Treasury Chief Complains of 'Excessive Regulation'

November 20, 2006

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November 20, 2006

U.S. Treasury Secretary Henry Paulson warns that "excessive regulation slows innovation, imposes needless costs on investors, and stifles competition and job creation." Paulson was referring to the Sarbanes Oxley legislation, which was put in place to head off corporate scandals like those that took place at Enron and Worldcom. Paulson says he doesn't want the law replaced, but he clearly favors lighter enforcement.

ROBERT SIEGEL, host:

From NPR, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

MICHELE NORRIS, host:

And I'm Michele Norris.

U.S. Treasury Secretary Henry Paulson issued a warning today. He did it using subtle language, but the message was clear. Paulson indicated the current regulation of the financial markets is too tough and could hurt the economy. And he indicated that in the final two years of this administration, even with a Democratic Congress, the president's team will push hard to loosen regulations that grew from the financial scandals of Enron, WorldCom and others.

NPR's Adam Davidson reports.

ADAM DAVIDSON: The Treasury secretary followed a longtime political tradition that goes back at least to the speech Shakespeare wrote for Marc Anthony. You deflect your critics by announcing loudly that you're about to do the opposite of what you really plan to do. You know, I come to bury Caesar, not to praise him.

Paulson today said he came to praise government regulation, not to bury it.

Mr. HENRY PAULSON (Treasury Secretary, United States): Almost every week we read about another act of corporate wrongdoing. Let's be clear - that behavior can never be tolerated.

DAVIDSON: But after arguing for tough rules, Paulson pointed out that the way the American government regulates business is simply too tough. Business needs things to be a bit easier. He said this in bureaucratic speak.

Mr. PAULSON: Our regulatory structure should be more agile and responsive to changes in today's marketplace.

DAVIDSON: Paulson's comments were well received by the audience of Wall Street professionals at the Economic Club of New York. Corporate leaders have been pretty miserable since 2002 and the passage of Sarbanes-Oxley. Those were the new rules put in place after the crisis of Enron and Tyco and all those big corporate scandals.

It would be hard to find an American businessperson who doesn't think the new rules went way too far, especially the dreaded Section 404, which requires a lot of money and time spent on making sure management is doing things right.

Mr. PAULSON: It seems clear that a significant portion of the time, energy and expense associated with implementing Section 404 might have been better focused on direct business matters, to create jobs and reward shareholders.

DAVIDSON: Publicly traded American companies have to follow Sarbanes-Oxley, but foreign companies only have to follow the rules if they decide to list their stocks on U.S. exchanges, and most do not. Before Sarbanes-Oxley, about 90 percent of new foreign listings came to the U.S. Today, only 10 percent do.

Kevin Sloan(ph) is the spokesman for Apkins, a London-based investors group.

Mr. KEVIN SLOAN (Spokesman, Apkins): I'd go as far as saying that perhaps the regulatory - if you'll excuse the expression - burden in the U.S. is perhaps a heavier one.

DAVIDSON: Can I see if I can translate what you're saying into my American English? The U.S. has a bunch of crazy rules that came out of a time of hysteria in the U.S. They don't make any sense and you don't want to have anything to do with them.

Mr. SLOAN: Yes. I think you've hit the nail on the head there, yeah.

DAVIDSON: Of course, there are a lot of people who don't think the rules under Sarbanes-Oxley are crazy. Many say that they are exactly what the American financial markets need.

But, Sloan says, it is those rules that explain today's other major financial news story. The U.S.-based NASDAQ stock market for the third time tried to buy the London stock exchange. The Brits rejected the $5 billion offer. Sloan says they're terrified that U.S. rules will cross the Atlantic if a U.S. company buys their stock market.

Treasury Secretary Paulson said his plan to fix America's regulations will begin in early 2007. That's when he will host a conference in Washington, DC.

Adam Davidson, NPR News. New York.

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