International Herald Tribune Editorial - A healthy Wall Street

International Herald Tribune Editorial - A healthy Wall Street
Copyright by The International Herald Tribune
Published: January 24, 2007


A healthy financial sector is crucial to the economic well-being of the United States and to New York City in particular. And it is true that Wall Street is facing ever stiffer competition from financial markets like London's and Hong Kong's. But beware of the doomsayers who argue that U.S. markets are in free fall and contend that looser regulations are the only way to save them.

Senator Charles Schumer of New York and the city's mayor, Michael Bloomberg, joined that chorus this week. In a new report, they warn that without changes to what they call America's "stringent regulations and high litigation risks," the U.S. share of the lucrative finance business will decline further, at a cost of billions of dollars and thousands of jobs.

We certainly do not want U.S. regulations to drive away good business. But it is first important to remember that when investors lose their shirts in huge frauds like Enron, plenty of damage is done to markets as well. And any discussion about the health of America's financial industry must be as open as possible. This report at times seems to cull facts to prove predetermined conclusions.

For example, to support its argument that U.S. markets are losing ground, the report notes that over the first 10 months of 2006, U.S. exchanges managed barely a third of the overall share of initial public offerings that they did in 2001. It strikes us as odd that a report released in late January could not include data from the previous November. In that month, the Securities and Exchange Commission registered 32 initial public offerings worth a total of $8 billion — the highest monthly total in five years.

The report goes on to say that the number and cost of securities class- action settlements in the United States set an all-time high in 2005.

That is hardly surprising, considering the many settlements in that year stemming from the enormous fraud at WorldCom. But what about last year? The number of securities fraud class-action suits fell 38 percent in 2006, to the lowest level in 10 years.

The report raises some valuable questions, and we agree with some of its conclusions. Loosening restrictions on work visas for talented foreigners and visitor visas for dealmakers strikes us as essential.

While some common-sense changes are needed, shareholder rights and market stability cannot be trampled in the rush for competitive advantages. U.S. financial markets are still the largest in the world, and Wall Street just enjoyed a year of record profits. And while we are talking about reforms, financial firms might ask whether lower underwriting fees and smaller bonuses could also contribute to their long-term health and the health of U.S. financial markets.