Today's WSJ (subscription required) carries an oped Please Be Patient by the head of a big accounting firm. it says that steps are underway to alleviate SOX concerns, and that wise and benevolent regulatory authorities have things well in hand. The clinching analogy is to the 1933 Securities Act, which was criticized at the time, but is now "part of the fabric of our capital markets."

Interesting analogy, that. First, the 1933 Act started us down the road to current GAAP, which is a horror show even without SOX. Second, the good press given the 1933 Act is due in part to its effect of establishing a lucrative toll booth for NYC investment firms on the flow of national capital; of course they like it.

Securities expert Prof. Paul Mahoney has examined that law with some care in The Political Economy of the Securities Act of 1933 (2000):

The statute did more than [disclosure]. It prohibited contact with potential retail buyers in advance of an offering, making it difficult for one retailer to poach another’s customer. In tandem with the NIRA and the Maloney Act, it enabled the IBAA to prohibit and monitor the use of price discounts in connection with public offerings. It also effectively divided offerings into wholesale and retail periods. These features helped established wholesale and retail firms enforce restrictions on retail competition that were central to the syndicate system of underwriting, thus protecting their market against incursions from integrated firms. None of these things was necessary in order to achieve the simple goal of requiring full disclosure.

I am more cynical. When the accounting firms, supposedly the villains whose derelictions caused the problems, are praising SOX and asking for patience, there is a lot of money flowing their way.

posted by James DeLong @ 8:57 AM | Accounting

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