- The Washington Times - Monday, July 22, 2002

Americans possess a great deal of common sense. Nowhere is that more evident than in their solution to the recent overhyped corporate accounting scandal.
Whipped into near-hysteria by the media, lawmakers are about to create a costly new government bureaucracy whose mission will be to impose draconian regulations on honest corporations. That's what Congress does when it faces a problem: Passes laws, creates a big new agency to enforce them and then tells voters that the problem is fixed.
But a recent poll finds that a majority of Americans, God bless 'em, say they do not need more laws to deal with the relatively few corporate criminals who have abused their public trust. Instead, they say we need to better enforce the laws we have now.
The Washington Post poll asked 1,512 people around the country if they think we need new laws to regulate the way corporations account for their financial condition or "better enforcement of existing laws." People chose the latter course by 48 percent to 37 percent. And an additional 9 percent said they thought the problem was already being handled pretty well.
They're right. There are plenty of laws, investigators and regulators to prosecute and punish these wrongdoers and more than enough judges who will throw the book at them. The Securities and Exchange Commission and the Justice Department were established to deal with such cases. They may need additional resources, which Congress will give them, and maybe some tougher-mandated sentencing, but not the orgy of federal regulation that is now rushing toward enactment to improve corporate governance.
The worst thing you can do in the midst of an economic recovery is to further regulate the economy. That's what our lawmakers seem intent on doing, solely for its political effect in the midst of an election year when control of Congress is up for grabs.
The product of this hysteria is the Senate bill, crafted by Sen. Paul Sarbanes, Maryland Democrat, who never met a business regulation he didn't like. It would create a new board in the SEC to oversee and regulate the auditing industry, give it hundreds of millions of dollars to spend, and put it on a collision course with SEC investigators.
So what's wrong with that? Well, a bipartisan study of the Sarbanes bill for the U.S. Chamber of Commerce concludes that it would do far more harm than good calling it regulatory overkill that will enrich the trial lawyers and impose huge new costs on U.S. companies "with little likely benefit." The study, which has not been released (a copy was leaked to me), concluded that most of the bill's regulatory provisions "go well beyond what is necessary" and could have a lot of unintended consequences that would probably make the problem worse.
The analysis was written by American Enterprise Institute economists Kevin Hassett and Peter Wallison, and Robert J. Shapiro, former chief economist at the Democratic Leadership Council who went on to work in the Clinton administration. Among their conclusions:
"The bill imposes potentially large costs on U.S. firms, costs that Congress has to date made no attempt to quantify."
"The bill could introduce new inefficiencies into the normal operations of businesses and potentially new distortions into the reporting of their financial condition."
"The bill would create a largely unprecedented and unconstrained bureaucracy, with unlimited taxing power and authority when what is required is to allow the SEC to pursue the authority it already has."
"The bill would enhance the power of Congress to influence the establishment of accounting principles a route that will lead to far greater lack of investor confidence in the securities markets than we have seen thus far."
One of the provisions slipped into the bill lengthens the time that class-action lawsuits can be filed against corporations who get into trouble, a major giveaway to the Democrats' biggest campaign sugar daddy, the trial lawyers.
"This legislation is too extreme," Mr. Hassett told me. "We run the risk of treating every U.S. company as a criminal. We are going to assume you are a murderer, and the way to stop the murder is to have somebody watching you all the time." To his credit, President Bush has refused to embrace the Senate bill, preferring the less onerous House version, which beefed up its criminal penalties last week.
Under the Sarbanes bill, "the audit oversight board would have much broader jurisdiction that would include getting involved in securities fraud, and we think the SEC should be the one that handles that," White House economic adviser Larry Lindsey told me.
If the Senate bill becomes law, "what you would end up with is turf wars, fingerpointing and things falling through the cracks. The Sarbanes bill muddies the waters," Mr. Lindsey said.
This is bad legislation that hopes to exploit media-driven hysteria in the stock markets to further regulate American free markets and corporations. The question now is, if this bill reaches his desk, will Mr. Bush side with the regulators or with the American people, who say we need to enforce the laws that are already on the books?

Donald Lambro, chief political correspondent of The Washington Times, is a nationally syndicated columnist.


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