Waste Makes Haste: Sarbanes-Oxley, Competitiveness and the Subprime Crisis

Abstract

Passage of the Sarbanes-Oxley Act of 2002 followed hard on the collapses of Enron and WorldCom. Waste makes haste. It was legislation drafted in anger. Five years later, and after three official reports, US government agencies and financial market participants worry that the New York may have lost competitiveness as a venue for international capital transactions. Then came the subprime shakeout and resulting crisis of confidence in credit markets. These combined lecture notes and discussion paper raise questions about many of the assumptions made in the discourse about the relative competitiveness of US and European capital markets. It suggests that the remedies in Sarbox didn't entirely match the ailments in evidence in the Enron and WorldCom cases. But the costs and resulting loss of competitiveness may be overstated in many popular accounts of the effects of the legislation. And there is something to be said for the view that New York missed out on business that it could well afford to miss. But did the haste of making Sarbox lead to us to waste an opportunity to prevent the subprime débâcle?

Keywords: Corporate governance, Sarbanes-Oxley, subprime, capital markets, competitiveness

JEL Classification: G15, G18, G34, G38, K22, L10, N20