Joe Lieberman Is a Big Fat Idiot (Stock Options)
by Clay Risen

Who says Democrats don't shill for The Man? On the New York Times op-ed page, Sen. Joseph Lieberman (D-Conn.) argues why companies should not be required to list stock option disbursements on their balance sheets — a proposal that was shot down in Congress twice in the last three weeks, thanks in part to the combined efforts of Lieberman, Senate Majority Leader Tom Daschle (D-S.D.) and a bevy of interest groups, from the Business Roundtable to the National Association of Manufacturers to the aptly named Coalition to Preserve and Protect Stock Options.

Lieberman's arguments are not, in any sense of the word, new — in fact, they are largely the same ones he made in 1993 when he led opposition to a similar bill. Nor are they particularly persuasive, given the seemingly endless perp walk of CEOs who took advantage of lenient stock-option accounting rules to line their pockets. But rather than unfairly summing up Lieberman's arguments in my own words only to strike them down, I thought it might be better to let the senator speak for himself:

One popular solution to the current crisis of corporate crime is to fix the accounting rules for stock options. Force companies to count those whopping stock option packages as expenses when they are granted, many say, and the fraud will recede. I wish it were that easy.

Lieberman wastes no time in setting up his straw man, telling us that proponents see option expensing as a panacea for corporate fraud. But no one argues that putting stock options on the balance sheet is the be all and end all of corporate reform; rather, it's part of a larger movement to remove incentives for corporate crime. Nevertheless, as long as CEOs are given free money in the form of unexpensed stock options and access to insider information, there will be an enormous incentive to cheat…

“ My familiarity with this arcane issue dates back to 1993, when the Financial Accounting Standards Board, an independent group that sets rules on how to account for business transactions, first floated a plan to require stock options to be treated as an expense against earnings on profit-and-loss statements at the time they are granted.”

Here Lieberman borrows directly from lobbyist lingo; by calling the issue arcane, casual readers will think it both too dense and not important enough to understand. Actually, it's neither — if a company reports a dollar amount of stock options on its tax returns (thereby lessening the amount of taxes it must pay), it should also have to do so on its balance sheets (thereby better reflecting its costs). It's that simple.

“ I opposed this rule change. Options are a valuable tool for attracting talent and spreading wealth because they give employees a greater stake in their companies. And business leaders, particularly from the high-tech community, said they would have to issue fewer options if they had to subtract their estimated value from their profits. In addition, there is no accurate way to value an option on the day it is granted. Options only become valuable several years later, when they are exercised.”

Lieberman conveniently ignores the fact that countless companies already do value stock options — on their tax returns. The only thing that recent proposals by Sen. Carl Levin (D-Mich.) and Sen. John McCain (R-Ariz.) would require is that those companies also expense the same value on their balance sheets…

Of course, Lieberman is far from the only senator defending big business.. If you want evidence of Congressional kowtowing to corporate America, it's everywhere these days; a good place to start looking is Lieberman’s article on the Times op-ed page.

To see the complete article please go to:

To see Lieberman’s essay on essentially the same point please go to:

Frontline: Bigger than Enron: Congress and the Accounting Wars - PBS

Senator Joe Lieberman sponsored the resolution that overwhelmingly passed in the Senate to oppose the expensing of stock options. Why would Lieberman of Connecticut be so desperately interested in this, to take the lead?

The insurance companies are in Connecticut…Senator Lieberman …has historically been very protective of accountants and very protective of executives, even though he talks a good liberal Democratic line. If you look at the votes and you look at the actions, it's not there. ...

To see the complete article please go to:

Enron Democrats - Lieberman's Slippery Slope

“ Senator Joe Lieberman, as chairman of the Governmental Affairs Committee, presides over hearings into what-went-wrong with the air of sorrowful piety that is his specialty. "Gatekeepers weren't keeping the gate, watchdogs weren't watching," he lamented. He neglects to mention that he is one of the faulty watchdogs and also a leading gatekeeper who blocked the timely reform of corporate finance. The Senator has a hypocrisy problem. He frequently sermonizes on the moral failings of others, including other public figures. Meanwhile, he has shilled vigorously, sometimes venomously, for the very players who are new icons of corruption--major auditing firms, corporate executives who cashed stock options early while investors took a bath and, especially, those self-inflating high-tech companies in Silicon Valley that drove the stock-market bubble. As a New Democrat, Lieberman held the door for their escapades.

His most important crusade was protecting the loopy accounting for corporate stock options. Nervous regulators recognized early on that the profusion of stock options had the potential to deceive investors while cheating the tax system--illusions that could drive company stock prices to impossible heights. Tech startup firms, as well as established names like Microsoft, were issuing a growing volume of stock options as a substitute for wage compensation, especially for top executives. These companies did not have to report the billions in new options as an operating cost, thus making their earnings seem much greater than they were. Yet when employees eventually cashed in the options, the companies claimed them as tax deductions. This two-way mirror is symptomatic of the deceptive bookkeeping that permeated corporate affairs during the boom and the bubble.”

To see complete article please go to:

Citibank Democrats
Bankruptcy "reform" is of a different order from Enron fraud or loophole bookkeeping by Arthur Andersen, but it emanates from the same political sources and is, likewise, hideously one-sided in its impact on ordinary citizens. The legislation was written by major banks and the credit-card industry, wishing to tighten the screws on debt-soaked families. No one doubts this measure will make life even more miserable for the people maxed out on their credit cards and on the brink of Chapter 7. Daschle's statement meant the Democratic leader thinks it is now safe to enact the bankers' bill. Last year, a record 1,492,000 Americans filed for bankruptcy protection, but now the recession is over, isn't it?

" It really is pretty much a creditors' wish list," explained Henry Sommer, vice president of the National Association of Consumer Bankruptcy Lawyers. "Some people won't be able to file at all [under various new restrictions], and everyone will have to pay hundreds of dollars more in fees, which knocks a lot of them out of filing. Many who by filing now could save their homes from foreclosure or their cars from repossession won't be able to do so under this bill. And many will come out of bankruptcy owing as much as they owe now. Congress gave a lot to the credit-card companies, but this is really an equal-opportunity bill; they also gave a lot to the car lenders, the mortgage lenders, the residential landlords, the finance companies, even credit unions."

In Congressional circles, a bill like this one is known as a "money vote," because it's an opportunity for good fundraising from monied interests (or, if you vote wrong, you face the risk of those interests financing your next opponent). For six years, the financial industry has lobbied intensively for this measure and both parties have milked it like a veritable cash cow. Contributions from finance companies and credit-card firms more than doubled during the last election cycle, passing $9 million. Commercial banks are the dominant credit-card issuers--led by Citibank, with $99.5 billion in credit-card debt--and this remains their most profitable line of business. Commercial banking as a whole increased political spending in the last election by nearly 60 percent, to $26.1 million, though the bankers' money speaks on many issues beyond tapped-out borrowers.

To see complete article please go to:

On the crucial cloture vote, prior to the meaningless final vote, Joe Lieberman voted for Bankruptcy “Reform.” Just as with Alito, he votes conservative on the meaningful vote, liberal on the “show and tell” vote.

To see the roll call, please go to:

Connecticut: Dodd (D-CT), Nay Lieberman (D-CT), Yea

Lieberman’s Contributors
The top industries supporting Joe Lieberman are:
1 Lawyers/Law Firms $2,077,552
2 Real Estate $1,315,565
3 Securities & Investment $1,196,925
4 Retired $943,904
5 Health Professionals $552,220
6 Misc Finance $462,410
7 Pro-Israel $461,760
8 Business Services $382,704
9 Misc Business $375,120
10 Insurance $373,798
11 Education $315,397
12 Misc Manufacturing & Distributing $295,325
13 Computers/Internet $295,233
14 Pharmaceuticals/Health Products $211,450
15 Retail Sales $201,650
16 TV/Movies/Music $196,500
17 Accountants $184,833
18 Commercial Banks $179,978
19 Lobbyists $172,564
20 Hospitals/Nursing Homes $169,900

Please see the information published by the Center for Responsive Politics:

Lieberman: Big Donations From Big Businesses
“ His most generous donors are lawyers, Israel supporters and a donor category composed of banks and insurance, investment and real-estate companies. His 2000 Senate campaign has received more than $200,000 from each of those donor groups since 1994. Insurance is a major industry in Connecticut.
An analysis of campaign-finance records released yesterday by the nonpartisan Center for Responsive Politics also showed that Lieberman has received more contributions this election cycle from insurance companies than any other senator. And he ranks third among Senate recipients of contributions from drug companies, an industry that Vice President Al Gore has attacked repeatedly during the campaign.

" He's got more in common with (GOP nominee George W.) Bush than he does with Gore," said Larry Makinson, director of the center, a Washington-based organization that studies campaign-finance reports…”

Businesses accounted for three-quarters of Lieberman's campaign contributions since his last election.

To see complete article please go to:

In a recently released list of 192 federally elected officials who have accepted flights on corporate private jets, Joe Lieberman ranks 13th. And this one sounds particularly fishy:

Among them was a flight he took on Sept. 11, 2005, from Newark, N.J., to Minneapolis aboard a private plane owned by San Diego-based utility giant Sempra Energy. He reimbursed the company $1,271 for the round-trip, which took him from a 9/11 observance ceremony in New Jersey to political fundraisers in Minnesota.

A spokeswoman for Sempra Energy, whose commodities and energy trading offices are in Lieberman's hometown of Stamford, said the company did not receive many requests for travel.

"It's not a common thing we do," said Sempra's Jennifer Andrews, who noted that the company does not own but leases jets for travel.

Sempra has reportedly given $10,000 to Lieberman's PAC, and $20,250 to Lieberman's campaigns.

Even more, here's the list of Sempra employees and executives who have individually donated over $1,000 each to Friends of Joe Lieberman for the 2006 cycle:

Frank Gallipoli ($2,100)
Richard Holmes ($2,100)
Steven Prince ($2,100)
David Messer ($2,000)
Harrison Destefano ($2,000)
Jacqueline Mitchell ($2,000)
Robert Fellbogen ($2,000)
Neal Schmale ($1,000)
Joseph Kleinman ($1,000)

And an organization called the Sempra Energy Employees PAC - funded by some of the same individuals above - gave Lieberman another $5,000 on September 28th, 2005. Just seventeen days after flying him to Minneapolis on their corporate jet. Almost all of the individual contributions from Sempra employees and executives were dated September 30th, 2005, two days later.

And now Joe Lieberman says he's for lobbying reform? Yeah, right.

Update: Sempra does a lot of LNG business and was probably keen on seeing the Broadwater LNG project get built.
Perhaps this sheds some light on Joe's resistance to opposing Broadwater until very recently.

Update 2 : Almost every other politician in the region - Sens. Clinton, Schumer, Dodd, Reps. Shays, DeLauro, Simmons, and others - had opposed Broadwater in 2005 but Lieberman, that bastion of environmental integrity, was almost inexplicably holding out. In January 2006, he said this to say in an interview to The Advocate:

"I've worked hard to protect the Sound to me it's one of our great natural resources. I have said that I'm concerned about this proposal but frankly I didn't know enough about it yet to take a position...

We have a real energy problem in this state, so I don't want to shut it out without thinking about [whether] it could provide additional energy resources to us that could lower the cost of energy in this state."

This just a few months after raking in tens of thousands in donations and accepting a corporate flight from a company with an active interest in expanding LNG operations across the country.


In another Democratic primary just next door, Democrat Matt Brown has dropped out of the Rhode Island senate race, due in large part to serious questions about his fundraising activities.

Joe Lieberman has accepted money from some of the same donors.

Brown has admitted to directing some of his supporters, including David Messer, president of Sempra Energy Trading, and his wife, Barbara Duberstein, to donate thousands of dollars to state Democratic parties in Hawaii, Massachusetts, and Maine. The state parties had previously donated similarly large sums to the Brown campaign.

Sempra Energy was the company that flew Joe on a private corporate jet in September 2005 and is currently Lieberman's 7th largest contributor this cycle with donations totaling over $60,000.

Both Messer and his wife have maxed out to Lieberman this cycle ($2,100 for both the primary and general, from both of them, totaling $8,400). Their donations are all dated 9/30/05, just three weeks after Joe flew on Air Sempra.


Joseph Lieberman

Very simply, the concern that I had back in 1993 and 1994, and that I still have, is how do you accurately value an option on the day it's granted? It has no real value. The value is when somebody exercises the option and actually buys the stock, because then there's a market value. The accounting board, I think, came up with a pretty good compromise here, which was, instead of requiring so-called expensing from income, it said the company has to disclose by some formula -- which is a real sort of guesswork, but better than nothing -- what impact the expensing of options at the time they were granted would have on the earnings of the company. It's right there in any report. It's probably a lot clearer than a lot of the other stuff that are in those reports that the companies put out.

Companies don't have any trouble figuring out how much options cost them when they list them on their tax returns to reduce their taxes.

That's a separate question, which is an important question. Usually that's done, and it's done more effectively at the time they're exercised, because at the time of exercise, there's a tax impact on the employee and on the company, and they adjust it in that way. ...

So you think the action in 1994 that the Senate took in your resolution and then the ultimate compromise was a good action?

Yes, I think it was a good action, because the contrary action would have been to try to put a hard value on something that one can't value. ...

There were a lot of people arguing, particularly from Silicon Valley, that if you expensed options, it would hurt their ability to recruit, it would raise their expenses and hurt their income. Do you think it would have hurt the economy?

Yes, absolutely. ... Look, the granting of options is one of the ways in which capitalism has been democratized in America over the last 20 years. ... Silicon Valley companies, which drove the technology industry, which increased the productivity of our economy during the 1990s and in large part created the boom that we had, came to me at that time and said, "We need to use these stock options to lure the brilliant minds from the big companies that are paying them the kinds of salaries we can't pay them, because we're going to give them a stake in the company."

So yes, I think that if we had forced the expensing of stock options at the granting, not only would we have forced something that is impossible to do rationally -- because the option has no value, really, at that moment -- but we would have hurt the economic growth of the company and the enormous benefit that came to many employees from stock options.

Let me just say a final word about this. Stock options, I think, are a device. They can be used well or not well. In too many companies, a disproportionate percentage of the options were given to the very top people in the company. In fact, I put legislation in to try to create a system that would have required half of the options given by any company to be given to so-called non-highly compensated employees.

Arthur Levitt
Chairman of the SEC from 1993 to 2001.

In the 1990s Silicon Valley was saying essentially you're going to kill the golden goose. What do you say?

I don't buy that argument one single bit. Stock options have been a useful device. They're part of the culture of American business. That's not going to disappear overnight. If it takes a stock option to induce an employee or an executive to come to a company, and that stock option has to be represented as a cost on the balance sheet, in my judgment, America's executives are going to pay that price. It is not the end of stock options. It is not the end of entrepreneurship in America. ...

So FASB came up with this new rule. What happened?

When I came to the SEC, this new FASB rule to expense stock options had galvanized the American business community and brought literally hundreds of CEOs to my office in Washington to urge me to prevent the FASB from going ahead with this proposal. ...

But what happened during the course of this fierce debate and dialogue was that the Congress changed, and Newt Gingrich brought to power a group of congresspeople who were determined to keep FASB from enacting this rule proposal. My concern was that if Congress put through a law that muzzled FASB, that would kill independent standard setting. So I went to FASB at that time, and I urged them not to go ahead with the rule proposal.

It was probably the single biggest mistake I made in my years at the SEC. ...

Investors should care deeply about expensing stock options, because those options represent a distortion of the earnings of the company. Right now, options are treated as a footnote, but that's not good enough. Those options represent a claim on the company, and a claim that may very well and has been exercised. ...

Now the Senate passed a [resolution]. ... Why did they do it? There was no question in my mind that campaign contributions played the determinative role in that Senate activity. Corporate America waged the most aggressive lobbying campaign I think that they had ever put together on behalf of this issue. And the Congress was responsive to that.

You have Senator Joe Lieberman of Connecticut leading the charge. ... What were his arguments?

The arguments were the arguments being used by the business community, that this was a break on entrepreneurship; that this would keep companies from being able to hire good people; that this would destroy companies; that this would distort their earnings. All the arguments used by the business community were the ones set forth by Senator Lieberman in his opposition.