At the risk of seeming simplistic, I would like to remind us that in his landmark book "The Road to Serfdom," Nobel-Prize winner Friedrich Hayek tells us that you've really started to understand economics when you start to look more closely, not at what's happening as a result of (for example) government regulation, but at what's NOT happening.

Government regulation (Sarbanes-Oxley) always has an effect, sure. But to continue along the simplistic route (Occam's Razor?): Why all the guessing around? I think a simple survey of 1000 U.S. CEO's would give us the most accurate impression of U.S. investors' (obvious) reluctance toward investing.

Just like in any good horror film, it's the UNSEEN dangers which cause the greates level of insecurity. The results of such a survey, outlined for us regular people, might read:

Top 10:
#1: LITIGATION FEARS
#2: LITIGATION FEARS
#3: LITIGATION FEARS
#4: LITIGATION FEARS
#5: LITIGATION FEARS
#6: LITIGATION FEARS
#7: LITIGATION FEARS
#8: REGULATORY ISSUES
#9: RISING LABOR COSTS
#10: NO CASH

Having been to many countries all over the world, having followed exciting changes taking place all the time, and having taken note of the fact that the world is full of people who are basically all the same, there are in my estimation two primary columns upon which a successful economy (and therefore attractive investment environment) are founded: Property rights and 'sustainable' stability.

In the U.S., lawmakers have done everything (and nothing) to allow both of these once imposing columns to be turned from stone into wood.

With Congress providing the kindling and lawyers running up with the torches, is it any wonder that nobody's investing? The fire's great for now, but the fuel's running out fast.

I mean, when I was a kid, it was the engineering and production company exec's who had the private jets. Now it's the lawyers. Just an observation. Okay, I'll get back to my day job now.

So we should kill all the lawyers tonight? Sounds like a good start. It's a profession that has been turned into ambulance chasing. It's professional ethics are such that most lawyers wouldn't abe able to graduate from a service academy because of the honor codes.

The fall of Western civilization will not be blogged...it will be litigated.

I am the President and Chief Operating Officer of a US based NYSE listed company with a market cap around 10 billion.

It is important to note that many int'l markets, including London are closer to the new hot areas of Eastern Europe and Asia and there is nothing that can be done about that with our location in New York.

Litigation is an issue, but that hasn't really changed too much in the last 10 years.

I would say corporate governance issues are a problem which includes SOX and all of the other fall out from the Corporate scandals of 2001-2002.

Accounting has also undergone a tremendous change post Enron. There is no real use of professional judgement at our company or with the accountants on our audit regarding how to record a transaction. All accounting decisions are now rule-based regardless of their conflicts with common sense or accurately reflecting the underlying transaction. If this is different with non-US GAAP then this could have appeal to list internationally as well.

I think it is logical that with improved communications and transparency there will continue to be IPO listing that chase different markets, so it is important that the US markets be competitive for listings while being protective of shareholders.

There needs to be the defection of some big US entity to jar the NY Senators into doing something. That hasn't happened yet.

Lisa,

I notice that you did not mention that you were opposed to handing me your next paycheck.

Perhaps this would suggest that the benefits to me of such a wealth transfer would indeed outweigh your perceived costs? Should I forward you my routing and account info for direct deposit, or was my observation simply an unfair assumption based on the author's personal prejudices?

Cro:

Thanks for the knee-jerk, unthingking anti-lawyer rant. The US has a system that, among other things, allows lawyers to make large amounts of money filing speculative lawsuits. Lawyers therefore file speculative lawsuits.

This surprises you and leads you to conclude that lawyers are unethical?

Name any profession in the country whose members would forswear a lucrative and perfectly legal business opportunity out of public interest.

Would engineers and construction companies have refused to bid on and build the "bridge to nowhere" had it been authorized by Congress?

Then consider the number of market participants who are willing to break the law for their economic advantage, despite the harm caused to the country. It isn't lawyer who, in order to increase their profits, are hiring millions of illegal immigrants.

Lawyers are no better or worse human beings than those in most any other profession. They are simply doing what we all do, rationally responding to existing incentives. If we don't like the results, we need to change the incentives, not condemn the actors.

Or, put another way, don't hate the player, hate the game.

Elliott Spitzer and his extortion machine did much to chill the US markets. There is no way to regulate or respond to a rogue prosecutor. When prosecutors can pick and choose the boards and officers with empty threats and no recourse, London and Tokyo look very appealing.

The murder of Arthur Anderson showed how the US prosecutors are willing to throw tens of thousands out of work in a demonstration of power.

I wonder why there is silence on the subject of prosecutorial misconduct and it's affects on the markets?

Litigation for ones own actions is a known liability. Litigation threats for no crime is politics.

Excuse somebody who doesn't know alot about this field but I have a question. Who is on this committee that issued this report? A government entity made a report and they didn't blame themselves for some private sector problem. Should that surprise me?

The vitriolic responses to Prof. Fairfax's thoughtful post are surprising (or perhaps not). First, let me agree that Hayek was right, and The Road to Serfdom should be assigned reading in the nation's high schools.

That said, nationwide securities markets cannot be maintained in any stable, predictable fashion without a government to set a level playing field. Example to the contrary: Russia.

And that said, regulation of securities markets, as with any other government regulation, must be sensitive to cost-benefit analysis and the plain truth, so far unrebutted, that free markets do the best job of allocating scarce resources.

But that said, companies that do not think strong internal controls important enough to comply with SOX 404 can opt into the private equity markets.

If anyone can identify an executive who has spoken out against effective internal controls over corporate accounting and financial systems, I'd love to hear about him/her. Any such executive probably treats shareholders like Genghiz Khan treated his unfortunate foes.

SOX's requirements are vague and the penalties for failing to meet the requirements are draconian. Consequently, what Jake calls "effective" internal controls, of necessity, tend in the direction of "beyond any possible reproach" internal controls.

Real life example: For many years, my company kept an eye on the size of a particular timing difference between the way we reported certain foreign securities transactions and the well-understood way our foreign sub-custodians reported them. The individual transaction differences washed out in days (sometimes weeks), to be replaced by new individual differences from new transactions. At any one moment, on hundreds of millions of outstanding transaction dollars, the aggregate difference generally fluctuated between $100K and $250K. As long as it stayed in that range, my management considered it to be "under control."

Two years ago, our outside auditors ordered us to disaggregate that timing difference into it's consitutent parts, declared each side of each transaction to be an independent loss exposure, added it all up and declared that we did not have effective internal control of that now very large but also very artificial risk. We now reconcile every individual difference on every sub-custodian mediated transaction, every day.

This exercise adds nothing to the financial soundness of the company. Its performance requires multiple FTEs (plus management time, plus internal and external audit attention) that we'd rather was going towards something productive. We do it only because SOX makes it too risky, from a regulatory and a litigation perspective, for us and for our auditors, not to.

I'm confident this sort of idiocy is happening all across the economy and I don't need a government panel to tell me it's hurting us.

Mr/Ms. Khan:

If you put that candid explanation in your company's prospectus, I salute you.