As reported in the New York Times today, a certain, small segment of American global society would like to allow firms to offer foreign securities directly in U.S. markets, without actually having to follow U.S. accounting rules. It appears likely that they will succeed in leaving yet another mess for Pres. Obama to clean up, since that change would work to the detriment of the vast majority of Americans.
Federal officials say they are preparing to propose a series of regulatory changes to enhance American competitiveness overseas, attract foreign investment and give American investors a broader selection of foreign stocks.
But critics say the changes appear to be a last-ditch push by appointees of President Bush to dilute securities rules passed after the collapse of Enron and other large companies — measures that were meant to forestall accounting gimmicks and corrupt practices that led to those corporate failures.
Legal experts, some regulators and Democratic lawmakers are concerned that the changes would put American investors at the mercy of overseas regulators who enforce weaker rules and may treat investment losses as a low priority.
My take...
After the failure of Russia to suddenly blossom into prosperity after the fall of the Soviet Union, most observers believed the evidence of their eyes over the elegance of their theories and decided that laissez-faire capitalism really sucks. For example, examining the actual, on-the-ground events behind market failures in Russia led to the discovery that the U.S has an unsung economic advantage in its trustworthy civil court system. It turns out that people are much more willing to enter into business agreements with one another if they expect to be able to enforce them by being in the right, not just by being richer or better connected.
Even after all the damage that the neo-feudalist Bush "administration" has done to our financial regulatory system, we still have the quality yardstick by which others are measured. Indeed, that is considered to be a strong competitive advantage for our securities markets; foreigners often prefer to buy securities through our exchanges than through their own, where insiders may be able to get away with less transparency and accountability. I am confident that the primary beneficiary of the proposed change would be a small group of super-rich, stateless elite that would gain some convenience in its global plunder. The rest of us would be left with less protection against corporate executives exploiting information asymmetry and agency costs to enrich themselves at the expense of outside investors.
However, as I diaried last month, some of our Congresspeople are currently examining our entire framework of financial regulations for a complete overhaul. Given the demonstrated hostility of the Bush "administration" to the idea that government is for promoting the common good, any resulting legislation will likely have to wait for a Pres. Obama's signature. So, we can cheer ourselves with the thought that even if this bad change goes through for now, it will most likely be quickly reversed.