[Homestead] WHAAPED OUT by The Master Whapper

tvoivozhd tvoivozd at infionline.net
Thu Feb 17 15:23:33 EST 2005



WHAAP'd Out
*When it comes to accountability and accounting, the White House is 
making Corporate America look good*

*WEB EXCLUSIVE*
*By Allan Sloan*
Newsweek
Updated: 12:35 p.m. ET Feb. 15, 2005

Feb. 15 - We're in our fourth year of post-Enron corporate scandals, 
with no end in sight. Barely a month goes by without a new scandal, or a 
new trial from an old scandal. But there's good news to report for 
business—on the public relations front, that is. It's that Congress and 
the White House have managed the seemingly impossible: When it comes to 
accountability and accounting, they're making corporate America look good.

On the accountability front, Hewlett-Packard's board fired chief 
executive **Carly Fiorina* 
<http://www.msnbc.msn.com/id/6959745/site/newsweek/>* last week for 
constantly missing profit projections and for failing to get results 
from the $24 billion purchase of Compaq Computer. On the accounting 
front, former WorldCom chief executive Bernie Ebbers and former 
HealthSouth chief executive Richard Scrushy spent last week on trial for 
their alleged roles in promoting phony numbers to the investing public, 
and face jail time if they lose.

While Fiorina, Ebbers and Scrushy are being called to account, no one in 
Congress or the White House is being held responsible for the cost 
explosion in President Bush's Medicare prescription drug plan. And it 
looks like there will be no penalty at all assessed on the White House 
for last week's budget numbers, which seem to have been drawn up in 
fantasyland.

In fact, the White House crunches numbers in such a unique way that it 
takes a new accounting method to describe them. Corporations report 
numbers based on GAAP: generally accepted accounting principles. But the 
numbers crunchers at 1600 Pennsylvania Ave. use WHAAP: White House 
accepted accounting principles. Under these rules, numbers are presented 
in the most favorable—or least unfavorable—way.

Some examples. In 2001, the Bushies used WHAAP to declare that their tax 
cuts would cost $1.3 trillion over 10 years. That number, though, 
assumed that the cuts would expire in their 10th year. No one thought 
that would happen, but the stated cost stuck anyway. They played a 
similar game to low-ball the cost of the 2003 cuts, by assuming all 
sorts of tax cut phase-ins and phase-outs.

WHAAP works on the spending side, too. In 2003, you may recall, Bush 
pitched his prescription drug plan as costing $400 billion over 10 
years. Last week, though, even the fuzzy-math crew at the White House 
showed a 10-year cost of $720 billion. That's an 80 percent increase. 
Look a few years out, and $1 trillion looms.

To students of WHAAP, this isn't a surprise. One way Bush got to his 
10-year cost of $400 billion was by including two zero-cost years, 
because the plan doesn't start until 2006. When updated numbers came out 
last week, those two years had been replaced by two years in which the 
program will be in full effect. Same plan, different period, way 
different number.

One way that you can tell that nothing much has changed about the 
program's 10-year cost other than the period being measured comes from 
calculations produced by Jagadeesh Gokhale of the Cato Institute and 
Kent Smetters of the University of Pennsylvania's Wharton School.

Last week, they said the drug program's shortfall over what numbers 
crunchers call an "infinite horizon" is $17.6 trillion, up from the 
original $17.2 trillion. Smetters told me that increase, less than 3 
percent, stems from interest calculations rather than any change in the 
program.

(An aside: Yes, I've been wary of infinite-horizon numbers because 
nothing, especially a government program, is forever. I'm using them 
here just to underscore how there's been no fundamental change even 
though the 10-year number has risen by 80 percent.)

This Medicare fiasco is a cautionary tale about taking White House 
numbers at face value. Do that and you're likely to get WHAAPed, 
big-time, when real numbers finally emerge. Sooner or later, they always 
do.

The budget numbers the White House released last week are WHAAP at its 
worst. It's now widely recognized that those numbers assumed no expenses 
for Iraq and Afghanistan after next year, no cost for fixing the 
alternative minimum tax, no cost for privatizing Social Security. And 
they're using a five-year time horizon rather than the conventional 
10-year horizon because the shorter-term numbers look better.

Now, let's flip back to corporate America, Washington's whipping boy. Do 
you think any corporate chief financial officer in her right mind would 
sign off on such numbers? No way. And any CEO who certified them would 
be well-advised to immediately hire a defense lawyer, because he'd be 
virtually certain to face charges under the Sarbanes-Oxley corporate 
reform act.

Congress passed Sarbanes-Oxley to make corporations produce honest 
numbers and assume responsibility for their actions. These requirements, 
however, don't apply to Congress or the White House. Too bad. If they 
did, we might get some honest debate and honest math in Washington. And, 
at the very least, we would no longer have to deal with numbers that are 
totally WHAAPed out.

Sloan is Newsweek's Wall Street editor. His e-mail address is 
sloan at panix.com <mailto:sloan at panix.com> <mailto:sloan at panix.com>






More information about the Homestead mailing list