New rules might help stock market

MY VIEW • Investors’ edginess is like a wildfire that threatens the economy

By Bill Parish

The Portland Tribune, Sep 10, 2002, Updated Oct 30, 2009

Investment portfolios and the economy itself are now being consumed by a lack-of-confidence wildfire.

Surprisingly, most of these investment losses are concentrated in fewer than 10 companies, the biggest being Microsoft Corp. At its peak, Microsoft had a total market value of roughly $700 billion. Today, that value is $240 billion, representing a decline of roughly $460 billion.

The biggest holders of Microsoft stock are now federal and state public pension systems, including teachers, custodians, police and firefighters. That smoke you see is therefore not only your 401(k) but also the tax dollars you paid to fund these pensions.

Understanding Microsoft’s dramatic impact Ñ and from there the needed reforms in the financial market Ñ is important to everyone.

I believe that the most important reform involves stock options. Stock options are an excellent free market-based tool, yet in some years more than 75 percent of all wages at Microsoft were paid to employees simply by printing up new stock and distributing it in lieu of paying cash wages.

The IRS does not care whether a company pays wages in stock or cash; both receive a full tax deduction. But much of the controversy swirling around Wall Street this summer is over how companies handle stock options. Because of a loophole, wages paid in stock are not required to be charged to a company’s financial statement.

The Federal Reserve Bank similarly has excluded wages paid in stock from key inflation statistics Ñ for example, the employment cost index. How would you like to be negotiating a raise with your employer when your boss is citing the ECI figures, and you know full well that this statistic is artificially low because of this anomaly?

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