Two years ago, pro-business advocates fretting about the future of Wall Street went on the warpath to try to roll back post-Enron corporate reforms they saw as a threat to U.S. competitiveness.
But with Wall Street now under siege and some financial firms set to disappear as the credit crisis worsens, few people are talking about relaxing regulatory oversight now.
The U.S. government’s massive interventions to rescue American International Group Inc, Fannie Mae and Freddie Mac are dramatically changing the debate over whether businesses are being buried by too many rules.
Talk of scaling back regulation was popular among business leaders and in some corners of academia before the subprime woes walloped markets, a crisis that’s led to the extraordinary step of putting major U.S. companies under government control.
A committee supported by U.S. Treasury Secretary Henry Paulson—and partly funded by a group headed by former AIG Chief Executive Maurice “Hank” Greenberg—made a series of proposals in the last two years aimed at loosening regulation and reducing litigation to help U.S. companies compete globally.
Now, the string of government bailouts, the bankruptcy of investment bank Lehman Brothers Holdings Inc, and other banking woes are likely to lead to more oversight of the U.S. financial industry—not less. Even the presidential candidates from both major parties are calling for tougher rules.
“Those who were carping that excessive regulation was undermining the competitiveness of U.S. financial markets have gone silent and it’s not surprising,” said Amy Borrus, deputy director of the Council of Institutional Investors, which represents public, union and corporate pension funds.
“We are seeing dramatic evidence that they got it wrong.”
At the center of the government’s rescue efforts has been Paulson, whose Treasury Department put forward a “blueprint” for overhaul-ing financial regulation earlier this year just as the pendulum was swinging toward less reform.
Paulson’s Backing
Paulson had also lent the panel of experts known as the Committee on Capital Markets Regulation his backing. The group, in a summary of a November 2006 report, said “excessive regulation, problematic implementation and unwarranted litigation” were making “U.S. capital markets less attractive and, therefore, less competitive with other financial centers around the world.”
Similar calls for concern were also made by the U.S. Chamber of Commerce and top New York government officials.
A report in early 2007 by Sen. Charles Schumer and New York Mayor Michael Bloomberg urged legal and regulatory reforms to make the United States more attractive, citing rising numbers of initial public offerings and other financial business moving to London, Hong Kong and elsewhere.
Overtaken By Crisis
These proposals drew plenty of criticism at the time by investor activists who said that there was no clear link between litigation and regulation to competitiveness issues. The advocates say those who continue to call for deregulation in the current market will be spitting in the wind.
“Quite frankly, I think that the few strengths that we are seeing in the market are a result of at least having faith in the accounting numbers that are coming out,” said James Cox, a law professor at Duke University who specializes in corporate and securities law. “I think we have done a lot to increase the trustworthiness of the reporting system for companies.”
Reuters
