[Congressional Record Volume 148, Number 95 (Monday, July 15, 2002)]
[Senate]
[Pages S6732-S6734]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  ECONOMIC SECURITY FOR ALL AMERICANS

  Mr. CORZINE. Mr. President, today I want to talk about the corporate 
scandals and financial problems we have been experiencing, and discuss 
how these problems highlight the importance of keeping the ``security'' 
in Social Security.
  Last week, American financial markets plunged dramatically in 
response to the ongoing litany of corporate scandal and earnings 
restatements. The New York Times called the current 2\1/2\-year slide 
in the stock market the ``worst bear market in a generation.'' For 
ordinary investors, retirees, and near-retirees--last week, and 
certainly the year--the post-bubble environment has been a financial 
nightmare. What felt like a hard-earned, secure retirement for many 
became an open question filled with uncertainty for many

[[Page S6733]]

Americans. People are feeling compelled to go back to work and evaluate 
when they will retire, continue their careers, or cut back on their 
standard of living. They are experiencing a real sense of economic 
insecurity.
  U.S. equity markets have lost nearly $7.5 trillion since the peak of 
the market--that is a mind-boggling number, frankly--and roughly $2.5 
trillion in market value has been lost this year alone.
  That loss has created a profound sense of insecurity among American 
families. We are seeing it in the real economy, we are seeing it in 
consumer confidence, and in a whole series of measures.
  Trees don't grow to the sky. We sometimes lost track of that in the 
1990s. Markets will not fall to zero either. But markets pose real risk 
and real challenges to the economic security of all Americans. That is, 
of course, why we must pass the accounting reform measure before the 
Senate, the Investor Protection Act. I hope we will do that today. We 
must also stand firm on the principles and elements of this legislation 
as we continue in the conference committee, which will try to piece 
together this strong piece of reform legislation with a fairly weak and 
tepid response in the House.

  Obviously, investors are deeply affected by the wave of corporate 
scandals and financial restatements that infect too much of the 
corporate world: The so-called Enron Syndrome, WorldCom, Global 
Crossing, to Adelphia--the litany goes on, and, unfortunately, appears 
to be lengthening. I think we may just be at the head of this wave.
  What we have is not merely a few bad apples but a systemic 
breakdown--a breakdown in our accounting system, a breakdown in our 
auditing structures, and, more fundamentally, a breakdown in the trust 
that is the foundation of our entire market-based economic system--
trust in our corporate leadership and trust in the truthfulness of 
their word.
  As a former businessman and a CEO, I must say I am ashamed of this 
wave of corporate corruption. As a Senator, I am appalled at the 
continuing attempt of some lobbyists and too many in public office to 
substitute a token response for a strong and effective governmental 
response.
  Frankly, I was disappointed with President Bush's response last week, 
which was long on rhetoric and short on reform. Nothing was really said 
about the accounting industry conflicts, the conflicts with regard to 
research in investment banks, as Attorney General Spitzer has brought 
to light, the expensing of options, or about many other serious steps 
that will be needed to restore public confidence.
  The President also failed to face up to the urgent need for major 
strengthening of the SEC, which today is drastically outgunned in the 
battle against corporate fraud. We need not define the SEC by who is 
leading the SEC, but we need to make sure we speak to the scope of the 
resources they have and the tools they have to deal with the issues 
that are involved in problems that have led to the crisis of consumer 
confidence that we have today.
  Many of my colleagues have expressed similar concerns in recent days, 
and I believe the American people are watching us closely today, and 
will see how this process unfolds as the 107th Congress proceeds to 
completion, and whether we can put this strong reform legislation on 
the President's desk not only by passing a strong bill in the Senate 
but by making sure that when we get to conference, we put the public's 
interest ahead of special interests.
  With that said, there is another very important question that is 
reinforced by these events. It is really where the dots connect and 
what I will focus on today. That is something I have been speaking 
about often here on the floor--the implications of a market meltdown 
and the President's drive to move toward the privatization of Social 
Security.
  For anyone who has any doubt about the importance of providing a 
guaranteed safety net--a bedrock safety net--for America's retirees, 
recent events prove how that is absolutely necessary.
  In just the past week, millions of Americans have seen the value of 
their 401(k)s plunge dramatically. For some, this decline will mean 
their retirement will have to be delayed. For others already retired, 
it will bring a real decline in their standard of living. I have read 
about and talked to people who will have to return to work. And for 
millions of Americans, recent events have highlighted the risk of 
relying on the stock market as the primary guarantor of retirement 
security.
  We have always talked in this Nation about a three-legged stool to 
support people in their retirement: Certainly, individual savings, and 
some of that undoubtedly is well spent in the stock market; then there 
are pension benefits that are provided by employers; and then there has 
always been this bedrock of Social Security. That is the three-legged 
stool.
  I think we need to make sure we reinforce that fundamental leg, 
Social Security. The purpose of Social Security is to ensure, despite 
the inherent uncertainties of the marketplace, that retirees who have 
contributed to our Nation will be guaranteed a basic level of 
retirement income. In other words, the Social Security system 
guarantees a degree of certainty, a certainty that will give people 
that sense of security.
  Privatizing the program, as the Bush Social Security Commission has 
proposed, will undermine that security and tear apart a program that 
has been successful--enormously successful--for the American people for 
over 70 years. In fact, we have gone from where we had more than 50 
percent of the American population retired and living in poverty down 
to almost 10 percent in recent years. In my view, moving away from that 
would be a mistake.
  For 50 percent of working Americans, the whole of their retirement 
security is Social Security; they have no other means of retirement 
security. And for about 70 percent, the primary means of their 
retirement security is Social Security. So we are really talking about 
putting at risk something that I think is very vital for most 
Americans.
  Ever since Franklin Roosevelt signed it into law, Social Security has 
been critically important for our Nation's seniors. Its importance has 
grown even more in recent years. That is because fewer and fewer 
Americans now have access to traditional defined-benefit pension plans. 
Those plans have declined from 175,000 programs in 1983 to just about 
50,000 programs today. There has been a dramatic decline in these 
defined-benefit programs--ones that were secure. Increasingly, 
companies have switched from traditional plans, under which the company 
bears the investment risks, to defined-contribution plans, under which 
workers and retirees are themselves the risk takers--market risk 
takers.
  Proponents of privatizing Social Security would compound those 
defined-contribution or 401(k) market risks by making Social Security 
benefits equally dependent on the uncertainties of the stock market. In 
my view, that would be a cruel betrayal of America's senior citizens 
and a denial of the promise of Social Security.
  Consider what has happened to the employees at MCI. MCI is another 
telecommunications company that was merged into WorldCom about 2\1/2\ 
years ago. Before the takeover by WorldCom, MCI maintained a 
traditional defined-benefit plan; that is, the retirement security 
risks were borne by MCI and guaranteed by a Government institution 
called the Pension Benefit Guaranty Corporation. But that plan was 
abolished after WorldCom merged, except, by the way, for senior 
management; they continued to have defined-benefit programs for their 
retirements. Instead, MCI employees, as most WorldCom employees, were 
offered only one type of retirement program, a 401(k) plan.
  I am not against 401(k) plans. They are a great idea for an 
additional element, on top of Social Security, a guaranteed benefit. 
But I think when we mix apples and oranges, we undermine economic 
security for Americans.
  By the end of 1999, over 103,000 workers and retirees participated in 
this WorldCom 401(k) program. Their accounts at that time held more 
than $1.1 billion of WorldCom stock, about one-third of the plan's 
assets. At that time, the stock was worth $54 a share.
  Today, that stock and their retirement funds are almost worthless. 
And we read in the paper today that WorldCom is about to file its 
bankruptcy petitions. After WorldCom's 

[[Page S6734]]

massive accounting scam, the stock is not at $54 a share but 3 cents a 
share. The WorldCom stock in WorldCom 401(k) plans is not worth $1.1 
billion, but it is now worth $20 million.

  By the way, the 401(k) plan isn't guaranteed by the Pension Benefit 
Guaranty Corporation. It is actually imposing a cruel reduction in the 
security of all those 104,000 folks. I say, as an aside, this situation 
certainly argues for diversification in pension plans as well. The 
WorldCom plan started with about one-third concentration in WorldCom 
stock. It now has less than 1 percent in the WorldCom stock, but that 
is just because of the loss of value. It is really a very difficult 
situation for a lot of working Americans.
  These are not just numbers or abstract entries on a corporate balance 
sheet or somebody's notification of what their 401(k) plan returns are, 
they represent the destruction of people's hopes and dreams for a 
secure retirement life, after working responsibly and contributing 
responsibly to their retirement.
  Last week we had one WorldCom employee say:

       I put all my money in WorldCom stock, and I'm pretty sure 
     I've lost everything. I knew what happened at Enron, but I 
     thought we [at WorldCom] were different.

  Management told them they were different, and, as most people, 
employees trusted the executives they worked for and wanted to be proud 
of their company and its leadership.
  The experience of WorldCom employees, and those of hundreds of other 
companies--some of them, by the way, not falling prey to the whims of 
fraud but just simply market realities--shows that diversification is 
an absolute essential in pension reform. I hope we have that debate 
also on the floor.
  When retirees lose all their money through no fault of their own, 
when nothing is left in their retirement portfolio, one thing, and one 
thing only, stands in the way of total economic devastation. Social 
Security. Because no matter the state of the stock market, Social 
Security is always there--not with enough to live in luxury but enough 
to make a real difference for millions who have little or no savings on 
which to rely. Social Security is the ultimate safety net. We must not 
let the administration shred it.
  Privatization schemes would irresponsibly gamble with the guarantee 
of security for retirees, present and future. The average Social 
Security benefit last year was only about $10,000 a year--not the 
princely sums received by executives who have failed their companies--
and not enough in some parts of our country to have a secure 
retirement. In New Jersey, for instance, $10,000 a year can only get 
you so far given the high cost of living in our part of the country.
  Yet President Bush's Social Security Commission called for 
substantial cuts in guaranteed benefits. Cuts for some workers would 
amount to 25 percent and future cuts could exceed 45 percent. If anyone 
wants to apologize for privatization by disputing these numbers, I just 
encourage them to read the report of the nonpartisan actuaries at the 
Social Security Administration themselves. For more evidence, let me 
refer you to the recent economic analysis by Professor Peter Diamond of 
MIT and Dr. Peter Orszag of the Brookings Institution.
  The Bush Commission parades its proposals as promoting choice. But if 
the Bush privatization plans were ever approved, seniors would have no 
choice. Their benefits would be cut. They would be cut if they shifted 
to privatized accounts, and they would be cut if they did not. The only 
choice is this: If they opted for privatized accounts, their guaranteed 
benefits would be cut more deeply.
  The effective destruction of Social Security's guaranteed benefits 
recommended by the Bush Commission is bad economics and bad social 
policy. Fifty Senators have written the President urging him to 
publicly reject his Commission's proposals. So far, his response has 
been the same kind of silence we heard for months after the corporate 
scandals first broke with Enron.
  Sometimes facts and reality ought to bring about a change in thinking 
for individuals, for corporations, and for an administration on 
important topics of the day.
  Cutting guaranteed Social Security may have sounded like a good idea 
when the stock market was only going up, but now the fallacy of that 
assumption is clear to everybody. I hope the Bush administration will 
reconsider its plans to privatize and cut Social Security.
  Let's not take the security out of Social Security.
  Mr. President, before I leave the floor, I would like to take a few 
minutes to discuss a different matter but one that I believe is 
fundamentally important as we seek to address the structural problems 
facing our economy and what we need to face in the financial world to 
straighten out some of the problems we have. We need to better account 
for employee stock options.

  This, too, is an issue that regardless of where one may have been 
historically, facts and reality ought to bring about a change in 
reasonable folks' thought with regard to options.
  While the depth of liquidity and efficiency of our markets is still 
unrivaled, our markets need to make sure they are based on a 
presumption of integrity and accuracy in the information provided to 
the country. Our entire financial system depends on the broad 
availability of timely, truthful and transparent information. To secure 
that and restore the confidence of investors, it is absolutely urgent 
that we address this treatment of employee stock options.
  The fact is, in many instances where we continue to allow this 
without an acknowledgment of what is going on, two things are 
happening: Earnings are overstated, and there is an enormous amount of 
dilution going on to the ownership of shares.
  People may argue that you can derive this from financial statements 
and footnotes that are highly complicated even for the most 
sophisticated investor to read. But I argue that there is no common 
sense in making it as difficult to understand what the earnings 
statements of a company state and, more importantly, protecting 
investors from the dilution that comes from the whole premise of 
issuing more stock without having an understanding of when that is 
going to happen. This needs to be put in the context of the 
asymmetrical incentives it gives management that has undermined 
confidence in our corporate executives.
  To be brief: We have a chance to address this issue in a very serious 
manner in the next few hours before we take our final vote on this 
legislation. I compliment Senator Levin and all those who stand to 
straighten out and put into responsible format what needs to be done 
with option accounting. We should do that not by writing option rules, 
at which I do not think the Senate has the capacity to be effective, 
but making sure that an independent body, which we will independently 
finance, has the ability to deal with a very complicated issue.
  I hope with the help of all my colleagues, we can get around to 
straightening out something that, as we saw today in news reports, even 
corporate executives understand can lead to misallocation of resources 
and certainly misunderstanding of the performance of companies. We 
ought to get to real economic performance being reflected, not 
accounting performance. I am glad to see Coca-Cola take the steps they 
did. We need to move firmly and surely by passing the Levin amendment 
which would facilitate a solution that would make this permanent for 
everyone.
  All three of these are important issues--accounting reform and 
corporate responsibility, the treatment of stock options, and 
protecting Social Security and rejecting privatization. The stakes are 
high for our economy. I hope we will move swiftly and certainly to 
reform and provide economic security to all Americans.

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