Yet a glance at what really happened in the first decade of the new millennium shows that Krugman and others of his ilk are the ones who have really learned nothing. They continue to insist that the financial crisis was caused by deregulation even though so much government intervention in housing — from the subsidies to Fannie Mae and Freddie Mac to the reckless lending encouraged by Community Reinvestment Act – contributed to the mortgage meltdown.
And, as Rep. Ron Paul recently pointed out, “As for a lack of regulation, the last decade saw the enactment of the Sarbanes-Oxley Act, the largest piece of financial regulatory legislation” in decades.
Rushed through Congress and signed by President Bush in the wake of the Enron and WorldCom scandals in 2002, the law has quadrupled the costs of the audit process for public companies and achieved little tangible results in preventing fraud. Because of all the high-paying work it creates for auditors in helping firms comply with the law, Sarbox has been called “a boon for bean counters” (in Business Week) and the “Accountants Full Employment Act.”
Sarbox is a significant cost factor holding back job growth and a stronger recovery. If it is repealed or scaled back, the second decade of the new millennium could see real prosperity as American entrepreneurial energies are once again unleashed through the next Microsoft and Googles going public.
On top of this, Sarbanes-Oxley has achieved very little in preventing fraud. In 2007 Countrywide Financial Corp. was praised for its Sarbanes-Oxley controls by the Institute of Internal Auditors. Two years and many scandals later, its former executives have been charged with securities fraud. And certainly, overall transparency doesn’t increase when companies go private or delay going public, as many have chosen to do because of the law’s costs.