Warren Buffett and Alan Greenspan offered sharply different views on government regulation of U.S. capital markets, reflecting the divisions among many business and government leaders who gathered in Washington for a high-level conference on U.S. competitiveness.
In an exclusive interview with CNBC's Liz Claman outside the conference, Buffett said new regulations imposed in the wake of Enron’s collapse and other corporate scandals have reassured investors and strengthened U.S. capital markets.
“I think the American public got quite disillusioned with corporate America after the late 1990s,” the billionare investor said. “So, I think there was a question of restoring trust and some of it may be almost cosmetic. But cosmetics have their value in terms of millions of people making decisions to invest. I think the fact that American investor thinks things have been tightened up a bit is probably a good thing.”
But Greenspan, another participant in the conference hosted by Treasury Secretary Henry Paulson, expressed doubts during a panel discussion on whether regulation overburdened business and made the U.S. less competitive.
"Creating Less Flexibility"
“What worries me is the regulatory system is by its very nature creating less flexibility,” the former Federal Reserve chairman said. “Indeed, that’s what regulation does--it’s essentially an endeavor to say you can’t do certain things. So, I think we ought to focus on where regulation ought to be, which is on fraud.”
The unusual summit-like gathering follows months of campaigning by American business for an easing of laws and regulations--including Sarbanes-Oxley--established after the Enron debacle.
Critics of Sarbanes-Oxley say it imposes new and unneeded costs on the market, driving IPOs overseas and prompting many companies to go private. But others say the cost of litigation--not Sarbanes-Oxley--is the real threat to U.S. markets.
"We need rational regulation," New York Mayor Mike Bloomberg said as he entered the conference.
“I think it’s about striking the right balance,” Anthony Ryan, assistant treasury secretary, told CNBC’s “Squawk Box.” “It’s important that we have investor protection and it’s important that we have rules and regulations. We’ll be talking about all those issues.”
The panelists for the gathering included Buffett, Greenspan, Blooomberg, General Electric Chairman Jeffrey Immelt, brokerage founder and CEO Charles Schwab. Paulson and Christopher Cox, the chairman of the Securities and Exchange Commission, served as moderators.
In spite of the business complaints, some participants warned that easing regulations may not be in the best interests of investors.
“It doesn’t make much difference whether a transaction is done in Hong Kong or London--it’s just as good for Goldman Sachs or Merrill Lynch as if it were done in New York,” former SEC Chairman Arthur Levitt told CNBC’s “Squawk on the Street.” “So, I don’t buy the notion that regulation is the cause of losing competition. Competition is great for our markets.”
"Longer-Term Action"
While the conference likely will yield some proposals that are "actionable and more immediate," others will lay groundwork for possible longer-term action, Robert Steel, the Treasury undersecretary for domestic finance, said Monday. Steel worked with Paulson at Wall Street powerhouse Goldman Sachs and recently assumed the Treasury post.
Paulson headed the investment house before coming into the administration last summer. Steel was its vice chairman until early 2004, when he left to head the Duke University board of trustees.
Paulson said the "great concentration among the major accounting firms" should be examined to determine if the industry is able to produce high quality audits. He said the goal is to strike the "right balance between investor protection and market competitiveness" so investors feel they have trustworthy information and companies can still innovate and compete in a global market.
In November, a committee of business, legal and academic figures offered proposals to claw back corporate governance rules, class-action lawsuits against companies and auditors, and criminal prosecution of companies by the government.
A second group, formed by the U.S. Chamber of Commerce, issued a report this week calling for "quick and decisive adjustments in the U.S. legal and regulatory framework." Among its key recommendations: Public companies should stop issuing quarterly earnings guidance and policymakers should consider proposals to reduce the liability of accounting firms in litigation over company audits.