Reforms: Common Sense?

In “Reaction Is Swift, but Does It Run Deep?” (Commentary, July 28), John Balzar modestly apologizes that he’s no economics theorist but then criticizes the president and Congress for not requiring companies to expense stock options, saying that’s only common sense. It reminds me of a professor who cautioned us to beware of the argument supported by “common sense” because it’s often neither common nor sense.

It’s not really a question of how to price an option, it’s more a question of whether it was really an expense of doing business during the report period, particularly since there was no cash transaction. A critical measurement to an investor is the price of the stock per share. So, when the option is exercised, it increases the number of outstanding shares and thus reduces the earnings per share.

An exception, but still the rule, is companies like General Electric that buy back stock when they grant options to maintain the same number of outstanding shares. But then, their earnings reflect the cash cost of buying back those shares. Let’s be glad that Congress deferred a politically correct solution that would have had more unintended consequences.

Dick Ettington

Palos Verdes

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Balzar was wrong to say that Michael Milken “has become a philanthropist” only since he “pull[ed] prison time after the last round of business scandals.” Milken’s philanthropy began more than a quarter-century ago and was formalized in 1982 with the establishment of the Milken Family Foundation, which has been one of America’s most innovative forces for the advancement of education and medical research.

Geoffrey Moore

Los Angeles

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I would agree with Balzar that current attempts to reform the economic system are inadequate, but if the implication is that deeper reforms would solve our problems, I’d have to disagree. What we seem to be faced with is the growing need to completely replace our out-of-date owning-class/working-class system with one based on profound equality--sharing the work and resources of society as equal human beings worldwide and promoting the leadership of everybody. We have the intelligence to figure out this transition, and doing so would benefit all strata of society from poor to rich.

We can do better than limiting ourselves to a reform vision. Let us encourage the coming transformation.

Victor Nicassio

Los Angeles