It's still too early to judge the ongoing financial-reform conference, but as I warned last week, the process is not necessarily producing a stronger bill. Respected former SEC Chairman Arthuer Levitt has an op-ed today tracing a number of investor-protection rules that have been weakened or gutted altogether by legislators.
My top worries are the new exemptions from Sarbanes-Oxley accounting rules for small companies -- how can that possibly be relevant to a bill intended to tighten rules? -- and a weak new provision on proxy access. The proxy-access provision is supposedly designed to allow investors more say over corporate management, but in fact, it functionally prohibits that from happening. Levitt also mentions the committee's failure to overturn a Supreme Court decision that makes it easier for accountants, auditors and other third parties to avoid consequences for abetting fraud, an issue I touched on yesterday.
These are wise warnings from Levitt. He also notes that little has been done on Fannie Mae and Freddie Mac, but as we've discussed, such criticism isn't warranted given that there is little consensus on how to go about fixing the government-owned mortgage giants compared to the broadly debated issues that take up the rest of the bill. Typically, The Wall Street Journal headline focuses on Fannie and Freddie (the sixth point in the column) rather than the bulk of the concerns about investor protection -- a lovely window into the paper's editorial judgment.
-- Tim Fernholz
