Jul 16 2002
Statement of Senator Richard C. Shelby
U. S. Sen. Richard C. Shelby (R-Ala.) today commented on economic issues during a Senate Banking Committee hearing with Federal Reserve Chairman Alan Greenspan:
"Obviously, there are some very strong, very real concerns about the conditions in our markets. Perhaps the 'irrational exuberance' you accurately commented on a few years ago led to irrational expectations. For whatever reason, numerous public corporations began misstating their financials. The professionals charged with sifting through that information failed to properly perform their role as gatekeepers. Ultimately, bad information, information that obscured economic reality, was admitted into the marketplace. American investors then relied upon it when making billions of dollars of investment decisions."
"Congress and the Bush administration are now addressing the systemic weaknesses that allowed this to occur. Last night, the Senate, with great help from Chairman Sarbanes and Senator Gramm, took a positive step forward by passing accounting oversight legislation. There are however, other areas outside the direct influence of Congress that require reform. Principally, the accounting rules need to be changed so that stock options are treated as an expense on the balance sheet.
"Stock options provide material value to recipients, dilute shareholder ownership and can be deducted by the granting company on their tax return. Keeping their cost off the books does not provide a firm with tangible value - it only contributes to an illusion of profitability; allowing a firm to take tax deduction without expensing defines the expression 'having ones cake and eating it too.'
"For the sake of investors, it is my hope the Financial Accounting Standards Board, provided greater independence under the bill the Senate just passed, revisits this rule and develops a new standard that requires companies to provide information that affords investors the most reliable picture of economic reality.
"While an element of uncertainty remains in investors' minds because of their lack of confidence in financial information, we would be wrong if we failed to point out that there are significant positive factors in place in our economy right now. Strong fundamentals provide the underpinnings to support economic growth. Inflation, under Chairman Greenspan's stewardship I might add, has been kept in check and productivity has advanced to never before seen levels.
"I want to close in pointing out that, the current challenges aside, we remain in a position of strength."