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Originally Posted by Undertoad
Spearheaded Sarbanes-Oxley, enormously increased accounting regulations on public companies.
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Not correct. Sarbanes-Oxley created standards for the auditors. It did nothing to eliminate Enron style accounting in public companies. Sarbanes-Oxley was created by Senators (not by the administration) in response to Arthur Andersen - not in response to how Enron hid losses.
Enron style accounting means, for example, moving losses to structured investment vehicles so that losses no longer appear on the spread sheets. That was ongoing even months before AIG collapsed. As a result, hidden losses apparently are suddenly gobbling up $120billion.
Why a sudden market meltdown and frozen credit markets? Nobody can trust anyone else’s spread sheets. Six years after Sarbanes-Oxley, Enron style accounting still exists. Auditors such as PriceWaterhouse had serious doubts about AIG's accounting and said so. IOW PriceWaterhouse was not doing what Arthur Andersen did. And still the Enron accounting existed in AIG. Even AIG's internal auditor was sidelined and resigned. Did that do anything to change the fraudulent accounting? No. After being told that the auditors had serious doubts, AIGs president went right out and said the company was stable. He could do this because the accounting said so. Because Enron style accounting is was actually getting worse. As the Economist said, "financial innovation [occurred] in response to incentives created by governments."
Sarbanes-Oxley did not eliminate Enron style accounting. Sarbanes only required the auditors to do their job. Auditors can have doubts. But can do little when Enron style accounting is still legal.
From the Economist of 11 Oct 2008 and posted previously in
Does Anyone feel like Bailing on 24 Oct 2008 (also in response to UT's previous and same claims):
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The trouble is that financial innovation did not occur in a vacuum but in response to incentives created by governments. Many of the new-fangled instruments became popular because they got around financial regulations, such as rules on banks' capital adequacy. Banks created off-balance-sheet vehicles because that allowed them to carry less capital. The market for credit-default swaps enabled them to convert risky assets, which demand a lot of capital, into supposedly safe ones, which do not.
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Well international standards such as Basel 1 and Basel 2 were created to address this problem in the banking industry. George Jr did nothing and even discouraged Basel 2. Fraudulent accounting encouraged by a business school graduate? Why not? Where did Sarbanes-Oxley or any proposed legislation from George Jr even try to address this. Nothing. Nada. This accounting is the deregulation that extremist Republicans have been advocating for a decade.
No laws were made to stop Enron style accounting (Enron accounting was well understood when Enron failed in 2001) because money games made the spread sheets look prosperous and will stimulate the economy. Prosperous spread sheets means a more popular president. Why would George Jr want honesty when his entire life was only about promoted an image and lies (such as Saddam's WMDs)?
UT - you keep sighting Sarbanes-Oxley as proof that George Jr wanted fiscal responsibility. George Jr and fiscal responsibility are oxymorons.
Even the Highway Trust fund that supposedly has plenty of cash has a liquidity problem? Where did the cash go? George Jr can borrow that money and not leave an IOW. Therefore the Highway Trust Fund that is supposed to have sufficient money could not pay its bills. More accounting that George Jr approves of. Sarbanes-Oxley also permits that type of accounting.