Nick Gillespie on Talk of The Nation, Discussing Sarbanes-Oxley & Worst Ideas of The Decade, Circa 3PM ET

I'll be on NPR's Talk of the Nation a bit after 3PM ET today, discussing my contribution to The Washington Post's "Worst Ideas of the Decade" feature in yesterday's newspaper.

I wrote about Sarbanes-Oxley. A snippet:

The dumbest government policies are almost always the fruit of the bipartisanship that sets Beltway hearts beating with patriotic arrhythmia. Think the Patriot Act, No Child Left Behind, the authorization of force in Iraq and the TARP.

A particular offender is the Sarbanes-Oxley Act of 2002, which rewrote accounting and disclosure rules for publicly traded companies in the United States…the act should be remembered as a case study in hysterical legislating, which always produces more harm than good.

Whole piece here.

For local stations carrying Talk of the Nation, or to listen online, go here.

Comments

[Flush Obama]

"Worst Ideas of the Decade"

Imma gonna go with electing an Affirmative Action President.

[Rod Flash]

I'm very curious. When asked by the host why no one listed the Iraq war, not a single one of the guests (including Nick) answered the question. Nick went off on some "facts are slippery, and that's a good thing" speech. The others didn't even come that close. Hear the question, answer the question. That's what's wrong with news today. Boring show, even for NPR.

[Nash]

Nick I like Hardwood floors.

[Maureen Dowd]

"Affirmative Action President" is racist!

[Joey]

A common view about SOX, which sounds good but overlooks the fact that the Sarbanes-Oxley Act achieved what legislators intended: making financial statements more reliable for investors.

All SOX required was that companies review their accounting systems and confirm that, yes, the numbers we give to investors are reliable; and to have an outside party do the same to make sure corporate management isn't just blowing smoke when it says that. When companies first started reviewing their accounting systems, they found all sorts of holes and restatements soared. As time passed and they sealed those holes up, restatements fell.

If you want to complain about the cost of complying with SOX, that's fine-- but that's not the law's fault; that's the fault of dumb bureaucrats who wrote overly complicated rules to implement SOX. Of course, companies did complain, and the bureaucrats revised their rules in 2007, and the cost of compliance started to fall even faster.

It's also worth noting that SOX didn't stop the financial crisis because it was never intended to prevent something like the financial crisis-- which is totally different than the problems we had in 2001-02. SOX is all about making sure you account for things correctly, and that when you tell investors you have $1, you really do have $1.

The financial crisis was about stupid risk-taking: telling investors that three-bedroom split in suburban Phoenix mortgaged for $650,000 to a high school drop-out really is worth $650,000, and then people deciding it's only worth $225,000 when the drop-out defaults.

Was that decision about the mortgage stupid? You bet. Was it based on faulty accounting? Not at all. That's why we see so many bankruptcies these days, but so few financial restatements-- because SOX is solving the problem it was intended to solve, and Wall Street stupidity found a way to prevail anyway. That was the worst idea of the decade.