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Jewish World Review June 13, 2005 / 6 Sivan, 5765

George Will

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http://www.NewsAndOpinion.com | California Congress man Chris Cox, the president's nominee to be chairman of the Securities and Exchange Commission, would like to write a book giving Leibniz his due, at Newton's expense, for the invention of calculus. Could Cox really also be "a devoted student of Ayn Rand"?

She wrote fat and pitilessly didactic novels celebrating severe individualism and unfettered capitalism. The third paragraph of The New York Times front-page story reporting Cox's nomination called him "a devoted student" of Rand.

Cox, however, has never read a Rand novel. He sampled her work only when preparing, for the Times, a less-than-reverent review of a collection of her correspondence. Still, the "devoted student" description swiftly reverberated in the echo chamber of Washington journalism, where much of the reporting about Cox's nomination has had a cartoon-like quality.

Now in his ninth term representing Orange County, Cox, who simultaneously earned degrees from Harvard's law and business schools, worked in the legal counsel's office in the Reagan White House. The Washington Post's headline on his nomination said: "Congressman Has Taken Pro-Business Stances on Issues." Who today, one wonders, is "anti-business"? And what does that mean?

A Times columnist disapprovingly said Cox "is a big-business advocate." Leaving aside the vacuity of such labels — what might it mean to be an "advocate" against "big business" and its big numbers of employees — the "big-business advocate" obscures an interesting fact: Cox has been criticized by big-business interests because he opposed requiring employee stock options to be recorded on balance sheets as expenses.

Why? Many small start-ups, such as '90s high-tech ventures, with low or no initial profits, needed to attract talented executives without their compensation devouring the companies' earnings. So they offered stock options — a bet by the executives on the firms' futures. To record these options as expenses involves putting a highly speculative future value on those options; that means putting a mushy number in the middle of companies' financial statements. Yet some envious big businesses, with price-earnings ratios much lower than those of the new companies, wanted to handicap the new companies by forcing the options to be recorded as expenses.

Critics call Cox "anti-investor" because he co-authored legislation to limit so-called "strike suits." These are filed in response to steep declines in the prices of particular securities. They often are filed at the instigation of plaintiffs' lawyers, before any investigation of what caused the price drop, in order to initiate a discovery process in which plaintiffs' attorneys have a roving commission to try to link the stocks' decline to executive malfeasance.

The attorneys' complaints are often so strident that any prudent executive will feel pressure to come to a settlement, regardless of a suit's merits. Usually the plaintiffs, who are shareholders, are compensated less handsomely than the lawyers, whose compensation, extracted from the corporation, comes at the expense of . . . shareholders.

The bill Cox helped to write which discourages frivolous and extortionate suits by requiring the losing side to pay the winning side's legal expenses, was enacted over President Clinton's veto. Supporting the override were 109 Democratic senators and representatives.

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The Times and the Post both cited campaign contributions Cox has received from law, accounting and securities firms and other businesses. The implied message of such reporting about legislators is that their convictions conform to their contributions. However, studies of voting patterns strongly suggest a negligible effect of contributions on legislative votes. Rather, votes are primarily determined by legislators' ideologies, party affiliations and constituent preferences.

After listing contributions to Cox, the Times report quoted New York Sen. Charles Schumer as hoping Cox "sees the need for balance." The Times did not then detail contributions to Schumer, such as the $12.4 million from financial interests over his career (according to the Center for Responsive Politics).

The Post noted that the retiring SEC chairman, William Donaldson, 74, a wealthy investment banker, is "immune to pressure to earn a living after he left government." The obvious innuendo is that Cox, who does not have the wealth on Donaldson's scale, lacks the supposed disinterestedness of the very rich.

That the rich, because they are supposedly above material temptations, are especially suited to public service has long been used to justify aristocracies. It is not usually embraced by liberals gloomily convinced that if someone "pro-business" chairs the SEC, corruption will be rampant in America's business system — the system that produced Donaldson's supposedly ennobling wealth.

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