Sarbanes-Oxley hangs over the likelihood of new financial regulation

In the political anger that has erupted in the wake of the proposed $700 billion (and counting) bailout of the financial services industry, it seems that all are resigned to more regulation, likely to be of the "sweeping" variety. And if you read the volumes of news carefully, you'll note the clear presence of Sarbanes-Oxley.

For some pundits, this rush to regulate is unwise. Robert Litan, of the Brookings Institution, writes: "That leads to even more Sarbanes-Oxley type overkill than we've seen. There was already going to be a regulatory response to this, but now it will be even more severe. I hope this is solved more through more disclosure rather than through more mandates, but my fear is it that it will be the reverse."  

Whether you agree or not, it's clear to me that there are some lessons to be learned. The biggest regards unforeseen consequences. We've noted that often about Sarbox. Who would have ever thought that the Pink Sheets, once detested by so many investor advocates who praised Sarbox, would end up a big beneficiary?   

For now, there is a lot of understandable anger--and politics--at work. The FBI's move to investigate Fannie, Freddie, AIG and Lehman Brothers is an extension of that. The attitude seems to be: there must be some bad guys responsible for all this. And there may be. It will be interesting to watch this unfold from here. Hopefully, people have learned from that. As legislation moves forward, we can only hope that the crafters understand that there will be ripple effects that we can't foresee. But that's no reason not to proceed--with caution. - Jim