Bush fails to douse flames

GEORGE Bush's battle to calm stock market jitters is falling on deaf ears as Wall Street slumped again last night. Despite the appearance of toughness, including a doubling of prison terms for 'mail fraud', the favourite charge brought against US white collar criminals, investors are unimpressed.

This is partly because the President's administration of ageing industrialists appears to be more concerned with protecting its own than the public. The unfortunate sight of Vice-President Dick Cheney praising the work of Arthur Andersen at the Halliburton oil group he once ran does not inspire confidence. Halliburton is being accused of overstating its revenues by 'tens of millions of dollars'.

Still, one should not dismiss the Bush proposals out of hand. He has reversed himself on the Securities & Exchange Commission - the US regulator - proposing a 20% uplift in its budget, plus new funds for better technology. The SEC needs all the weapons to hand. Aside from its work on Enron, WorldCom, Xerox et al, it is pursuing with some vigour those investment houses that were plugging the shares of failing companies right up to the bitter end. Morgan Stanley and CSFB are among those to receive subpoenas over connections to Irish drugs company Elan.

The White House is also demanding a dose of UK-style corporate governance on American boards. It wants to see an independent majority on audit, nomination and pay committees. None of this goes far enough for Congress, which has the bit between its teeth. It wants a new Federal agency to audit the work of the auditors.

It is going to take a great deal of time for the corporate scandals and the over-statements of earnings to wash their way through markets. All the techniques of the boom years, such as pretending that earnings before interest and depreciation are real profits, have become discredited. There is a rediscovery of old virtues such as positive cash flow, dividends and net profits.

Unfortunately, as the big cleanup gets under way, markets find themselves in a vicious circle. Every report of regulatory action, such as the raids on Vivendi by French watchdogs, hits the market where the companies trade. The Paris Bourse was the biggest faller in Europe, dropping 3.4%.

Closer to home, the FTSE fell 2.7%. This is not so surprising with two quoted companies, Claims Direct and ASW, calling in the administrators and companies in the 'support sector', which depend on public-private partnerships, taking a hammering.

Stable doors may be slamming, but the noise is still upsetting the horses.

Boycott farce

AMID the celebratory atmosphere at the Marks & Spencer agm where chairman Luc Vandevelde stepped back from the limelight to make more room for his young gun, Roger Holmes, there was one sour note. Protesters from a group calling itself the Boycott Israeli Goods Campaign demanded that M&S stop trading with Israel.

The protesters have been given succour as a result of a serious failure in joined up government. The Department for Environment, Food and Rural Affairs has ruled that food groups should stop using 'made in Israel' labels on goods sourced from Gaza, the West Bank and the Golan Heights. But the Foreign Office says there is no such requirement.

At present, M&S imports around £20m of goods from these regions, making it an important stream of income at a time when the economy of the Palestinian areas is in a catastrophic state as a result of the uprising. The irony is that, although M&S has a long history of sourcing goods from Israel (it currently sells £120m a year of clothing from there and £10m of food), it counts three Islamic states, Morocco, Turkey and Indonesia, among its top five suppliers. Moreover, it also imports considerable amounts of underwear from Egypt, Turkey and Jordan - much of it made by Israeli-owned Delta Textiles. M&S has an honourable record in underpinning the peace process by promoting commerce. It does not deserve to be pilloried for it.

False dawns

HOW well is the British economy doing? Not too badly, if you believe the latest manufacturing data, which shows that output rose 0.7% in May. The fragile upturn at the nation's factories is concentrated in transport equipment, with technology - excepting computers - showing signs of life.

Year-on-year, manufacturing is still down 2.2%. With the purchasing managers index weakening and Germany stumbling, the Bank of England may yet have to delay interest rate rises to the autumn.