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Economic Panel: Greenspan, Buffett, Paulson, Rubin, Volker, Levitt, Bloomberg
April 19, 2007
Christopher Bjorke, AFP
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From the April 2007 edition of Exchange magazine
Buffett, Greenspan and Paulson were just a few of the big names at a U.S. Treasury conference addressing the health of U.S. capital markets. With SOX, IFRS and lawsuits, they had plenty to talk about.
A gathering of economic and financial superstardom in Washington, D.C., in March revealed a number of opinions from notables past and present.
Former Treasury Secretary Robert Rubin thinks Sarbanes-Oxley places too much liability on CEOs.
New York Mayor Michael Bloomberg believes future competitiveness requires increased immigration and better schools.
Legendary investor Warren Buffett really likes reading financial statements.
“I have an enthusiasm for reading reports. It’s like a teenager reading Playboy,” Buffett said, drawing the biggest laugh of the federal Treasury’s Conference on U.S. Capital Markets Competitiveness. “At 76, you have to get excited about something.”
Buffett was talking about the intensity of focus investors and regulators should bring to their scrutiny of companies. He and his fellow panelists met to bring their collective wisdom and experience to the question of American competitiveness in capital markets.
Current Secretary of Treasury Henry Paulson, recently returned from the latest travels in his campaign to influence Chinese economic policies, hosted the public panel discussions by the most famous and influential players in economics. Other names worthy of E.F. Hutton-type attentiveness were Alan Greenspan, Paul Volker, Arthur Levitt and Jeffrey Immelt, to name only a few.
And the question their discussions frequently came down to was, “Where is the balance between hobbling the U.S. economy in a more competitive global marketplace and protecting investors from another Enron?”
SOX and suits
U.S. companies are “digesting” regulations like Sarbanes-Oxley, Buffett said, though they have “no choice but to digest what’s being served up. ... Most of my friends are not pleased, but they, in a way, brought it on themselves.”
Since “Enron” became a byword for corporate chicanery rather than an energy company, executives in public companies have paid for the misdeeds of others, and questioned the burden of regulations like Sarbanes-Oxley and their effects on the strength of U.S. companies internationally.
“Having high standards is not a bad thing for business,” said Immelt, General Electric’s chief executive and board chair. Like other panelists, he showed an unwillingness to discount the ability of American business to adapt to a changing environment.
“Whatever the regulation is today, I can win. I can win in China, I can win in India,” Immelt said. “But is it in the best interest of the investors?”
The panelists, however, did not hesitate to discuss their frustration with audit committees, SOX 404 requirements and the threat of litigation.
“I think I’d be scared to death to sign one of these things now,” in light of the lawsuits an incorrect SOX 404 statement could bring, said former Treasury Secretary Robert Rubin.
Lawsuits and the jackpot mentality behind some litigation came in for a good share of the panelists’ ire, perhaps more so than the more politically sensitive Sarbanes-Oxley.
“If they write a book called, ‘The Rise and Fall of America,’ the fall would be from the legal system,” said JPMorgan Chase CEO and chair James Dimon, who called class-action suits “one-sided crap shoots” that mostly benefit outside lawyers.
International rules, competition
Beyond the internal regulations and legal system of the United States is the fact that it is not alone in the world as much as it was in the past. Other countries’ economies have grown up and so have international capital markets and the day when all international companies had to play by American rules—and Generally Accepted Accounting Principles—has passed.
Paulson in his opening statement broached the differences between the rules-based U.S. standards and the principles-based international standards.
“In my judgment, we must rise above a rules-based mindset that asks, ‘Is this legal?’ and adopt a more principles-based approach that asks, ‘Is this right?’ ” Paulson said, according to a transcript from Treasury.
Securities and Exchange Commission Chairman Christopher Cox, Paulson’s co-chair on the conference’s panels, put the rules/principles dichotomy another way.
“It’s ‘like tastes great, less filling.’ Everybody wants both,” Cox said. “Enron taught us that following rules punctiliously is not necessarily the way to truth.”
Former Federal Reserve Chairman Paul Volker said American adherence to its standards was out of step with companies.
“An overwhelming number of companies big and small are adopting IFRS,” he said. “The U.S. is going to be left behind.”
A frequent statistic meant to instill in business people and policy-makers a healthy fear of over-regulation is the issue of companies choosing to list on overseas equity markets and the shift of public companies to private ownership. Not all the panelists were convinced that complex U.S. rules were driving a trend.
According to former SEC chair Arthur Levitt, now an advisor to the Carlyle Group, companies listing overseas were merely a result of other countries mimicking American financial services, “the greatest export the U.S. has had.”
“It doesn’t make any difference in terms of jobs and basic business,” Levitt said.
Immelt and others said companies going private may be just a passing fad.
“We’re at a moment in time where that’s being played up as the nirvana of business.”
Bloomberg and Greenspan both took a long view on the economy, citing big-picture concerns such as immigration restrictions, poor education and wide income disparity as threats to the economy.
As for the more immediate regulatory concerns of the panel, opinions stayed on a theme: Laws are fine as long there is balance and clarity.
As Bloomberg expressed it, “Just tell us what the law is and we can compete.”
Copyright © 2007 Association for Financial Professionals. All Rights Reserved.
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