who were on the periphery and yet were involved in some of the Enron-like type operations, where they were party to the fraud but not directly connecting with the investors—the Supreme Court had this five-to-three vote and said that, no, we’re not going to hold the companies accountable who are just on the advisory fringe of the people who caused the problem. So unless you start to drag in the people who are conspiring and are thinking up—they’re being creatively crooked, if you want to call it that—then I think we have a big problem there. But otherwise let’s face it: the US consumer has just been–spend, spend, spend over a long period of time, especially since the 9/11 problem. JAY: But a lot of it’s been–spend, spend, spend, borrow, borrow, borrow. ROSEN: Yes. And on that basis they get in over their heads. Now, I’m disturbed that there hasn’t been more of an attack on the type of lending institution who clearly was giving these mortgages that could not be sustained over a period of time. But we’ve seen that in a number of the countries of the world. Like, I personally had quite a few other court cases where you give somebody a bonus to put out a mortgage. They don’t care if it’s a good mortgage or whatever it is; they’re going to keep on taking the bonus because they can take that money home with them. JAY: Is part of the problem is that there’s just too much capital in too few hands and they actually have to just have to put it out there somehow, ’cause you don’t want capital just sitting on the shelf that has to be earning something for you? And is this partly because there’s just been so much more wealth moved to such few hands that most people don’t have money to spend, so you’ve got to recycle it back to people, and you loan it to them, and then they can’t pay off the debts? ROSEN: But a lot of that, too, if I had to try to pin it down to my own, again, gut feel, after 9/11, when they wanted to cover up in the US, to not have a recession, and so on, there’s tons of money was just pumped out by the system through the general means, and on that basis you had this high liquidity. Yes, that created people having to spend this. On the other side, though, the people who are doing some saving are tending to put more and more of that money for many years now into a few institutions who do the investing for you. So, you know, that’s a whole new topic of where I think the system has broken down right across the world in terms of a very few people are running the money for others. JAY: Is it an exaggeration to say that the reason the world economy seems so fragile—and if you look at investors it doesn’t take too much to get people panicked—is it an exaggeration to say that it’s sort of a house of cards built on not just state debt but consumer debt, especially the American driving engine of the world economy being the great consumer, so much is based on debt that this house of cards is going to shake? And if I’m hearing you correctly, it could be having a serious shake in 2009 after the election. ROSEN: Yeah. I think it’s far more a problem in the US than it is, for example, in parts of Europe and India, sort of Asia generally, and so on. The Americans just have gone too crazy with this. And I think, again, to me, my mind says 9/11 too much, that that was a cause. The trouble is once you stimulate too much in an economy and you overshoot, then you’ve got correction problems. And if you keep on having corrections on corrections on corrections, that’s the part that’s most troublesome, because you box yourself into “What exactly can I do?” The US can’t keep running up monstrous deficits. Eventually people say, “I don’t want to buy your bonds. The interest rate’s not high enough.” And that part is a major effect, for example, to people in India, in China, and so on. JAY: Are wages too low? ROSEN: This is partly because to keep the inflation down in the US you had tons and tons of imports out of China, for example. And that idea was we can keep inflation down by buying cheaper goods. So in that sense, then, people’s wages in, for example, North America, haven’t kept up to what you think they should have been. But, you know, this should even itself out over time. JAY: In the coming weeks or months, what will you be looking at to see if this thing is getting more profound, this crisis? ROSEN: I think you have to look at the jobs, especially in the US, what’s happening. You have to look at the imports and exports of the competing countries. So anybody who’s a partner with the US, I would want to see what’s happening to the trading. You want to look at the expenditures on capital equipment. Like, if everybody suddenly says, “I think this is going to go for a year. I’m not going to replace any of my equipment,” and so on, then look at all the job losses that occur from that. So the ripple effect can be tremendous. DISCLAIMER: Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee their complete accuracy.

Al Rosen

Al Rosen is a forensic accountant, principal at Rosen & Associates Ltd. He has given expert accounting testimony in Canada's highest courts, a certified fraud examiner, and a specialist in investigative and forensic accounting. For 15 years, he served as a technical adviser to three Auditors' General of Canada.

Dr. Rosen has taught accounting at universities across North America. He graduated from the University of British Columbia in 1957 and later earned his M.B.A. degree from the University of Washington. In 1966, he obtained his Ph.D. from the University of Washington. He founded Rosen & Associates Ltd. in 1990. Al is the co-author of Swindlers: Cons and Cheats and How To Protect Your Investments From Them, Published Oct 20 2010.