President Obama and Washington still don’t get it. The Obama administration and Congress either don’t understand or are choosing to ignore the message from Occupy Wall St. Matt Taibbi exams two “disgusting developments” that have taken place since the demonstrations started. One was the shifting a huge collection of Merrill Lynch derivatives contracts onto Bank of America’s own federally-insured balance sheet. The second is Obama apparently expressing willingness to junk big chunks of Sarbanes-Oxley in exchange for support for his jobs program
Sarbanes-Oxley is an anti-trust law which was passed by Congress in 2002 in the wake of the accounting scandals of Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of affected companies collapsed, shook public confidence in the nation’s securities markets. Now Obama’s Council on Jobs and Competitiveness, which is made up of 27-members, mostly of corporate executives, along with a handful of investors, labor leaders and academics, would like to lift some of these regulations on the pretext that it would create jobs:
Watering down Sarbanes-Oxley has long been a goal of corporate America, despite studies by the Securities and Exchange Commission showing that the law has reduced errors and fraud, and that changes to the law have made it easier for companies to comply.
As for the supposed barriers to investment, history is rife with companies that cooked their books to lure investors and created jobs in the short run, before imploding and causing mass joblessness.
Anything-goes markets are great for investors who get out before the jig is up, or who get bailed out when their bets go bad. They are a raw deal for everyone else.
Specifically, the report calls for compliance with Sarbanes-Oxley to be made voluntary for public companies worth less than $1 billion.
That would relieve some 6,000 companies — or 75 percent of all publicly traded companies — from various requirements, including the rule that corporate boards have independent audit committees, that corporate executives attest to the accuracy of the company’s financial statements, and that bonuses based on fraudulent statements be subject to clawback.
The view of this proposal from Canada:
It has come to this, then: In the all-consuming desire to do something, nearly anything, to promote job creation, Mr. Obama seems willing to gut one of the most significant investor protections of our time. If the anti-Sarbanes Oxley proposal succeeds, it is the Americans – and Canadians – who invest in U.S. stocks who will lose.
Sarbanes-Oxley, among many things, required the chief executive officer and chief financial officer publicly sign off on the accuracy of company financial reports and, with its “404” provisions, forced companies to document the internal controls used to produce accurate financial statements. Separately, the “Spitzer Decree” tried to improve the quality of analyst research by cutting the link between it and deal fees. And the Fair Disclosure Act set up rules to keep companies from whispering material information to favoured investors.
The Jobs Council is taking aim at all of it, suggesting rules be “right-sized” to exempt all but the largest companies. “Well-intentioned regulations aimed at protecting the public from the misrepresentations of a small number of large companies have unintentionally placed significant burdens on the large number of smaller companies,” the Jobs Council said in its interim report.
Unfortunately, the Jobs Council misunderstands or misrepresents the history of Sarbanes-Oxley and proposes a sledgehammer solution that fails to kill the fly, while smashing investors in the chops.
While Enron and WorldCom provided the political impetus to get Sarbanes-Oxley passed, there were sound intellectual underpinnings to the 404 provisions, which required companies to spend significant sums on improving internal controls. U.S. companies, absent regulation, simply weren’t spending the time or money required to do the best possible job of producing accurate financial statements.
Smaller companies, particularly those who recently went public, often were the worst offenders; they are now the companies the Jobs Council most wants to spare from the provisions.
Taibbi:
If the financial crisis proved anything, it’s that Wall Street companies in particular have been serial offenders in the area of dishonest accounting and book-cooking. Sarbanes-Oxley is obviously no panacea, but removing it in exchange for a temporary, election-year job boost is exactly the kind of myopic, absurdly irresponsible shit that got us into this mess in the first place. For Obama to pull this in the middle of these protests is crazy.
If anyone thought OWS has already done its job, and Washington has gotten the message already, think again. They’re not going to change until the protesters force them to change, it seems.
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