Gideon's Blog

In direct contravention of my wife's explicit instructions, herewith I inaugurate my first blog. Long may it prosper.

For some reason, I think I have something to say to you. You think you have something to say to me? Email me at: gideonsblogger -at- yahoo -dot- com

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Wednesday, April 10, 2002
Stock options: unaccounted for expenses or magic wand? Today, an op in the WSJ says: the former. I'm strongly with Ms. Lee and Mr. Greenspan on this one. There are various reasonable ways you could account for stock options, but none of them are being followed now. The company is giving something to employees that belongs to shareholders. That's an expense. Simplest thing to do would be to expense it, on the income statement. As the critics have pointed out: if accounting doesn't really matter, then why are companies so upset about accounting for stock options? Doesn't their agitation suggest they know they are doing something dubious? If a company wanted to properly hedge its exposure to dilution from having issued stock options, it would have to spend money to buy options. Why shouldn't that cost be recognized as an expense and deducted from income, regardless of whether the company chooses to hedge or not?

This is how you can tell free-market Republicans from pro-business Republicans. Free-market Republicans want transparency, because they think that makes markets efficient. They know that all accounting rules are arbitrary, so they want the ones that are clearest, simplest, least onerous, and most fair. Pro-business Republicans want to do whatever the Business Roundtable tells them - i.e. whatever is in the interest of management. Which, as Ms. Lee points out, is not always the same thing as what is in the interest of shareholders. I hate to sound like the Moose, but this is another case where Bush appears to be taking the pro-business tack rather than the principled, free-market tack.