Memo To: Rep. Michael Oxley [R OH]
From: Jude Wanniski
Re: Admitting Your Error
You may not realize it, Congressman, but the little comment you made to the Financial Times last week almost surely contributed to the big rally on Wall Street last Friday, a rally that is continuing today. The FT reported Friday morning on your speech in London: "One of the architects of the controversial US Sarbanes-Oxley legislation aimed at cleaning up corporate America admitted yesterday that some of the reforms were 'excessive' and could have been introduced more 'responsibly.'"
Of course, in as much as you were the chief architect of SOX, as the 2002 legislation is called on Wall Street, you must by now have heard that in passing it almost surely knocked at least 800 points off the Dow Jones Industrial Average – which is what we were telling our Wall Street clients at the time was happening. Here’s the lead of my client letter of July 11, 2002, "The Corporate Terrorist Tax":
There is absolutely no doubt that the beating Wall Street is taking is the result of the frenzy in the U.S. Senate to make it a crime to do business in the United States. The 97-to-0 vote in the Senate to criminalize accounting fraud was an act of stunning stupidity by the greatest deliberative body on earth. At first I thought it a joke until it became clear Senate Minority Leader Trent Lott had been sucked into a clever strategy to cut the GOP’s political losses by aiming for a reasonable compromise with the House. This is exactly how the Smoot-Hawley Tariff Act passed, except then it was the House in 1929 that voted it through in the expectation that it would be killed in the Senate. We said two weeks ago when Worldcom blew up that by itself it would not do great damage to the economy, but that the congressional response to fix capitalism was the big worry.
This was your legislation, Mr. Oxley, which you now admit "was not a perfect document" because it had been rushed through in the "hothouse atmosphere" following the collapse of WorldCom. The comment you made to reporters prior to your speech was also extraordinary, thrilling to those of us who rarely run across a politician who admits to making a mistake. You reportedly said: "If I had another crack at it, I would have provided a bit more flexibility for small- and medium-sized companies." That’s at least a start, as there should be a lot more flexibility for businesses large and small. This was my comment in 2002 as Democrats joined Republicans on the way to passing this dreadful bill:
[T]he two political parties compete to see which can force more morality on the American businessman. As if there is not already incredible risks in doing business in the United States, the government proposes to put businessmen in jail for up to ten years if their accountant makes a mistake. This is the equivalent of the tax of political terrorism that struck on 9-11. When the government makes it more difficult for business to be transacted, less business will be done. Capitalism cannot function when senior management of multi-billion dollar corporations face hard time in the slammer if there are challenges to the way they are managing their finances. Those in the line of fire might as well take what is left of their stock portfolios and go fishing. If this legislation passes as is, we could easily see the DJIA sell off another 1000 points. This means we have to pray the House of Representatives ties up the legislation in conference for a long time – or that President Bush threatens to veto a bill that has gotten out of control.
It wasn’t all that bad, but close enough, as I noted in a letter to clients on July 25: “When World.com hit in late June, the DJIA was at 9200 and yesterday's rally only brought it back to 8200. We had taken a horseback guess that the legislation would knock 1000 points from the DJIA and later took another guess that if the Senate bill passed "as is," the DJIA would fall another 500 points. All of what followed remained in this ballpark.. What a disaster, yet I am sorry to see that while you acknowledge error you are resisting any idea that the errors should be corrected in any way. As the FT reported:
“In response to concerns, the Securities and Exchange Commission is considering whether smaller public companies should abide by a different set of accounting and governance requirements compared with larger ones, to reduce costs. Mr Oxley appeared to quash hopes smaller companies would gain concessions as a result of the initiative. He said: "Congress will not re-visit this issue. The SEC reform [on smaller companies] is not going to happen either."
Please, Congressman, assure us you never said such a thing. Please tell us the reporter made an error and that you really told him that because you feel personally responsible for having helped knock more than $1 trillion off the value of the nation’s capital stock you will launch a campaign to rewrite the legislation from top to bottom. Remember the power you and your colleagues have in the Congress is equivalent to a weapon of mass destruction.