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mostlysignssomeportents · 10 months ago

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The long sleep of capitalism’s watchdogs

There are only five more days left in my Kickstarter for the audiobook of The Bezzle, the sequel to Red Team Blues, narrated by @wilwheaton! You can pre-order the audiobook and ebook, DRM free, as well as the hardcover, signed or unsigned. There's also bundles with Red Team Blues in ebook, audio or paperback.

One of the weirdest aspect of end-stage capitalism is the collapse of auditing, the lynchpin of investing. Auditors – independent professionals who sign off on a company's finances – are the only way that investors can be sure they're not handing their money over to failing businesses run by crooks.

It's just not feasible for investors to talk to supply-chain partners and retailers and verify that a company's orders and costs are real. Investors can't walk into a company's bank and demand to see their account histories. Auditors – who are paid by companies, but work for themselves – are how investors avoid shoveling money into Ponzi-pits.

Attentive readers will have noticed that there is an intrinsic tension in an arrangement where someone is paid by a company to certify its honesty. The company gets to decide who its auditors are, and those auditors are dependent on the company for future business. To manage this conflict of interest, auditors swear fealty to a professional code of ethics, and are themselves overseen by professional boards with the power to issue fines and ban cheaters.

Enter monopolization. Over the past 40 years, the US government conducted a failed experiment in allowing companies to form monopolies on the theory that these would be "efficient." From Boeing to Facebook, Cigna to InBev, Warner to Microsoft, it has been a catastrophe. The American corporate landscape is dominated by vast, crumbling, ghastly companies whose bad products and worse corporate conduct are locked in a race to see who can attain the most depraved enshittification quickest.

The accounting profession is no exception. A decades-long incestuous orgy of mergers and acquisitions yielded up an accounting sector dominated by just four firms: EY, KPMG, PWC and Deloitte (the last holdout from the alphabetsoupification of corporate identity). Virtually every major company relies on one of these companies for auditing, but that's only a small part of corporate America's relationship with these tottering behemoths. The real action comes from "consulting."

Each of the Big Four accounting firms is also a corporate consultancy. Some of those consulting services are the normal work of corporate consultants – cookie cutter advice to fire workers and reduce product quality, as well as supplying dangerously defecting enterprise software. But you can get that from the overpaid enablers at McKinsey or BCG. The advantage of contracting with a Big Four accounting firm for consulting is that they can help you commit finance fraud.

Remember: if you're an executive greenlighting fraud, you mostly just want to be sure it's not discovered until after you've pocketed your bonus and moved on. After all, the pro-monopoly experiment was also an experiment in tolerating corporate crime. Executives who cheat their investors, workers and suppliers typically generate fines for their companies, while escaping any personal liability.

By buying your cheating advice from the same company that is paid to certify that you're not cheating, you greatly improve your chances of avoiding detection until you've blown town.

Which brings me to the idea of the "bezzle." This is John Kenneth Galbraith's term for "the weeks, months, or years that elapse between the commission of the crime and its discovery." This is the period in which both the criminal and the victim feel like they're better off. The crook has the victim's money, and the victim doesn't know it. The Bezzle is that interval when you're still assuming that FTX isn't lying to you about the crazy returns they're generating for your crypto. It's the period between you getting the shrinkwrapped box with a 90% discounted PS5 in it from a guy in an alley, and getting home and discovering that it's full of bricks and styrofoam.

Big Accounting is a factory for producing bezzles at scale. The game is rigged, and they are the riggers. When banks fail and need a public bailout, chances are those banks were recently certified as healthy by one of the Big Four, whose audited bank financials failed 800 re-audits between 2009-17:

https://pluralistic.net/2020/09/28/cyberwar-tactics/#aligned-incentives

The Big Four dispute this, of course. They claim to be models of probity, adhering to the strictest possible ethical standards. This would be a lot easier to believe if KPMG hadn't been caught bribing its regulators to help its staff cheat on ethics exams:

https://www.nysscpa.org/news/publications/the-trusted-professional/article/sec-probe-finds-kpmg-auditors-cheating-on-training-exams-061819

Likewise, it would be easier to believe if their consulting arms didn't keep getting caught advising their clients on how to cheat their auditing arms:

https://pluralistic.net/2023/05/09/dingo-babysitter/#maybe-the-dingos-ate-your-nan

Big Accounting is a very weird phenomenon, even by the standards of End-Stage Capitalism. It's an organized system of millionaire-on-billionaire violence, a rare instance of the very richest people getting scammed the hardest:

https://pluralistic.net/2021/06/04/aaronsw/#crooked-ref

The collapse of accounting is such an ominous and fractally weird phenomenon, it inspired me to write a series of hard-boiled forensic accountancy novels about a two-fisted auditor named Martin Hench, starting with last year's Red Team Blues (out in paperback next week!):

https://us.macmillan.com/books/9781250865854/redteamblues

The sequel to Red Team Blues is called (what else?) The Bezzle, and part of its ice-cold revenge plot involves a disillusioned EY auditor who can't bear to be part of the scam any longer:

https://www.kickstarter.com/projects/doctorow/the-bezzle-a-martin-hench-audiobook-amazon-wont-sell

The Hench stories span a 40-year period, and are a chronicle of decades of corporate decay. Accountancy is the perfect lens for understanding our modern fraud economy. After all, it was crooked accountants who gave us the S&L crisis:

https://scholarworks.umt.edu/cgi/viewcontent.cgi?article=10130&context=etd

Crooked auditors were at the center of the Great Financial Crisis, too:

https://francinemckenna.com/2009/12/07/they-werent-there-auditors-and-the-financial-crisis/

And of course, crooked auditors were behind the Enron fraud, a rare instance in which a fraud triggered a serious attempt to prevent future crimes, including the destruction of accounting giant Arthur Andersen. After Enron, Congress passed Sarbanes-Oxley (SOX), which created a new oversight board called the Public Company Accounting Oversight Board (PCAOB).

The PCAOB is a watchdog for watchdogs, charged with auditing the auditors and punishing the incompetent and corrupt among them. Writing for The American Prospect and the Revolving Door Project, Timi Iwayemi describes the long-running failure of the PCAOB to do its job:

https://prospect.org/power/2024-01-26-corporate-self-oversight/

For example: from 2003-2019, the PCAOB undertook only 18 enforcement cases – even though the PCAOB also detected more than 800 "seriously defective audits" by the Big Four. And those 18 cases were purely ornamental: the PCAOB issued a mere $6.5m in fines for all 18, even though they could have fined the accounting companies $1.6 billion:

https://www.pogo.org/investigations/how-an-agency-youve-never-heard-of-is-leaving-the-economy-at-risk

Few people are better on this subject than the investigative journalist Francine McKenna, who has just co-authored a major paper on the PCAOB:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4227295

The paper uses a new data set – documents disclosed in a 2019 criminal trial – to identify the structural forces that cause the PCAOB to be such a weak watchdog whose employees didn't merely fail to do their jobs, but actually criminally abetted the misdeeds of the companies they were supposed to be keeping honest.

They put the blame – indirectly – on the SEC. The PCAOB has three missions: protecting investors, keeping markets running smoothly, and ensuring that businesses can raise capital. These missions come into conflict. For example, declaring one of the Big Four auditors ineligible would throw markets into chaos, removing a quarter of the auditing capacity that all public firms rely on. The Big Four are the auditors for 99.7% of the S&P 500, and certify the books for the majority of all listed companies:

https://blog.auditanalytics.com/audit-fee-trends-of-sp-500/

For the first two decades of the PCAOB's existence, the SEC insisted that conflicts be resolved in ways that let the auditing firms commit fraud, because the alternative would be bad for the market.

So: rather than cultivating an adversarial relationship to the Big Four, the PCAOB effectively merged with them. Two of its board seats are reserved for accountants, and those two seats have been occupied by Big Four veterans almost without exception:

https://www.pogo.org/investigations/captured-financial-regulator-at-risk

It was no better on the SEC side. The Office of the Chief Accountant is the SEC's overseer for the PCAOB, and it, too, has operated with a revolving door between the Big Four and their watchdog (indeed, the Chief Accountant is the watchdog for the watchdog for the watchdogs!). Meanwhile, staffers from the Office of the Chief Accountant routinely rotated out of government service and into the Big Four.

This corrupt arrangement reached a crescendo in 2019, with the appointment of William Duhnke – formerly of Senator Richard Shelby's [R-AL] staff – took over as Chief Accountant. Under Duhnke's leadership, the already-toothless watchdog was first neutered, then euthanized. Duhnke fired all four heads of the PCAOB's main division and then left their seats vacant for 18 months. He slashed the agency's budget, "weakened inspection requirements and auditor independence policies, and disregarded obligations to hold Board meetings and publicize its agenda."

All that ended in 2021, when SEC chair Gary Gensler fired Duhnke and replaced him with Erica Williams, at the insistence of Bernie Sanders and Elizabeth Warren. Within a year, Williams had issued 42 enforcement actions, the largest number since 2017, levying over $11m in sanctions:

https://www.dlapiper.com/en/insights/publications/2023/01/pcaob-sets-aggressive-agenda-for-2023-what-to-expect-as-agency-enforcement-expands

She was just getting warmed up: last year, PCAOB collected $20m in fines, with five cases seeing fines in excess of $2m each, a record:

https://www.dlapiper.com/en/insights/publications/2024/01/pcaobs-enforcement-and-standard-setting-rev-up-what-to-expect-in-2024

Williams isn't shy about condemning the Big Four, publicly sounding the alarm that 40% of the 2022 audits the PCAOB reviewed were deficient, up from 34% in 2021 and 29% in 2020:

https://www.wsj.com/articles/we-audit-the-auditors-and-we-found-trouble-accountability-capital-markets-c5587f05

Under Williams, the PCAOB has enacted new, muscular rules on lead auditors' duties, and they're now consulting on a rule that will make audit inspections much faster, shortening the documentation period from 45 days to 14:

https://tax.thomsonreuters.com/news/pcaob-rulemaking-could-lead-to-more-timely-issuance-of-audit-inspection-reports/

Williams is no fire-breathing leftist. She's an alum of the SEC and a BigLaw firm, creating modest, obvious technical improvements to a key system that capitalism requires for its orderly functioning. Moreover, she is competent, able to craft regulations that are effective and enforceable. This has been a motif within the Biden administration:

https://pluralistic.net/2022/10/18/administrative-competence/#i-know-stuff

But though these improvements are decidedly moderate, they are grounded in a truly radical break from business-as-usual in the age of monopoly auditors. It's a transition from self-regulation to regulation. As @40_Years on Twitter so aptly put it: "Self regulation is to regulation as self-importance is to importance":

https://twitter.com/40_Years/status/1750025605465178260

Berliners: Otherland has added a second date (Jan 28 - THIS SUNDAY!) for my book-talk after the first one sold out - book now!

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2024/01/26/noclar-war/#millionaire-on-billionaire-violence

Back the Kickstarter for the audiobook of The Bezzle here!

Image: Sam Valadi (modified) https://www.flickr.com/photos/132084522@N05/17086570218/

Disco Dan (modified)

https://www.flickr.com/photos/danhogbenspics/8318883471/

CC BY 2.0: https://creativecommons.org/licenses/by/2.0/

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alicenpai · 6 months ago

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princess tutu: die jahreszeiten 🌸

kind of a companion piece to my 2022 ptutu drawing | it's on inprnt

this print was at anime north; next con is otakuthon!

oops so my hand slipped and i made another princess tutu drawing. i admittedly don't watch that much anime so my catalogue of work is gonna be the same 5 animes LMAO. what can i say, i love "dark" fairy tales, and i've been really enjoying the more fine art approach to a lot of my drawings as of late (and the watercolour brush i've been using has been so perfect for that...!)

as my first princess tutu drawing is now 2 years old, there are some areas i've grown to have ... qualms with... although both drawings as a whole are pretty much exactly what i envisioned, and that's always satisfying!

both of these were drawn in roughly a week's time (yes really...) for con crunch period (and i went back to this drawing after the con to touch up some areas that were a bit rough!). i wanted a different approach to this new pt drawing, with the focus on the line work, rather than on colours and lighting in the 2022 drawing.

this drawing had 2 goals: to continue the style i adopted in my witch hat atelier "lantern bearers" drawing (which i promise i'll post in full soon as soon as all of the zine artists get their go-ahead to post their pieces!), and to emulate the art nouveau movement's heavy emphasis on line work, albeit not a 1:1 style replication of course.

the seasons also aren't a 1:1 representation, as i didn't necessarily pick flowers or colours that are most strongly associated with the season (e.g. summer being a dark tone is a bold choice?). but it's kinda whatever, as i said before i drew this in a week, there may be more appropriate flowers with better meanings. i couldn't spend too too much time drafting and researching.

FLOWER SYMBOLISM:

- spring: apple blossoms, tulips - the apple blossom is a quintessential spring flower, and thus symbolize the arrival of spring. spring is a season of change, which ahiru/princess tutu is a force of, instigating change in her friends and unravelling the story around her. the flowers below her are tulips, and there are many meanings to tulips depending on the colour, due to their ubiquitous nature. i narrowed on one, and intended for them to symbolize happiness. princess tutu's pose is one in which that is open, inviting, and warm - reflecting her nurturing nature in the series, and her willingness to help others achieve happiness.

- summer: deadly nightshade flower, yellow rose - i chose for rue/princess kraehe to symbolize a fiery summer's night instead of the typical dazzling heat of a summer's day, a rather bold and unusual choice. the warmth of sunshine didn't quite fit, as the character is quite dramatic and passionate, with her intentions often hidden in shadow. next, the deadly nightshade - atropa belladonna - has a lot of mythological associations, a lot to do with poisoning, as the flower is toxic. the flowers bloom at night (another reason why i picked a nighttime backdrop for "summer") and also outwardly match rue's dark design scheme, as the cherry on top. yellow roses, at the bottom of her frame, are the archetypal flower depicting jealousy (as with many yellow flowers are), and at one point in the story, rue only wished for her own happiness at the misfortune of others.

- autumn: douglas fir needles, orange calla lily - autumn is another season of change - although much more tumultuous, as this season is traditionally taken to prepare for a long winter ahead - fitting for fakir as the role of the storyteller. the douglas fir is not a flower of course, but is a tree - with many different parts of this tree offering many benefits in advance of the winter season. i wanted the versatile nature of the douglas fir to reflect on fakir's dependable personality. next up, the calla lily is a flower with a dual meaning - on one hand you have life, on the other you have death. a storyteller quite literally can grant both at the tip of their fingers.

- winter: birch tree, snowdrop - winter is a rather still and unchanging season, a lull in the passage of time. this symbolizes mytho's passive nature at the start of the series, especially with his doleful pose here, as if almost in hibernation. to contrast, mytho is perched on the branches of a birch tree, which means new beginnings and renewal - as mytho is one of the characters that undergo the most change throughout the series (i'd argue the most?), regaining pieces of his heart. under mytho's frame is the snowdrop flower - and if you've read my witch hat atelier: seasons piece symbolisms, one of the snowdrop's meanings is rebirth, with connotations to the bible, bringing hope, when all had forsaken eve. the snowdrop is one of the first flowers to bloom even when the snow has not yet fully melted, further echoing mytho as an analogy for rebirth.