‘Corporations Became Playpens for Hogs’

David Friedman has an excellent review of the broadband bubble (Opinion, Feb. 17). However, the story is much bigger than that. On Feb. 10 (Business), James Flanigan quoted Peter Drucker: ‘J.P. Morgan, no enemy of wealth, once said that a reasonable ratio of management pay to that of the average worker would be 20 to 1. But in U.S. business today it is 500 to 1.’ This story is Wall Street, the accounting industry and corporate America gone crazy. There is a consistency to this bubble. Standards were changed (always lowered). Public corporations became playpens for hogs, if you will. Stock options were provided to the corporate leaders. These option costs were not even calculated correctly as an expense on a balance sheet. Perfectly legal. If the executives could boost the stock, either with hype or swift accounting tricks (even if legal), Wall Street would help. Boost the stock, exercise the options, pay the taxes and run. Of course, California and federal tax receipts also ballooned to bubble proportions. These windfall tax receipts will not be repeated. The ‘90s will go down in history as ‘hot air.’ Drucker’s figure of 500-1 says it all. Our capitalistic system is in great need of reform. Enron is only the tip of the iceberg. Global warming is real on Wall Street. There is more meltdown to come. Hot air does that.

Roy A. Fassel

Los Angeles

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We’ve had presidents and Congresses, both Republican and Democrat, representing our best interests over the years. We have a hard-working free press to keep an eye on the whole thing while we enjoy our freedoms and remain productive. With all this top-notch representation and oversight, the following is somehow OK: Companies issue stock options to employees. They deduct the expense of issuing these stock options and avoid paying taxes (sometimes paying nothing). At the same time they don’t show this expense on their income statements, thus artificially inflating the value of their company and their stock. It’s stunning that this level of institutional scheming has gone on for so long. How much more organized misrepresentation and fraud is there? Do we live in a house of cards?

Scott Martin

Hawthorne