Phil Gramm

Mr. GRAMM

Mr. GRAMM. Will the Senator yield?

Mr. GRAMM. I think that is fair. I withdraw my request.

Mr. GRAMM. Mr. President, I think if we want to deal with this issue today, probably the way to deal with it is to have a unanimous consent agreement and have a vote on all three amendments--have a vote on Senator McCain's amendment, have a vote on the Levin amendment, have a vote on Senator Enzi's amendment so that we would have the full range of choices. But to suggest that nothing is standing in the way except a few obstacles to everybody having their will is to neglect the fact that 97 amendments have been filed as first-degree amendments and 24 second-degree amendments. So, therefore, by definition, I assume if I suggest and ask unanimous consent that each and every amendment be voted on, someone would object since our leadership has plans for this week and next week. I think it might be possible if we want to deal with this issue today to have a unanimous consent agreement where Senator McCain would get a vote on his amendment, where the Senator from Michigan would get a vote on his amendment, and where Senator Enzi would get a vote on his amendment. Then we would have a range of choices. I would be amenable to such an agreement if the Senator wanted to shop that around on his side of the aisle. We could do a hotline and see if it would fly. But in the absence of some agreement where the other two gradations on this spectrum of opinion would have their day to debate this amendment and have it voted on, I don't think we are going to be able to do that. It might very well be that we need a separate bill to deal with this issue. If a Senator were to offer this amendment in earnest, I would want an opportunity to amend it. I think having FASB look at this issue--which they are certainly going to do after this bill is agreed to because this is going to be a self-funded agency, and they are going to have greater independence--I think having them look at it is something that we ought to do. But I think we shouldn't pretend to ourselves that the Levin amendment is a neutral amendment. Asking them to look at it when it mandates by law after having looked at it that within 12 months they adopt in appropriate generally accepted accounting principles for the treatment of employee stock options--there is nothing neutral about that; in other words, study it and within a year adopt a rule. As I understand it, Senator Enzi and others would have the SEC do a study and make a recommendation based on their study. If this amendment were going to be dealt with in isolation, I would want an opportunity to at least leave it to FASB as to what they determine rather than mandating that they ought to issue a new accounting principle. It may be that they would determine not to do that. Let me reiterate that I don't have any concern about voting on this issue. Maybe I should reserve my time. I want to speak on this at some point. We have several Members here who are going to speak. I have to be here for the whole time. I reserve the remainder of my time.

Mr. GRAMM. Reserving the right to object, I did not hear.

Mr. GRAMM. Yes.

Mr. GRAMM. I object.

Mr. GRAMM. Madam President, reserving the right to object, I would like to propound a parliamentary inquiry. Under this agreement, when 5:45 comes, we would begin to vote on the two amendments, and then vote on final passage, and no other amendment would be in order under the agreement; is that correct?

Mr. GRAMM. I agree with my friend, the Senator from Nevada, and want to add that what we need to avoid is a possible cascading effect, starting with the Federal Government, that could eventually hurt the small accounting businesses in this country.

Mr. GRAMM. Mr. President, I think the Senator from Nevada is right about the harmful affects this legislation could have on small businesses, not only the small accounting firms in this country, but also the small business clients of those companies. This amendment says to the State regulators to look very carefully at the effects this legislation could have for smaller and medium-sized firms, and also on small businesses that may rely on larger firms for their audit work.

Mr. GRAMM. Madam President, I do not object. I think under this agreement we will have time to go back and forth. I would say that if it saves anyone time, we do not need a vote on the two pending amendments. We could do them by voice vote and proceed to final passage.

Mr. GRAMM. Madam President, I want to begin by very briefly responding to Senator Kennedy. I was somewhat taken aback at his suggestion that we set aside the two amendments and allow a nongermane amendment to be offered when, in fact, on a bipartisan basis, earlier this week, we decided not to deal with pension reform. So I want to make it clear to my colleagues that I am perfectly happy to deal with pension reform. I think a bipartisan consensus is evolving on pension reform. But we made a decision, on a bipartisan basis, earlier this week, not to put pension reform on this bill. Its day will come. I want to make that clear. Madam President, let me try to respond to several points that were made earlier today. I will try to be brief so that my other colleagues will have an opportunity to speak on my side of the aisle. I want, first, to talk about stock options. Then I want to talk about the bill before us and where we go from here. And I will try to be brief on all of them. First, let me make it clear that stock options are pretty important to the American economy. More than 6 million nonexecutive workers in America receive stock options every year. So when we finally get around to having a policy set on stock options--which I hope will be done by FASB, the accounting board, based on logic and reason--we need to take into account that 6 million people who are not executives of companies get stock options every year. We want to be sure that we are not endangering their ability to own a piece of America with the reforms designed to deal with a few people who violated the law in some cases, who did not act honorably in some cases. We want to be sure we do not deprive or preclude 6 million workers who are not executives--or people who did not violate the law, did not act dishonorably--from the ability to get stock options. Let me also say, in areas such as biotechology and the computer programming industries, that 55 percent of rank and file employees get stock options. So I just want to urge, as we are going about our business here, with all this talk about people who have made millions, that we do not forget that millions of Americans benefit from this, and we need to be careful about what we are doing. Let me say, secondly--and Senator Bennett made the point today; I made it last week--if you listen to what is being said in this debate, a big point is made of the fact that in 1994 we saw an explosion in the use of stock options and low-interest loans and other nonconventional forms of executive compensation. What happened to trigger that is in 1993, as a gratuitous provision in the 1993 tax bill, we changed the law so that if you are compensating an executive in corporate America and you pay that executive more than $1 million a year, you cannot count that compensation as a business expense. Of the top 30 companies in America, the level of compensation at that point was already substantially above the million-dollar mark. So because of what Congress did in 1994, having passed a law that said you could not pay people with a paycheck above a certain level and have it count as a business expense, we should not have been surprised that accountants and financial planners and people who were smart enough to make over $1 million a year found other ways to receive compensation. So I want to make it clear that the point I am making is, if you are looking for somebody to point the finger of blame at here--and many people are trying to do that--I think Congress is a good institution to point at because Congress eliminated the ability of companies to pay their executives the old-fashioned way. A lot has been made about who is at fault in all this. I would just simply make the following points. If somebody said to me: I know you don't know what caused all these current problems, but tell me; I am going to force you to tell me what you think the cause was. I would say: The inadequacy of GAAP accounting, which, in its current incarnation, works very well for old-style companies with assets that are written off. GAAP accounting fits the steel industry perfectly. It fits the automobile industry pretty well. But the problem in the 1990s--when productive power became knowledge, when companies with relatively little in the way of assets gained huge market caps because of people's assessment of their know-how and the technology embodied by the company--was that GAAP accounting did not keep pace with the reality of the world that we live in today and that we lived in the 1990s. It is very complicated to try to figure out what the values of these companies actually are by any conventional method where you are adding up their acquisition cost of assets and depreciating those assets. This created a giant void in GAAP accounting in the 1990s, and people pushed the envelope within that void. In some cases, it appears they violated the law; in other cases, they have certainly violated standards of ethics. Nothing we are doing in this bill is going to solve the problem in GAAP accounting. I am confident that over time we will find new ways of developing generally accepted accounting principles that don't rely on concepts such as goodwill, which don't make a lot of sense economically. But I do believe the bill before us is a step in the right direction. There are differences of opinion. Before we go to final passage, I want to make clear what those differences are. Senator Sarbanes and I both believe that we should have an independent accounting board. We both believe that that board should set and enforce ethics standards. We both believe that part of setting ethics standards is looking at auditor independence. Senator Sarbanes believes that we should write in law in some great detail what is entailed in auditor independence. I believe the problem with that is that while the law might fit General Motors, there are 16,254 publicly traded companies in America, and I am concerned that there is no law that Congress can write that will fit all 16,254 companies. My second problem is, if you make a mistake in writing the law, then you have to go back and pass another law to correct it. If we had set out Glass-Steagall, separating banking and securities, by regulation, my guess is that by the mid 1950s, we would have concluded that that was a mistake, and we would have fixed it. But since it was written into law, it couldn't be fixed by regulation. Regulators tried to make marginal changes. We ended up with a very unstable system, and we were only able to fix it by law in 1999. A second problem with writing the details of these different standards such as auditor independence into law is if you make a mistake, it is hard to fix it; whereas if you set up a board and, based on their expertise, they set out a regulation, if they make a mistake, they can fix it. My final point on setting these standards by law is, one size fits all never works. What we need is the flexibility for this board to set a standard and then determine, based on the circumstance of the individual company, what makes sense. I intend to vote for the bill on final passage. There are probably 10 things in the bill I am opposed to. But we are going to conference with a House bill that is very different. I am confident that in conference we can write a bill that will be supported by both Houses of Congress and signed by the President. I think we can strengthen the bill where it needs to be strengthened. I think we can provide flexibility where it is needed to bring in reason and responsibility. Our objective has to be to fix what is broken in American capital markets and do it while minimizing the cost we impose on businesses, investors, and workers that did not violate the law and did not act in a nonethical manner. The sooner we can get to conference, the sooner we can write this bill and see the bill signed into law. We have reached the point where we have a bill before us that addresses the major issues that we decided to address. I know people have been unhappy about the inability to offer amendments today. The plain truth is, we have 97 first-degree amendments that have been filed and 24 second-degree amendments, and there was never any possibility that those amendments could be offered. We tried to come up with amendments that were agreed to and in the process, ended up excluding some people. Let me conclude my remarks, at least for the time being, by congratulating Senator Sarbanes on his leadership on this bill. Overall, he has done a good job. I do not agree with him on each and every part of it, but he has always been open. We have had many good discussions. I am confident that in the end we will write a bill that will be broadly supported and that will be in the interest of the country.

Mr. GRAMM. Mr. President, I yield 8 minutes to Senator Enzi, and might I say on my time, not his 8 minutes, that I want to thank Senator Enzi for his contribution to this bill, for his work from beginning to end. He has been a major contributor to the bill. He has proven that knowledge sometimes is a nice thing to have. Our standard in Washington for objectivity is that you came in off the turnip truck and you know absolutely nothing and therefore you are objective, but I would say that Senator Enzi proves that it is nice every once in awhile to have somebody who knows what he is talking about. I think in many ways, large and small, the good things in this bill he has had a very positive impact on and the bad things in the bill he could not do anything about anyway--that was a joke, I would say to the Senator from Maryland. In any case, I do want to congratulate Senator Enzi for all the contributions he has made.

Mr. GRAMM. I object.

Mr. GRAMM. I will not yield. If you did something wrong, making you give back what you earned belongs in this bill. And it is in this bill. Not only belongs, it is here. But to simply say because somebody worked for a company that goes broke, that they have to give back compensation, that sounds great in the environment we are in, but, look, I have a company, we are in deep trouble, and we try to go out and hire a top-notch person to come in and save us, and we pay him a compensation to try to do it. To say we will take it back if he fails, as if that is an ill-gotten gain, I am sorry, I don't think that is good economic policy. I don't think it is smart. It has nothing to do with the provisions of this bill.

Mr. GRAMM. Mr. President, I think you could debate whether the amendment is understood or not. I think I understand it perfectly. In fact, there are people in this country who are turnaround specialists, who are hired to try to save companies. If somebody did something wrong, if they violated the law, then make them give back compensation. You put them to death, if you want to put them to death. But to simply say, if you hire somebody with an incentive package to save the company, and the company goes broke, that you are going to take it back, that is up to the bankruptcy court to decide. So this ill-gotten gain business is good rhetoric, but it has absolutely nothing to do with this amendment. I reserve the remainder of my time.

Mr. GRAMM. Mr. President, the Senator from Maryland should have the right to end the debate. I think we have two bills: One in the Senate, one in the House. We can come up with a better bill than either. I think America will survive under either bill. Given the environment we are in, that represents some achievement, and I am proud of it. I think we will come out of conference with a better bill than the House bill and a better bill than the Senate bill. I think people will be proud of what we did. If I were an investor today, and I had a lot of money, I would invest in the stock market today.

Mr. GRAMM. I move to lay that motion on the table. The motion to lay on the table was agreed to.

Mr. GRAMM. I move to lay that motion on the table. The motion to lay on the table was agreed to.

Mr. GRAMM. I move to lay that motion on the table. The motion to lay on the table was agreed to.

Mr. GRAMM

Mr. GRAMM. Madam President, we need to pass a bill. We are going to conference with a House bill that is substantially different from this bill. I believe that between the two bills, we can find a virtually unanimous vote. I think we can write a bill that will satisfy the President and both Houses of Congress. I do not think we are making the bill better. The amendments that are being offered now are largely nongermane. We have gotten into sort of a one-upmanship position, and I think we are harming the markets by convincing people that the cure may very well be worse than the disease. It is very important that we get on with our business and that we pass this bill. I intend to vote for it today. I do not think it is the bill we need in the end, but it gets us to conference where we can get the bill we need in the end. I urge my Republican colleagues to vote for it, not because in the end they are for this version but because they want to do something. We need to bring this debate to a close. We do have some germane amendments. We will be dealing with those, but the time has come to get on about our business. Getting on about our business means bringing this debate to a close. So I urge my colleagues to vote to end the debate. Let us go to conference. Let us write this bill. Let us let it be known with certainty what our policy is going to be. If we do that, it will help restore confidence in the country. So I urge my colleagues to vote for cloture and, as we get to the end of the process, for the bill. I yield back the remainder of my time.

Mr. GRAMM

Mr. GRAMM. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. GRAMM. Mr. President, I support the McConnell amendment. I think it is a good government amendment. I think it is a full disclosure amendment. I don't even see why we are voting on it. I am convinced it will be defeated because any good government amendment that has anything to do with plaintiffs' attorneys is routinely defeated in the Senate. Having said that, I make note of the fact that the Dow is down again today. I do not believe the primary problem in the markets today is the disease we are fighting. The primary problem we have now is fear about the absurd prescription of the doctor. I believe there is concern that in this frenzy, things are going to be done that will have a long-term negative impact on the capital market. If you take the bill the House has already passed and the Senate bill as it is now, and you take the President's position reiterated yesterday by the Secretary of the Treasury, we have the makings of a good bill that can be broadly supported. I reiterate my hope and desire that we bring this debate to a close. We could, by unanimous consent, have a vote on cloture today. We could deal very quickly with germane amendments. We could pass this bill tonight, and next week we could be going to conference. That would be prudent policy. We are going to have a lot of amendments offered, if my list is indicative, that if anyone really believed they would be adopted, would be terribly frightening to investors.

Mr. GRAMM. I ask unanimous consent for 1 additional minute.

Mr. GRAMM

Mr. GRAMM. Madam President, I ask unanimous consent that the vote on cloture occur immediately; that we proceed with the process of dealing with germane amendments; and that we set the time of 8 o'clock for all debate on the bill to end.

Mr. GRAMM

Mr. GRAMM. Before the Senator yields, if he would yield very briefly to me, I thank him for his very sweet comments. I am very happy to be named along with Paul Sarbanes. And someday when I am talking to my grandchildren about the fact that their grandpa actually was a pretty important guy in his day--though his mind, I am sure, at that point will have seemed to have largely slipped away--I will say: I got to serve with the great Robert C. Byrd.