Ben Stein How Not to Ruin Your Life

Many years ago, I spent the majority of my time studying the works of the Drexel Burnham Lambert and its evil junk bond empire. One part of the empire was insurance companies, which Drexel used as a blood bank to buy its overvalued (but by no means valueless) securities.

The money these Drexel guys made was stupendous. I was envious. I wanted to be rich, too. It occurred to me that I, who had a tiny amount of money put by, might be able along with some others to buy a small insurance company, loot it the way I had seen the Drexel people do it (they, of course, disputed that they did it ), and then I would be rich.

After all, I had studied closely how it was done, and I was fairly sure I could do it and become financially independent for life. Yes, I would surely be sued, but I would settle for pennies on the dollar and walk away still a rich man.

"How Could You Look Yourself in the Mirror Every Morning?"

I told one of my closest friends, a brilliant lawyer named Daniel Mogin, my idea. He agreed that it would work, but then he said, "I know you. You're not that kind of a guy. You wouldn't be able to live with yourself knowing you had looted innocent people out of their insurance policies and cheating people who had never done anything but trust you."

He was right, and his words were like the script of one of those old movies where a wavering soldier is slapped in the face by his superior, and the waverer then says, "Thanks. I needed that." I needed to realize that my wanting to be rich is a pretty damned selfish, ridiculously unethical, and trivial matter compared with betraying the trust of people in America who had been so good to me and to my family. I never thought of it again, and I hope I never will.

But the memory comes to mind as I watched TV and saw the conviction on May 25 of Enron's Kenneth Lay and Jeffrey Skilling on many counts of looting their company, fraud, insider trading, and other illegal acts.

What I kept thinking was, "Mr. Lay and Mr. Skilling, the people you were looting were men and women at your company who had their life savings in Enron stock. They were men and women who you passed by in the hall every day. They were the people who made your coffee and brought you your mail and parked your car. They were people who were proud to work at Enron and thought they were at a heads-up deal. They trusted you with -- quite literally -- their lives. They never did a bad thing to you, and yet you ruined their lives and their hopes. You sold Enron stock while telling them to buy it. You knew the company was a shell game, and yet you urged totally innocent people to buy still more of it for their retirement accounts. How could you look yourself in the mirror every morning?"

More Looting

Now, it would be nice if the Lay and Skilling convictions marked the end of this kind of fraud. The terrible part is that it's still going on in a huge way. Lately, investigative reporters at "The Wall Street Journal," aided by university professors, are discovering that top executives at some of the biggest companies in the nation are looting their companies in an almost unbelievably brazen way.

This is how it was carried out: Companies often issue stock options to executives as part of their compensation. These options allow managers to buy stock at a certain price, supposedly chosen based on an average stock market price for a period or some other similar metric. If the stock price rises above that option "strike" price, the boss makes money. If the stock falls below it, he doesn't.

But the men in these recently uncovered deals were apparently secretly and fraudulently back-dating the strike price to be the lowest price of the year or the quarter long after the stock had risen dramatically from that price. Thus, a huge profit was built into the deal, a kind of profit totally unavailable to executives at honestly run companies -- and to ordinary stockholders.

That is, suppose a company's stock price had fluctuated between $10 and $50 per share over a year. At the end of the year, the compensation committee of the board of directors would find the day the stock was $10 and make that the strike price, designating the week that price occurred as the week when the options were granted. The men who had these options were guaranteed to make money -- lots of money. One of the men in question, at huge HMO, had made more than a billion dollars (yes, with a B) on his options.

For Rich Guys, Isn't It Ever Enough?

As I see it, this is the most explicit kind of insider trading (a felony), fraud in that it was not disclosed in the companies' filings, which gave no hint that the strike prices were rigged (also a felony), looting of corporate property in that this behavior is going to trigger immense accounting liability for the company and likely large federal penalties (possibly also a felony). I see it as plain stealing the stockholders blind.

What I keep thinking is, "Isn't there ever enough for you guys? You're already rich in every single case. You already have immense corporate perks. Isn't that enough? Do you also have to steal?"

The stockholders of these companies bought in good faith. They trusted management with their financial futures. What kind of people would rob from men and women who had already paid them immense wages and perks and had never done a mean thing to these guys?

Just by the law of large numbers, some of the people who were being ripped off in these cases and at Enron were soldiers now fighting in Iraq or Afghanistan, firemen risking their lives to save children in burning houses, teachers struggling to teach children without fathers. How could these executives steal from such people?

An Insane Executive-Compensation Culture

Now, we have a big challenge in America. Will we prosecute these people to the fullest extent of the law? Or will we let them off with civil penalties that are paid by insurance companies or the stockholders themselves in any event?

In many U.S. states, if you rob a convenience store with a gun and get $40, you go to prison for 20 years and you should. If you sell marijuana and are caught three times, you go to prison in some states for life -- even if no one was really injured. If you're a black kid who steals a bicycle, you go to jail in many places.

But what if you use cunning stock-option plays to unethically make hundreds of millions? Then, you get a Gulfstream Jet, ski chalets, and nine-figure bank accounts.

This is a national disgrace. We absolutely have to make an example of these corporate wrongdoers and the boards of directors that let it happen. And the example I gave about phony stock-option prices is only one of many. The whole executive-compensation culture has become insane, with corporate executives draining the lifeblood of the nation while worker salaries stagnate, and employees lose their jobs and their pensions (just talk to the people at United Airlines or Delphi).

This country is at war. It's an outrage that while we're at war, executives who are already fabulously rich are stealing and are at liberty. America is humiliated by its brightest and most ambitious looting it, while its young men and women die for it.

If these people have no shame, if they had no Dan Mogin to slap them and wake them up to their duty to their neighbors, maybe the Graybar Hotel will be a wake-up call to the next generation who consider that theft is just a part of their compensation package.

President Bush is looking for an agenda at home. How about a simple one? Justice for all.