WASHINGTON – The corporate-bashers, flush with boardroom scandal, are in rare form these days. To hear them, government doesn’t look so bad anymore. Why, next to CEOs, politicians and bureaucrats almost look like pikers!

But before you put your faith back in Washington over Wall Street, go back to 1993, and take another look at President Clinton’s record tax hike, which was intended to soak the rich under the guise of shrinking the deficit. You may find his fingerprints on yet another scandal.

Recall that it was Clinton and Democrats in Congress who took away, starting in 1994, the corporate deduction for executive pay above $1 million, which led to corporate boards offering CEOs higher compensation in the form of stock options, which weren’t included in the tax cap and have little impact on profits. All other forms of pay are treated as a compensation expense and reduce the bottom line.

Many boards let CEOs borrow huge sums to buy more options, which are granted at a locked-in share price. In the 1990s, more than ever, it was in their interest to juice the value of shares. The higher values climbed, the richer they got, at least on paper.

When they saw their houses of cards start to crumble, they cashed out their options, leaving average shareholders holding the bag.

Ironically, corporate fat cats made a heck of a lot more than the $1 million Clinton was trying to limit them to. Crooks like Ken Lay, who walked away from bankrupt Enron Corp. with $186 million in stock options, are living large.

While there’s no excuse for criminal avarice, there was the not-so-little matter of a change in the federal tax code, which affected incentives, which affected behavior – something the social engineers in Washington never seem to consider when they craft economic policy.

Few are citing government’s hand in this scandal, or at least the causal relationship between government meddling in the market and market illness – which leads to more meddling and more illness, ad nauseam (as we’ll learn again, sadly enough, after the next round of regulations go into effect).

But there’s little doubt, at least in my mind, that the phony-numbers frenzy was driven in large part by the tax-motivated options giveaway.

There’s a reason for everything. The change in tax law doesn’t explain it all, but it explains a lot.

And it tells me that if this is a corporate crime wave, it’s an anomaly, and that the whole financial community isn’t corrupt, as some are suggesting. Executives have just been responding badly to bad incentives.

It’s also a reminder not to put all your stock in government, as it parades itself as the white knight saving the small investor.

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