Jewish World Review July 16, 2002 / 7 Menachem-Av, 5762
Robert W. Tracinski
http://www.NewsAndOpinion.com | Just as the War on Terrorism dissipates into total inaction -- the latest word is that we will not invade Iraq -- our leaders have launched a new war to replace it: the War on CEOs.
In reaction to a few cases in which corporate CEOs allegedly violated existing laws against fraud, the Senate has passed a comprehensive set of new regulations designed to punish the leaders of all of the nation's corporations. This is not a campaign against fraud, but a campaign against businessmen -- and it will have the same result as any other crusade against a nation's producers.
Here is what I predict will happen if this War on CEOs is enacted by Congress and signed by a president eager to appease the corporation-bashers. -- The harsher the "reforms," the more the market will falter. Every commentator is asking whether the new measures in Congress are "harsh enough to restore investors' confidence." They have it backward. It is harsher regulation that now poses the greatest impediment to the economy.
An ominous precedent was set by the savings and loan fiasco presided over by President Bush's father. That crisis also began with the bankruptcy of a few corporations run by corrupt managers. Then, as now, Congress whipped itself into a frenzy of resentment at businessmen in general. They enacted a giant government apparatus to "bail out" the savings and loans. This was done by finding every savings and loan that was in financial trouble and forcing it to sell its assets into a declining market. These unnecessary losses triggered a further wave of bankruptcies that magnified the financial crisis and dragged it out for years.
This administration shows an uncanny knack for not learning from history, so expect the same pattern to repeat itself. A vast new army of Securities and Exchange Commission (SEC) regulators, engorged with $300 million in new funds from Congress, will engage in a witch hunt for any accounting irregularity at any business, as judged by increasingly subjective standards. Each new investigation will crash the stock of any company that falls under suspicion, keeping the market in turmoil for years.
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