Tough to follow up Milton Freedman, but Warren Buffet offered this fantastic piece in the New York Times (worth signing up for the free membership).


In calculating the pension costs that directly affect their earnings, companies in the Standard & Poor's index of 500 stocks are today using assumptions about investment return rates that go as high as 11 percent. The rate chosen is important: in many cases, an upward change of a single percentage point will increase the annual earnings a company reports by more than $100 million. It's no surprise, therefore, that many chief executives opt for assumptions that are wildly optimistic, even as their pension assets perform miserably. These C.E.O.'s simply ignore this unpleasant reality and their obliging actuaries and auditors bless whatever rate the company selects. How convenient: Client A, using a 6.5 percent rate, receives a clean audit opinion — and so does client B, which opts for an 11 percent rate.

All that is bad, but the far greater sin has been option accounting. Options are a huge cost for many corporations and a huge benefit to executives. No wonder, then, that they have fought ferociously to avoid making a charge against their earnings. Without blushing, almost all C.E.O.'s have told their shareholders that options are cost-free.

For these C.E.O.'s I have a proposition: Berkshire Hathaway will sell you insurance, carpeting or any of our other products in exchange for options identical to those you grant yourselves. It'll all be cash-free. But do you really think your corporation will not have incurred a cost when you hand over the options in exchange for the carpeting? Or do you really think that placing a value on the option is just too difficult to do, one of your other excuses for not expensing them? If these are the opinions you honestly hold, call me collect. We can do business.