SOX under the gun

Jane Bryant Quinn's latest personal finance column outlines a disturbing possibility -- Lawsuit Threatens Sarbanes-Oxley Act:

Just when you thought that the drive toward better financial accounting couldn't be stopped, a stick may be shoved into the spokes. A decision expected soon from a federal court might throw the Sarbanes-Oxley Act into limbo. The law, also known as SOX, is essential to the movement for accurate and honest corporate reports. Congress could rescue SOX but perhaps with its beating heart cut out.

The critics of SOX have been vocal since the beginning - and may now have their chance to gut the law. That would be a mistake. As Quinn responds to the claim that SOX doesn't help investors, "Are investors better off buying stocks based on sloppy or fraudulent accounting?" Let me ask a different question. Don't the wizards of Wall Street understand that markets are all based on reputation? Yes, there are quick gains to be made by playing fast and loose with the rules. But in the long run, reputation and trust are what ultimately matter. So, in the middle of the worst melt down in investor confidence, we are going to throw out our accounting safe guards.

If that does nothing else, I fear it will kill any attempt to create a financial market in intangibles. For without some underlying backdrop of confidence, investors will run from these "exotic" assets like .. well, pick your cliché.

I guess London had it partly wrong (see earlier posting). They don't need to worry about a competitive threat from the US undermining their place in the financial services industry. We will take care of that by doing ourselves in, thank you very much.