Limits of Government Action
Of course, there are some recent notorious prosecutions. Two things must be noted: First, those prosecutions were only in the most egregious of the misdoings of unrestrained greed. Even a Bush administration sympathetic to large business interests could not ignore them. The losses were monumental, the media attention intense, and the corporate moguls both unsympathetic and caught red-handed. Yet, the SEC still delayed action, and the first efforts to obtain funds for employees and investors came from the private bar. These famous acts of government action were, however, few compared to the multiplicity of companies where management took advantage of "prosperity." Second, in almost no instance--in fact perhaps no instance--has the government acted alone to return to investors the losses caused by management misdoing.

Whatever the plusses or minuses of private litigation, it is indisputable that private litigation returns to investors a significant portion of their losses. To be sure, the lawyers for these investors get paid. Those who write about the SEC seem to forget that government trial lawyers get paid and the costs and inefficiencies of the government bureaucracy are well documented. The difference is that in private litigation the costs and any inefficiencies are paid by the clients--the investors who receive the money. When the government acts, of course, the costs and inefficiencies are paid by taxpayers. Private attorneys' fees and expenses are disclosed and transparent. The government costs are never disclosed. What is more, the SEC is undermanned and underfunded, and, accordingly, lacks the resources to do all that should be done.

There is no evidence whatsoever that the elimination of private litigation would result in a greater investor return of losses from stock fraud. Nor is there any evidence that the elimination of private litigation would do anything but embolden big business executives to enrich themselves further.

The current effort of American business to centralize all corporate financial regulation within the SEC bureaucracy implies strongly that corporate management knows exactly where and from whom it can receive a friendly and sympathetic reception. The SEC has lost its moorings and, under its current chair, has been steered in a direction opposite to its historic mission.

No longer the protector of American investors and the capital markets, the SEC has become a captive of the industry itself. Not only is the agency retreating from those "reforms" it was forced to accept in the wake of the scandals that broke in the early part of the Bush administration, it is also intervening in investor litigation asking courts to change the standards in the law permanently to make it more difficult for investors to protect themselves and for any future administration to intercede on behalf of investors.

No Crisis in the Capital Markets
Nor is there any crisis in the capital markets that justifies such a radical change of public policy (and a radical change through administrative fiat as distinguished from legislative action by Congress). Capital is available in abundance for American business.

The American economy has weakened compared to European and Asian economies. As the economy and dollar has softened, investment opportunities in Europe and Asia have become more attractive. As a consequence, capital for major initiatives and projects is being raised abroad often through the same Wall Street firms that stand to gain from reduced investor protection. The phenomenon of international capital flow is only a pretext to seek further reduction in regulation.

There is simply no reason for departure from the historic American policy of market transparency and management accountability on the flawed--and unproven--assumption that the American capital markets have raised less money for American businesses. That there were fewer initial public offerings does not mean that private capital is not available for American business projects. That there is capital raised in Europe and Asia for European and Asian (and American) businesses is evidence of the strength of those economies, not a fear of American litigation or regulation.

It is the outsourcing of American business opportunities, and American's trade and budget deficits, which make investments in Europe and Asia attractive. The weakness of the dollar and higher transactions costs--the fact that a company raising capital in America for foreign projects pays more to Wall Street investment bankers and lawyers than it pays for the same services in Europe or Asia--militates against raising money in dollars and converting dollars back into local currency.

A report issued by Goldman Sachs on Feb. 14 contradicted the rationalizations of the SEC, the Bush administration, Republican New York Mayor Michael Bloomberg, and U.S. Senator Charles Schumer (D-N.Y.). Goldman Sachs' economists concluded that competition is a bigger threat to U.S. financial supremacy than regulation.

Meanwhile, the gap has grown between a financially pressured middle class and an obscenely wealthy corporate management. The real wages of many of our citizens have decreased and living conditions have become more difficult. More of our citizens are unable to pay directly for medical care or for the insurance that would cover it. At same time, Wall Street is having record years. According to data compiled by Bloomberg News, five major Wall Street firms made more than $60 billion in net income in 2006.

Instead of protecting American workers and pensioners and seeking ways to strengthen the American economy, the Bush administration has pursued policies to protect its strongest financial supporters from their own wrongdoing and to protect them against the severe economic competition this administration’s policies have inflicted on the American public.

The solution to America's economic problems does not lie in making it even less attractive to invest in America by increasing company-specific risk through less disclosure and enforcement. American business must forego obscene executive salaries and, instead, spend its money on education, repairing our infrastructure, and on serious research and development. American workers must not be forced by American business to compete with exploited non-American workers.

A giveaway to corporate giants and creating a SEC monopoly on matters touching the financial industry is just the last payoff. These are the same people who refuse to pay their fair share of taxes and welcome opportunities to underpay workers, send their own assets abroad through private equity funds, and are responsible for the implementation of some of the most disastrous policies in American history.

Fred T. Isquith is a partner with Wolf Haldenstein Adler Freeman & Herz in New York. The firm represents investors in securities class action cases.