|
News
90.3 WCPN®'s award-winning News and Information Department
produces more than five hundred hours of original programming each year.
Though much of it is ephemeral, as one would naturally expect of news,
often the stories have "shelf life" that allows them to resonate beyond
the particular day on which they were broadcast. In the coming weeks,
we expect many of them to show up here, for your enjoyment and interest.
We also welcome your help in suggesting stories at webdirector@wcpn.org.
Weekly Financial Report
With Scott Roulston of Fairport Asset Management
Friday, January 18, 2002
Scott Roulston, CEO of Fairport Asset Management, discusses
the firing this week of Arthur Anderson by the bankrupt Enron Corporation,
the renewed debated concerning the conflict of interest issues when auditing
and consulting services are performed by the same firm, the impact of
the recession on endowments, and the use of Garfield to promote health
insurance for pets.
April Baer–Who knew, and when exactly did
they know it? Sounds like a question about the Watergate break-in years
ago, but that question is now being asked about the collapse of Enron,
particularly in the wake of Enron's dismissal of the Arthur Anderson firm
as its auditors. The U.S. Justice Dept. and several Congressional committees
are investigating and suddenly the world of high finance is starting to
sound like a soap opera. To get some perspective, we turn this morning
to the young and the restless, Scott Roulston of Fairport Asset Management,
who joins us every Friday to talk about the business news of the week.
Good morning, Scott.
Scott Roulston–Good morning, April.
AB–Looking at this Enron situation, I'm starting
to wonder how people who work for the local branch of Arthur Anderson
are starting to feel about the way this is unraveling.
SR–I would imagine that they feel they are
sitting underneath a waterfall right now with no way to turn it off. It
must not be a very good feeling. And really, the folks in Cleveland, as
far as I know and as far as we all know, had nothing to do with this.
The partners of the firm have liability only to the extent that they have
money invested in the firm, so they can't be personally liable beyond
that. But the firm's future is seriously in question. This is reminiscent
of a firm called Gladen, Thall and Horvath that in the mid-80's was under
a cloud. It was nowhere near as big as Arthur Anderson but that firm virtually
vaporized when they had a similar kind of a problem.
AB–I don't know that suddenly everyone assumes
that their CPA is spending hours a day shredding documents, but what do
you think we should take away from this Enron case? Is it an anomalous
situation in a unique industry?
SR–Enron is different because it really does
call the accounting firm profession into it. I mean, we have Congress
with all sorts of finger pointing. But everyone in Congress, it turns
out, or almost everyone, was a recipient of Enron's political donations.
But Congress was not regulating energy trading at all. Compared to stock
trading, there is hardly any disclosures or regulation that goes on with
energy trading. You might see something there. Once again, Enron was a
real money train, as far as Wall Street underwriting and there are going
to be some questions once again about whether Wall Street had its bread
buttered on both sides. But now the CPA firms are called into question
with all these consulting fees they were getting - $4 million a month
at Arthur Anderson.
AB–That's one thing I learned. I didn't know
that CPA firms were also so involved in such a wide range of services,
you know sometimes auditing companies they were working for in other ways.
I wonder how these firms manage to maintain their objectivity.
SR–I think it would definitely cloud your
objectivity if you were getting $4 million a month from one client.
AB–Right. Moving on, CBS.com reports this
week that the average endowment fell 4% last year. That's in line with
what I've heard from some of the bigger Cleveland area foundations recently.
Do you think that non-profits face different financial problems than other
investor groups do?
SR–Not necessarily, but we can learn from
what the "big boys" are doing, if you will, at the foundations. They may
have a few more zeros after their portfolios, but they are going through
the same kinds of things as individual investors are. They may have access
to different investments than individual investors, but what big foundations
are doing - we have some here in Cleveland - is they are diversifying
and they rebalance, which means they take money away from the categories
that do well. For example, they might be lightening up on bonds and adding
a little bit more to stocks after bonds did very well last year. They
are looking at alternative investments. They are getting into things such
as hedge funds, real estate, private equity placement, but not putting
too many eggs in one basket. They stay very diversified.
AB–One last thing, Scott, this morning. Comic
strip icon Garfield has been enlisted, I understand, to help advertise
a company that sells health insurance for pets? You know, just when you
think you've seen everything.
SR–The ultimate fat cat - Garfield. You know,
we talk a lot about fat cats but he really is one. One of my favorite
expressions from Garfield is that maturity is overrated. But health care
costs are definitely up these days. However I'm afraid that Garfield -
I mean, you stop and think about it. I mean, this is a guy whose favorite
hobbies are eating and sleeping. He says there may be more to life but
I hope not. I don't know if you want a lasagna-eating couch potato being
your spokesperson for pet health.
AB–Not exactly the ideal lifestyle choice.
Scott, thanks so much for joining us.
SR–Have a great weekend.
AB–Scott Roulston of Fairport Asset Management
joins us each Friday to talk about the week's business news.
|
