"Eight years of policies that have shredded consumer protections, loosened oversight and regulation, and encouraged outsized bonuses to CEO’s while ignoring middle-class Americans have brought us to the most serious financial crisis since the Great Depression." said Obama. "I certainly don’t fault Sen. McCain for these problems," Obama said, "but I do fault the economic philosophy he subscribes to."
In December 2001, Enron filed for bankruptcy after toppling from $90/share to under $1/share in the wake of a scandal that rocked the financial world. The company’s executives made millions while engaging in insider trading and deceiving investors with unscrupulous accounting practices. As these details became known the public became outraged.
It is in times like this – when the public is outraged – that Congress manages to come together and pass bipartisan legislation. The Sarbanes-Oxley Act of 2002 was signed into law by President Bush on July 30, 2002, after passing both chambers by overwhelming margins. The Senate version passed by a 97 – 0 vote and the House version passed by a 334 – 90 vote. The final version of the Bill, when it emerged from conference, passed 423 – 3 in the House and 99 – 0 in the Senate. This was in every way a bipartisan bill which also enjoyed the support of the President and the SEC.
The Sarbanes-Oxley Act (also known as SARBOX or SOX for short) is arguably the most sweeping financial reform since the Great Depression. It includes strict rules regarding insider trading and extremely tight accounting controls which affect nearly every aspect of how a publicly traded company handles and reports its finances. Every one of the currently troubled large finance companies is a publicly traded company and therefore falls under not only Sarbanes-Oxley but also a slew of other regulatory bills passed since 2002. This includes not only Fannie Mae and Freddie Mac but also Lehman Brothers, Bear Stearns, AIG, Washington Mutual, and Merrill Lynch.
So what does all of this have to do with Barack Obama? Senator Obama would have Americans believe that somehow, whatever financial policies have emerged in the last 8 years have “loosened oversight and regulation, and encouraged outsized bonuses to CEO’s while ignoring middle-class Americans…†(emphasis mine). Barack is using the recent bad financial news from Wall St. as a tactic to deceive Americans unaware of the actual facts behind our financial woes. He makes it sound as if President Bush has completely negated the Sarbanes-Oxley Act and indeed caused American corporations to be less regulated than they were 8 years ago. Senator Obama should produce the policies to which he’s referring in order to reinforce his statements. Sarbanes-Oxley is very much The Regulator of Regulators in the publicly traded world – despite Senator Obama’s claims that point to the contrary.
There are two primary reasons why our country is currently enduring economic hardship. Gas prices have risen significantly, which has had an impact on the price of goods and services and on consumer discretionary spending. People have less money because they’re spending more on gasoline, groceries and other goods due to higher costs of getting those goods to market. Secondly, many financial companies decided to give loans to people who couldn’t pay for them and are now reaping the consequences. As mentioned before, many of these companies are publicly traded and therefore are under the watchful eye of the Sarbanes-Oxley Act. They didn’t lie or engage in unethical accounting practices, they were simply stupid with their money. There are plenty of laws regarding fraud and deceptive financial management but there are none that guarantee a company is free from stupidity.
Obama would have you ignore this information and instead try and take the common road of pinning the problem on the “failed economic policies†of President Bush – whatever those are. He was slim on specifics.
The Senator’s words are even more insidious when you consider that over-regulation likely contributed to our recent problems on Wall St.
While Sarbanes-Oxley made it much harder for public companies to report false earnings or engage in fraudulent accounting, it also introduced a substantial regulatory burden on publicly traded companies. This burden simply cannot be taken out of consideration with regard to negative impacts on our economy as a whole. Critics have been vocal for years about the long-term consequences of Sarbanes-Oxley. Many have charged that Sarbanes-Oxley was rifled through Congress as a knee-jerk reaction to scandal with more emphasis on short-term public approval than on long-term economic effects.
Consider a few statistics taken from this article:
Markets and Exchanges. Between 1996 and 2001, the New York Stock Exchange (NYSE) averaged fifty new non-U.S. listings annually; in 2005, it gained nineteen. In the same year, the London Stock Exchange, including its small-company affiliate, the Alternative Investment Market (AIM), gained 139 new listings; Nasdaq gained nineteen. Since the end of 2004, thirty foreign companies have left the NYSE and Nasdaq. London’s AIM had 335 initial offerings of securities in 2005–twice the total in 2000–while Nasdaq had 126, down 65 percent.
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Financing. Capital has no natural home and moves to places where transactions can be completed most efficiently–at the least cost, in the most expeditious manner, and with a minimum of government regulation. This tells us why many financial transactions that could be executed anywhere have moved in recent years from U.S. markets to markets elsewhere in the world. In 2000, for example, nine of every ten dollars raised by foreign companies were raised in the United States; in 2005, nine of the ten largest offerings were not registered in the United States, and of the largest twenty-five global offerings, only one took place here. The largest Chinese offering was registered in Hong Kong, and the largest offering in Korean history was listed in London and Korea. The large Russian oil company Rosneft listed its $10 billion offering in London.
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Going-Private Transactions. In recent years, U.S. companies have encountered rising costs for remaining public and have turned to private equity investors for the funds to buy out their public shareholders and “go private.†Private equity, unregulated in the United States, is booming. For many companies, especially smaller and entrepreneurial ventures, the once-significant advantages of public ownership have now fallen behind the reporting costs, regulations, and litigation risks associated with having public shareholders. In a 2005 report, the Government Accountability Office (GAO) found that the number of public companies going private increased from 143 in 2001 to 245 in 2004, and projected that the number would reach approximately 267 by the end of 2005. “The costs associated with public company status were most often cited as a reason for going private,†said the GAO.
And more from this article:
“…a survey of some 217 companies showed they’ll pay an average of $4.36 million to comply with the new accounting standards, far more than the $3.14 million they’d expected to pay, according to Financial Executives International. And the bill will only get bigger.
An e-mail security company estimates businesses will shell out more than $4 billion to archive e-mail (as required under Sarbanes-Oxley) in 2009. This cost will be passed on to shareholders and customers, so we’ll all pay for the “protection†the new law is supposed to provide.â€
If Obama believes that the last 8 years have represented “loosened oversight†and “shredded consumer protectionsâ€, how much more government regulation should our financial markets expect to burden should he become President?
Obama’s own economic strategy seems to be centered around tax cuts for those who make under $161,000/year. He’s pushing for significant increases for anyone making above this figure which would include small businesses like S-Corporations and Sole Proprietorships. On the surface this sounds like a great idea to most people.
Let’s consider a few facts though. As it stands now the top 5% of wage earners pay 60% of the nation’s tax burden. This means that Senator Obama’s overall plan is to increase taxes. Significant increases on those who pay most of the tax burden is going to more than negate whatever cuts he’s making for the other 40%. A tax increase makes sense as he also includes plans for significantly increasing spending to support his other initiatives.
The question becomes, what impact is adding more taxes to those that already shoulder most of the tax burden going to have on our economy? Will that lead to more American money going off-shore?
But officials at the Organization for Economic Cooperation and Development have used their own figures and data from the International Monetary Fund and the Bank for International Settlements to estimate that $5 trillion to $7 trillion in assets are held in offshore havens around the world, though not all are undeclared.
The left continues to target the wealthy as if they’re all guilty of some crime (success). Their rhetoric suggests that those in the top 5% of income earners don’t already pay enough in taxes, yet they paid an estimated $1.8 trillion in taxes last year. The left doesn’t mention why the $3 trillion the government currently makes every year isn’t enough. They never mention how much these top 5% should pay in taxes – just that it should be more. They never mention that increasing taxes on the upper 5% might create a cooling effect on our economy because these are the people with the capital to actually invest and move our market. The left, which certainly includes Senator Obama, sells class warfare. This is because class warfare gets votes from the other 95% who are never told the real facts.
Our economy cannot be separated into this group and that group and somehow things that we do to this group won’t affect that group. Everything is connected. When money stops moving around in our economy, companies scale back. People lose their jobs. People’s retirements get ruined. Money goes overseas. We all lose.
Barack Obama is a lot of things but he’s certainly no economist. He should consider tuning his own economic policies before criticizing those of others.
