Markets Will Correct Themselves Without More Regulation
June 28, 2002
Following a period of speculative mania, markets correct themselves. It happened in the 1920s and 1930s and it is happening again following the recent telecom mania, analysts say.
Nevertheless, politicians are calling for nothing less than a complete overhaul of the system. Many economists think that is bad medicine for a system that, by and large, has served us well and created unprecedented prosperity.
Some minor adjustments could be made, however, and here are some suggestions:
- New bodies -- such as the proposed Independent Public Accountability Board -- may well do a better job of overseeing the accounting profession and minimizing conflicts of interest.
- But the best chance for improvement lies in holding people -- not institutions -- responsible for corporate successes and disasters.
- Treasury Secretary Paul O'Neill has suggested that chief executive officers personally vouch for the veracity and fairness of their companies' financial statements.
- Perhaps the independent chair of each firm's audit committee should sign the statement as well.
Experts say corporate executives should reveal immediately whether they have bought or sold stock and should be made to give back any compensation that may have been gained from their transgressions. Also, executives who gain from the exercise of options should be required to hold on to their stock while still employed.
Source: Burton G. Malkuek (Princeton University), "The Market Can Police Itself," Wall Street Journal, June 28, 2002.
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