Professor Bainbridge...on law, politics, religion, culture & food

I was with you for the first few paragraphs:

- better implementation WILL render more useful (value-added) compliance efforts;
- there IS a pending challenge for retiring babyboomers if the capital markets continue to hatch the likes of Enron and WorldCom.

But this doesn’t lead me to your conclusion that repealing 404 would solve these issues. Without a doubt, there is refinement work to be done in the implementation of SOX 404, but this heightened sensitivity to the risks of our investments is a healthy thing. Education is never cheap, and sometimes, the lessons are a bit obtuse. But leaders that develop an appreciation for the risks in their business process will do a far better service to shareholders than those that set the standards in the heat of the dot-com investment craze.

I’m a little confused.  I don’t know anything about SOX, so I can’t comment on that, but Siegel’s capital flow argument sounds bizarre.  In the short term we can keep up capital imbalances with the rest of the world, but we can’t do it for decades.  As a solution for our long-term demographic problems, which Siegel overstates in any case, it hardly seems workable.

Picking up on Kevin’s comment, where is this infinite supply of “assets of the older developed world” coming from? If all we’re doing is selling off equity (and debt) without actually producing anything --which is the scenario that Siegel seems to be painting—at some point the value of the assets has to decline.

As I discuss in a bit more depth here, linking Sarbanes-Oxley with Siegel’s article confuses two very important concepts.  Siegel is talking about attracting foreign capital to the US.  However, this blog discusses why SOX is bad for attracting companies to the US who want to raise capital.  Siegel’s talking about foreign investors.  But you are saying SOX is bad for foreign issuers.  How are these related?

You could say that US investors should have the opportunity to invest in foreign companies.  But they can do that even if every foreign company lists in London.  (You could stretch it out and say inefficient capital markets are bad for US investors/retirees, but you don’t and that’s not what Siegel is talking about.)

On the other hand, if Siegel is right and our futures all rely on attracting foreign companies to invest in the United States (not foreign companies who want Americans to invest in them), then SOX could be just the right prescription.  What better way to attract foreign investors than to offer the strongest disclosure standards, the best policed markets, and the best internal controls?