Focus on Options

William Krehm

It could be a game of button, button, for its sweep of territory, and how closely the players approach the button's lair without finding it. But then it had been put out of sight with the closest mating of art and cun-ning short of fraud. And in our turbulent times that boundary is frail and ever harder to respect.

The creation of money - long a defining trait of sovereignty - had been bestowed on the banks. For its money needs the government itself was made dependent on the bankers who nevertheless come to it at least once a decade when they lose their capital in the gambles allowed them by Deregulation. Not only were they generously afforded the help denied to more deserving needy, but they were freed to do more of what they set their hearts on — lending an increasing multiple of their cash that in many cases they had already lost. For them the very Decalogue had been compressed into a single stricture: If money is kept scarce and dear, except where the banks themselves suffered losses in their adventures, "fundamentals are sound."

But the chosen system has collapsed in a miasma of corruption, and the quest is underway in corporate halls for what brought this on. Commissions of blurred number are enquiring how the laws can be reshuffled to prevent this happening again. But despite all

the valiant press releases, the button itself that might keep statesmanly trousers demurely in place has still not turned up.

Inevitably the search has shifted to options, the device by which corporate heads reward themselves by being empowered to buy their corporation's stock years ahead at today's and even yesterday's prices. But let The Wall Street Journal (26/3), a sheet noted for seeking out the very indigestible truth in its news columns that it disputes heatedly on its editorial page ("Perk Police - Stock Options Come Under Fire in Wake of Enron's Collapse" by Greg Hitt and Jacob M. Schlesinger"): "One day last month lobbyists from 30 of the nation's biggest companies met in a conference room [in Washing-ton] at the offices of software giant Oracle Corp. Another 30 joined in via speaker phone.

"They represented business as diverse as Citigroup Inc., and Oracle's archival, Microsoft Corp. In the wake of the Enron Corp. scandal, they were united in a common cause: saving stock options - a goodie widely blamed for fuelling many of the corporate excesses of the 1990s. Their common foe: a broad new coalition of lawmakers from both parties, Federal Reserve Chair-man Alan Greenspan, big institutional investors and global accountants.

"Their opponents say options have bred a culture of irresponsible greed showering executives with outlandish paydays that sometimes reach into the tens and hundreds of millions of dollars.

"Last month, when he introduced a bill to rein in the benefits of options, Sen. Carl Levin, a Michigan Democrat, described the cycle this way: Most executive pay packages rely heavily on options, encouraging corporate man

fail to prevent it, the next will make us little more than a breakfast for Wall St. A relentless drum-beat has been announcing that for at least a couple of years - in the persistent propaganda for the dollarization of our currency. The wholesale takeover of Canadian firms is already far advanced. A further bailout of our financial institutions along the lines of the last would put it all in the bag.'

Of course, our banks, once the full extent of their massive losses surfaces, will have to be bailed out. But this must not be on their terms as in previous exercises of this sort, but by bringing them back to banking. The acquisition of stock brokerages, credit cards, merchant banking activities, underwriting of stock and bond issues, must be declared incompatible with banking and undone - just as we would consider the merger a hos-pital with an undertaking establishment.

William Krehm

Paper given at Progressive Economic Forum, at the Calgary meeting of the Canadian Economic Association, May 31 to June 2, 2002.

1. Krehm, William (1977). Babel's Tower- The Dynamics of Economic Breakdown. Toronto, p. 46.

2. Krehm, William (2002). Towards a Non Autistic Economy - A Place at the Table for Society. Toronto: COMER Publica-tions, p. 165.

3. Economie et Societe-contrainte-echange-don. Paris: Presses Universitaires de France, 1960, p. 7.

4. Fomcalert, 20/03/01, p.l, Philomont, Va.

5. Krehm, William (1993). A Power Unto Itself- The Bank of Canada. Toronto: Stoddard, p. 18.

6. Binhammer, H.H. (1988). Money, Banking and the Canadian Financial System. Nelson Canada. Fifth Edition.

7. Krehm, 2002. p. 183.

—from Economic Reform, July 2002