Interesting op-ed this morning in the Wall Street Journal (subs. req.) by Sen. Schumer and NYC Mayor Michael Bloomberg. They are worried about the diminishing prominence of the City and the U.S. in capital formation. Most intriguing parts: the realization that Sarbanes-Oxley over-regulation and class-action lawsuits in the securities areas are making our markets less attractive for business and investors:
With the benefit of hindsight, the Sarbanes-Oxley Act of 2002, which imposed a new regulatory framework on all public companies doing business in the U.S., also needs to be re-examined. Since its passage, auditing expenses for companies doing business in the U.S. have grown far beyond anything Congress had anticipated. Of course, we must not in any way diminish our ability to detect corporate fraud and protect investors. But there appears to be a worrisome trend of corporate leaders focusing inordinate time on compliance minutiae rather than innovative strategies for growth, for fear of facing personal financial penalties from overzealous regulators.
[And], what lessons can we learn from other nations’ legal environments? The total value of securities class-action lawsuits in the U.S. has skyrocketed in recent years, to $9.6 billion in 2005 from $150 million in 1997. The U.K. and other nations have laws that far more effectively discourage frivolous suits. It may be time to revisit the best way to reduce frivolous lawsuits without eliminating meritorious ones.
ME: I’d be much more interested in what someone like Larry Kudlow thinks of this than my take, but, fwiw and for the umpty-umpth time, the big post-Enron prosecutions of corporate fraud were accomplished by pre-SarbOx laws, which were more than adequate to the task of punishing real swindlers, which in turn severely discourages such behavior. It’s obvious what costs SarbOx has imposed; I have yet to see anything demonstrating that it’s purported benefits are worth that cost.