From the Journal:
Treasury Secretary Henry Paulson, concerned that regulators may not be best positioned to properly oversee fast-moving capital markets, said he is launching an internal review to recommend changes to the regulatory system. "To maintain our capital markets' leadership, we need a modern regulatory structure complemented by market leaders embracing best practices," Mr. Paulson said in a statement. (Read the statement.)
Which prompted this silly burst of populism from Huffington Post Sean-Paul Kelley:
Nowhere in the article or Paulson's plan is any recognition of the real cause for the decline in our capital markets competiveness: greed. As I posted about three weeks ago, the reason Wall Street is losing out on listings, M&A deals and all the other goodies of globalization has absolutely nothing to do with Sarb-Ox. Can anyone honestly tell me that the market regs coming out of Brussels are less stringent than Sarb-Ox? No, you can't. The bottom line here is that Goldman, Morgan, Merrill, Citi, Bear Stearns, etc. charge excessive fees and they are loosing business because of it. Greed, plain and simple.
The trouble, of course, is that facts are stubborn things and the fast are that SOX and the totality of the US regulatory regime are reducing US competitiveness even viz-a-viz the EU markets overseen by the admittedly regulatory folks in Brussels. The best evidence on this score is from Kate Litvak's paper, Sarbanes-Oxley and the Cross-Listing Premium. Litvak looked at foreign firms that are cross-listed; i.e., have their shares listed for trading both in their home stock market and in the US. If Kelley's hypothesis were correct, passage of SOX should not have affected such firms differentially than non-cross listed foreign firms. Unfortunately for Kelley's hypothesis, Litvak found that:
the Tobin’s q and market/book ratios of foreign companies subject to SOX ... declined significantly, relative to Tobin’s q and market/book ratios of both (i) matching non-cross-listed foreign companies from the same country, the same industry, and of similar size, and (ii) cross-listed companies from the same country that are not subject to SOX ..., whose Tobin’s q and market/book ratios declined only slightly and increased in some specifications, compared to matching non-cross-listed companies.
Litvak concludes that her results are "consistent with the view that investors in foreign cross-listed companies expected SOX to have a net negative effect on the value of ... cross-listed firms." Hence, we can honestly tell Kelley that the regulations coming out of DC versus those coming out of Brussels are eroding the relative competitiveness of US capital markets.
