[Absolutely. I once read that the implosion of the South Sea Bubble in 1720 so destroyed investor confidence that the onset of the Industrial Revolution was delayed for generations. Anyway, here's another nugget from today's NY Times on "The Biggest Casualty of Enron's Collapse: Confidence":]
History suggests what could happen. After the 1929 crash, said Charles Geisst, a finance professor at Manhattan College and author of "Wall Street: A History," a series of Congressional hearings revealed that companies routinely failed to disclose important facts about their finances and that corporate insiders routinely profited at the expense of small investors.
Many Americans simply stopped buying stock, Professor Geisst said. Not until the 1950's did ownership recover. Then, slowly, ownership increased, and today about half of all Americans own stock either directly or through mutual funds. In the wake of Enron, that trend may reverse, Professor Geisst said: "It wouldn't surprise me to see a flattening out of the number of households that are in the market." Until Enron's implosion, many investors, both individual and professional, ignored accounting issues. Wall Street's conventional wisdom held that while a few companies might be inflating their profits, the market as a whole was essentially honest.
That is now in doubt. In 1998, a survey of 160 chief financial officers at public companies found that two-thirds of them had been asked by other executives to misrepresent their companies' results. Twelve percent admitted giving in to the pressure.
Last year, a study by Financial Executives International, a trade group for corporate executives, found that public companies had revised their financial results 464 times between 1998 and 2000, nearly as many restatements as in the 20 previous years combined, and the problem probably worsened last year.
Some of the world's best-known companies, including I.B.M. and AOL Time Warner, are on the list of companies that allegedly use aggressive accounting practices to lift their earnings.
"You have to wonder how much this kind of fooling around has become generalized," said Joel Seligman, dean of the Washington University School of Law in St. Louis and co-author of an 11-volume work on securities law. "There are some major corporations which have some pretty fuzzy disclosures."
[See http://www.nytimes.com/2002/02/10/weekinreview/10BERE.html]
Carl
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