Meanwhile, back at the ranch…

Frank Rich:

On Tuesday, Congressional Democrats, with the White House’s consent, voted to gut the Sarbanes-Oxley Act, the post Enron-WorldCom law passed in 2002 to prevent corporate accounting tricks and fraud. Arthur Levitt, the former Securities and Exchange Commission chairman, told me on Friday it was ”œsurreal” that Democrats were now achieving the long-held Republican goal of smashing ”œthe golden chalice” of reform. If investors cannot have transparency, Levitt said, ”œthe whole system is worthless.”

Floyd Norris:

The Sarbanes-Oxley law also took steps to reinforce the independence of the Financial Accounting Standards Board, which writes accounting rules in the United States. By giving the board a secure source of financing, legislators said they were protecting it from the threats of the companies that had previously made donations to keep the board functioning.

But this Congress has made clear that independence for the accounting rule writers can go too far ”” particularly if the rules force banks to reveal the horrid mistakes they previously made.

This year, a subcommittee of the House Financial Services Committee held a hearing at which legislators sought no facts but instead threatened dire action if the chairman of the financial accounting board did not promptly make it easier for banks to ignore market values of the toxic securities they owned. The board caved in, which may be one reason why banks are reporting fewer losses these days.

But the board’s retreat was not enough to satisfy the banks. The American Bankers Association is now pushing Congress to give a new systemic risk regulator ”” either the Federal Reserve or some panel of regulators ”” the power to override accounting standards. The view of the bankers is that the financial crisis did not stem from the fact that the banks made lots of bad loans and invested in dubious securities; it was caused by accounting rules that required disclosure when the losses began to mount.

** Committee Allows a Break on Certain Auditing Rules

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