It's been an ongoing refrain for a while now, largely unchallenged by the media and sung by prominent politicians of either party: New York City is losing, will lose, may perhaps already have lost, its leading position as the center of global finance. The blame for this is universally placed on Sarbanes-Oxley, the law passed after the Enron and Worldcom scandals that institutes rigid standards of transparency and accountability on corporate entities and their top management.
It's an interesting meme and one worth discussing, certainly as it ties in with the larger Things Are Going Wrong story that currently shapes the national conversation. It does, however, appear to be overstated.
Witness this [1], by one Matthew Lynn, writing for Bloomberg:
Whenever the media pick up on a trend in financial markets, it is usually much too late.
This month, the New York Times ran a long article explaining how New York had surrendered its status as the world's financial center to London.
Right on schedule, the very opposite appears to be true.
After at least five years during which London pulled ahead as a finance hub, several catastrophic mistakes by the British capital are about to put that into reverse.
London has blown its lead. The way is now clear for New York to stage a recovery.
What's clear is this: with one scandal after another arising in this era of unchecked corporate excess, greed, and well-connected malfeasance, legislation like Sarbanes-Oxley fulfills a prime public need. Politicians, dependent as they are on campaign donations, are not going to be as vigilant as they need to be in securing the public interest. That leaves shareholders to step into that gap.
It's a truism, I suppose, that the corporate sector is going to lament loudly about any legislation that it perceives as costly, however slight that cost may be. Two things counter that lamentation: one, that the interests of the larger society trump the parochial interest of corporations - take, for example, the current subprime mortgage crisis, arising in a largely unregulated sector - and two, that the ideal world of corporate governance, freed from any cost or oversight and with a stable government and a stable economy and attractive tertiary benefits like culture, good schools, public safety and so on simply does not exist.
Corporations and the larger financial sector will never like accountability - nobody really does. But as the Bush era draws to a close - 453 days as of this writing - we need more rather than less of it.
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