The cover of the latest issue of Private Eye could not have been more poignant. Under a cover banner Latest threat to America , a turbaned Osama bin Laden is captioned: "Forget about terrorism, I am taking up accountancy".

Accounting failures at the core of American capitalism  criteria to evaluate the performance of senior executives which should include loss of earnings and bonuses for gross negligence or failures with no lock-in contractual payouts in the case of sackings and resignations irrespective of performance; opportunity costs of risk management failures, and so on.

The treatment of earnings and stock options may have been a major flaw in the past. Tomorrow the challenges are inevitably going to be the treatment of capital. Not core capital but Tier 2 and Tier 3 capital.

They even call it "innovative capital" or "subordinated capital" and these are now increasingly being dabbled in high-risk derivative products.

Core capital, retained earnings, reserves either with central banks in the case of banks, or otherwise with other corporates, will never be enough to cover total balance sheet exposure. In fact, it would not be realistic to expect these to do so.

Rehabilitated corporate crooks

By the time Basel 2 (the new set of rules and regulations that govern global banking) come into play in a few years time, some "innovative" accountant starts moving the regulatory goal posts with a new accounting or reporting innovation.

It is fine when the innovation is in favour of best practice such as the Buffet stock option move. But when it is in the interests of profit, bonus, EVA maximisation, then people are sorely tempted to cut corners. Unless of course they get caught out either through whistleblowing or bad luck.

Very often, it is the media that does the job that ought to be the domain of the regulators. Several of the recent accounting irregularities in the US were first exposed by the US media before the Securities & Exchange Commission (SEC) started its investigations, including perhaps the most high-profile case  Bernie Ebbers of WorldCom; John Rigas of Adelphia; Sam Waksal of ImClone, to name but a few.

Here lies the chutzpah of unfettered American capitalism and corporate culture — a structure which no president, senator, congressman, Fed seem to be able to or have the combined political will to curb or reform.— GVNN/Arab News