A few days ago, Perry de Havilland suggested the rather cute idea of erecting statues of the US Senators who cooked up the Sarbanes-Oxley accounting law, on the grounds that this law has encouraged many firms into listing their businesses outside the United States and holding Initial Public Offerings (IPOs) outside Jefferson’s Republic. London’s stock market has benefited from this, as have bourses such as the Amsterdam Euronext, for instance. I do not know whether some of the impact of S-O has been exaggerated – this may be the case – but there is no doubt that from a regulatory point of view, the United States is not quite the model of laissez-faire capitalism that its supporters or indeed opponents imagine it to be. In fact, the US has been becoming a regulatory hell-hole for some time, such as with the recent crackdown on online gambling, to take one example.
Another man who deserves some sort of award for unintentionally driving business away from America is departing NY Attorney-General Eliot Spitzer. He is stepping down from the job to run for political office, and some say he has been doing that while in his present role. While some of his highly public campaigns to crack down on dodgy dealings should be applauded by free marketeers on the grounds that markets need laws against fraud, some of his campaigns seem to be driven more by the wrong-headed belief that markets must in some sense be “fair” and “perfect” in order to work in the interests of the general public. The mistaken idea that markets must contain no barriers to entry, contain “perfect” information and so on, has done incalculable harm to real capitalism, as also seen in the absurdities often perpetrated in the name of “trust-busting”. In his campaign against biased stock market research, for instance, Spitzer seems to downplay the old wise dictum, “let the buyer beware”, and presume to protect the customer against the shock-horror fact that banks might not be models of Olympian objectivity. There is a good and passionate attack on Spitzer’s record here.
Spitzer did some good but also a lot of harm to Wall Street and beyond. Competing financial centres, possibly including the rapidly-growing hub of Dubai, will rush in to fill the gap as capital becomes ever more fluid in this information age (yes, you read me correctly, I said Dubai, notwithstanding the local regional, er, difficulties).
In case any US readers get all hot under the collar about yours truly, a Brit, taking a prod at the US economy, I am only too well aware of how Britain is falling under the same regulatory menace, both of the home-grown and EU varieties. We all lose if the world’s biggest free economy becomes encumbered by bad laws.
FYI — Eliot Spitzer is, as of January 1, 2007, the governor of New York. It is no secret he ultimately intends to run for President of the United States.
The first poster beat me to it but alas ’tis true. ’tis true, Eliot Spitzer is now governor of N.Y. state that’s the bad news.
The good news is that the state is suffering a population drain.
Compulsory reading for all economic dirigistes like Eliot and his cronies should be the tale of the goose which laid the golden egg.
So, what is(are) the underlying principle(s) that differentiate good law from bad law?
Best regards
Sarbanes-Oxley is not, in and of itself, bad law. Transparency and accountability in accounting and record-keeping practice is, as noted, a basic requirement for a free-market system, and S-O was written in response to some very shady practices.
But it is very badly written, and (in a similar way to several other ‘blanket’ laws, of which the Congress and their lawyer cronies are so fond) its implementation is vague and imprecise. The result is thatprivate concersn are moving to implement incredibly complex and costly accountability procedures, not because the black-letter law says they must, but because lawyers are frightening them into it. I have seen several exmaples in the payment-processing industry where concerns are installing complex procedures and costly equipment in order that they may grossly-exceed the understood requirements of S-O for even the most unlikely and unseen situations. A classic example is the payment-processing activity of a major utility which has installed safes and complex accountability and security procedures, just in case, one day, a customer might mail in a cash payment that is large enough to attract S-O-related oversight. Never mind that they’ve never seen such a thing, and that the tiny cash payments that they do receive were perfectly-adequately handled by putting them in an envelope and taking them to the bank – they now have safes which are carefully double-locked to secure pocket-change, and procedures that have to be managed and used every day, just on the off-chance that this might happen – some day.
God love the Congress, none of them have a practical bone in their bodies.
llater,
llamas
If I hadn’t just bought a home in the Buffalo, NY area (Buffalo is an area of Urban blight. Manchester might be seen as an equivalent) Spitzer being elected Gov might be good enough of a reason to move. The man is a menace. Besides scaring off businesses with threat of lawsuits, the man has been dedicated to the notion of using rule of law as a political weapon. Every case he took on, he took on in the name of politics. Of course, he won in a landslide.
Expect to hear some stories of Indian riots in the next couple of months. For over a decade now, people in Canada and upstate New York have been able to circumvent insane taxes on tobacco by purchasing them at Indian reservations. The Seneca Indians have sovereign territory in New York state, and have made a fortune by not charing people taxes on gas or smokes. In the early nineties New York State attempted to collect those taxes setting off an armed rebellion. In one of the few wins the Seneca ever had against the government, they won the standoff.
Spitzer vows to win the battle for good this time. I know of Indians who are stockpiling weapons and tires to use as barricades. It’s going to get pretty ugly before the matter is resolved.
The only good thing about Spitzer is that he is such an obnoxious human being that he will discredit just about anything he touches. Like John Kerry he is another upper class twit who cannot stop himself from trying to run everyone’s lives.
If the NY GOP were even close to being a functional political party he would never have stood a chance. Sadly they chose a soft statist (Pataki) for governor to replace Mario Cuomo , a hard line socialist if there ever was one.
Nationally, Spitzer will discredit the Democrats every time he opens his mouth. NY is in for a rough four years.
Taylor:
I wouldn’t be so certain that Spitzer will discredit everything he touches. The media here in New York let the Democrats get away with murder. (The only small consolation is that Hevesi had to resign, but only after the election.)
Do you recall Sheldon Silver’s thoroughly idiotic suggestion that state legislators were being paid less than minimum wage? It was only true if the vermin worked 31+ hours a day, 365 days a year, but he still got his pay raise — and is still Assembly speaker. The guy is so mendacious that he should have been laughed out of Albany, but this is the garbage we get in New York.
I frankly don’t trust any former Attorney General, Republican or Democrat — they all bend the rule of law for political gain. The previous AG, Republican Dennis Vacco, was responsible for the nonsense suit against Procter and Gamble, not any Democrat.
(For those of you not in New York, P&G decided many years ago that not enough people were redeeming coupons to make printing them worthwhile, so they selected a test market — western New York — to stop printing them and see how it affected sales. In a free market, it wouldn’t have worked — the little old ladies who clip coupons howled, and P&G would have had to relent. But Dennis Vacco smelled political gain, and went after P&G on some idiotic “price fixing” charge. He extorted several million out of them. The Democrats still called him an extreme right-winger, though.)
The bulk of the problems with SOX were that it was new. It’s still pretty new. Almost every time I’ve been briefed on it, the briefings have included a lot of “I don’t know”s. Most of the time, we’re told to be paranoid in our recommendations. We can lose our license if we underestimate the efforts required, but almost never if we overestimate them. The same bias applies to a lesser extent with our employability in a non-regulatory sense.
It’s becoming less new. With each passing year its newness will fade still further. Cases have been and will be brought and terms defined. There are reform bills, but none of them are interested in making the kind of changes that the economist and similar organs assume to be necessary.
Regulatory hell-hole? Compared to what? Or where? People talk about how poorly it is performing because of a bad year or two of IPOs, but it is a pretty liquid market. People could leave if they wanted to and they don’t. The NYSE has a market cap of ~$23 trillion. The LSE has ~$3.5. HKSE has ~$1. They’re not real competitors. Because the US is not a regulatory hell hole. It is, in fact, the finest non-token (Caymans/ Bahamas/ etc) country in the world for financial regulation. FDR did a lot of stupid and/ or bad things, but the creation of the SEC was a tremendous step forward for mankind and remains one of the best financial regulators in the world for avoiding getting in people’s way.
“In case any US readers get all hot under the collar about yours truly, a Brit, taking a prod at the US economy…”
I’m an American and I see nothing wrong with stating the obvious. Even if Great Britain has it’s share of bad business practices, that doesn’t change what’s happening here in the states.
SOX is a mess, in the usual American way of over-reaction to a problem. Because we had a few companies that did some very bad things (things that were already illegal) Congress sees a chance to micro-manage and seizes it with great fervor.
Unfortunately, since it will make a lot of people very rich (big accounting firms that are doing the auditing) it will be difficult to get it reversed.
“So, what is(are) the underlying principle(s) that differentiate good law from bad law?”
Nigel, say it isn’t so. Only a leftest can be so innocent of basic economic understanding. Law that seeks to substitute it’s knowledge for that of the market place tends to be bad. Law that serves to protect the free functioning of market-based decisions tends to be good.
Spitzer has a co-conspirator in Patrick Fitzgerald. Putting on one side his Plamegate antics (trying to convict someone for “lying” about a non-existent “crime”) his real motives are in line with the NY attorney’s. Fitzgerald’s pursuit of Conrad Black is nothing short of scandalous. He’s used every trick in the book to prevent Black from defending himself. He’s convicted him without the messy notion of a trial, and with the able assistance of media that used to be Black’s rivals, destroyed his reputation.
Fitzgerald is a mixture of Democratic ward-heeler and nakedly ambitious politican. He doesn’t care about the bodies as long as they pile high enough to make him visible.
As long as Spitzer has his eye on national office he will be an improvement over Patacki as Governor. As the NYS AG he was a disgrace; an early master of Nifongian tactics in white collar dealings. What a sad state of affairs.
I met Spitzer about two years ago after he gave a speech to a hedge fund conference. Allow me to share my personal observations. He is very smart. He is very well-spoken. He is very ambitious. He is extremely ruthless. Do not underestimate him as a politician. He is exactly the sort of person the media in the US would love to get behind. He will run for President in either 2012 or 2016, depending on whether a R epudlican (former) or Democrat (latter) wins in 2008.
He could be the most dangerous man in America.
No offense taken in the least. Constructive criticism is always welcome.
Things here in the US have been spiraling southward for a good while now. All these laws passed to “fight big bussiness” do no such thing. Tell me who is more likely to be able to pay all the fees for complying with mountains of regulations like mandatory handicap accessible rest rooms, fire codes, building permits, and employee benefits. Wal-Mart or Mom ‘n Pop’s Corner Shop? Small bussinesses are fast becoming extinct here and it isn’t becaue Wal-Mart is running them out, it’s the laws supposedly designed to fight Wal-Mart and Big Oil and whatever corporate deamon is the “target” this week.
I have always dreamend of owning my own small bussiness. Nowadays that is almost impossible here unless your bussiness is so cutting-edge it has very little competition and can afford to comply with regulations. It has always been said that Brittain is “an island of shopkeepers”. Of that I am highly envious.
It has often been wondered who will one day usurp the mighty beheamoth Wal-Mart. All I know is that if Sam Walton had to contend with modern-day regulations with his small Arkansas retail store we would all still be shopping at K-Mart.
I have never met Spitzer but from Thomas Kuntz’s description he sounds like an example of a well known ‘archetype’. People like him abound in politics, psychologically very similar to a leader of a street gang, could not care less whose lives are ruined if it serves his narrow purposes and who gets off on having power over others as an end in and of itself.
Ted
When he was just the junior senator from Massachusetts Kerry’s character and personality were well hidden by the media. When he ran for President all the flaws came bursting out into the open and he was defeated by Bush, who was an exceptionally weak campaigner.
The media may regard his as their darling and I don’t doubt he is smart and ruthless, but he has a toxic personality and that cannot be hidden for long.
Perry’s description of him as the leader of a street gang is on the money.
Thanks for all the informative responses. Just a quick reply to James of England’s take on SOX. I kind of understand the argument he makes that as folk get more versed in this piece of legislation, some of the early problems might be overcome. (There may be even be moves by legislators, if the IPO drain goes on, to change some parts of it). But for all that that the NYSE is so much bigger in certain respects than other bourses, it is folly to imagine that the regulatory climate in the US can be shrugged off. The Financial Services Authority in Britain, for instance, is arguably a lighter regulator in certain respects than the ferocious Securities and Exchange Commission.
Another point is that of marginal costs. Yes, America is still in many ways a great place for entrepreneurs but the trends are important. From what I can see, the trend is towards more regulations, more litigation risk.
Some of this may come down to an image problem for Wall Street, but that threat is real. There has been a relative drought of IPOs in the US in the past year, and combined with the trend of public listed firms going into the arms of private equity firms – which have less onerous reporting requirements – a major change is afoot in how American firms operate.
This is not a reason for Americans or anyone else to panic. It is a reason, though, for free marketeers to be vigilant.
Spitzer strikes me as a very slick operator, and potentially a sort of Herbert Hoover figure: ie, downright bloody dangerous, although who knows, he may have skeletons in the closet that his enemies will find.
Go ahead and bag on our public officials. I’ve got plenty to say about Tony Blair and Ian Blair, and most of it too venomous for this forum.
I’m not all THAT worried about Spitzer. We’re in the middle of a really bad political cycle, is all. Our media has linked pretty much every limited-government type to the present adminstration, who are certainly not fans of small government and freedom. The nice thing is, bad years come to an end at some point.
I don’t want to be wandering in the desert for forty years waiting for Bureau of Alcohol Tobacco Firearms and Explosives to become the name of a convenience store, but I don’t think that’s too much a risk. Spitzer is like other people who win statewide races in NY and plan for the White House: he plays well in NY, but the rest of the country will recognize as an especially nasty Nixonian sort of character.
Johnathan,
Considering how often we Yanks take a poke at Brit politics, it would be churlish indeed if we were to take umbrage at as mild a criticism as yours.
Spitzer is the worst kind of socialist — one who would achieve his goals through over-broad interpretation of law and regulation (especially the latter) rather than through that messy business of getting popular support.
The most dangerous ones are not brutes like Julius Streicher, but urbane psychopaths like Reinhard Heydrich.
Spitzer falls into the latter category, as Mr. Kuntz has indicated.
(Understand that I’m not calling Spitzer a Nazi, of course — it’s an illustrative comparison between two well-known political characters. Although, come to think of it, Spitzer’s track record does indicate that he would prefer the State to exercise control over private enterprise, which would make for an interesting side discussion…)
Taylor – comparing Kerry and Spitzer. In fact, Spitzer lives off his wife’s money (daddy in-law bought their homes, etc). I do think that Spitzer is a lot more intelligent. I don’t think Kerry is capable of an original idea.
Actually, Spitzer’s “street gang” archetype mentioned by Perry also fits Hillary Clinton to a T.
If Spitzer runs for a national office all of the stories of how he ruined and threatened to ruin people who defied him (he is an absolute thug) will come out. Now I must endure him as my Governor for now.
Spitzer is soft-peddled by the media in NY clearly because he’s a democrat – by everyone but the Wall Street Journal editorial page who see him for what he is and has let people use it as a bully pulpit in opposition to Spitzer (Spitzer responded to those published opinions by threatening those people with “investigations”).
What is interesting to me is how differently Spitzer is treated by local media compared to how Rudy Guiliani was as Mayor. Guiliani was nothing compared to Spitzer in strong arming tactics. Yet Guiliani was constantly compared to a fascist. In fact, I was watching a docu about Rudy on the Discovery Channel and some media type said, “Before 9/11, NYC under Guiliani was a fascist state.” Must have been a different NYC than the one I live in. I suppose we’ll hear more of this if he runs for national office. If he were a democrat, the would not be featured that way.
I have to agree with Catherine. For whatever authoritarianism anyone wants to assign to Rudy Guiliani, he’s a piker compared to Spitzer. All one has to do is look at his antics while AG. I’m sorry, but his shakedown of the banks was the sort of thing that would make Tony Soprano blush.
“Spitzer is the worst kind of socialist — one who would achieve his goals through over-broad interpretation of law and regulation (especially the latter) rather than through that messy business of getting popular support.”
Well. Considering his mastering “that messy business of getting popular support” — manifest in sixty-nine percent of the vote in his election — one can only presume that he’s about to become the best “kind of socialist”.
From Daisy Hollow, deep in The Vampire State,
I hoped(Link) that a Gov. Spitzer would be less of a personal threat than AG Spitzer.
Sadly, John Fund shows that we may have much to fear from his successor:
Make room for four statues, Perry!