Legislatures Should Beware of Overregulation

Lora Bentley

When crisis hits, the first thing legislators want to do is enact new laws that will keep whatever happened from happening again. That's what Congress did with Sarbanes-Oxley after Enron and Worldcom collapsed, and that's what observers have said will happen when the new Congress comes in. Regulation in the banking and mortgage industries will be stiffer and more complicated to discourage the behavior that led to the current economic downturn.


It's true that new and different regulations may be necessary. But the one thing legislators shouldn't do is overregulate, according to an article in The Australian. Otherwise, they run the risk of imposing unintended consequences on "innocent" parties. Thanks to Sarbanes-Oxley, everyone knows what that can do, the writer says, and they need to guard against it now.


The one thing legislators should be concerned about, warns The Australian, is "the wave of international money that can buy and sell what it wants, almost anywhere, in moments. It's a mixture of hedge funds, sovereign wealth funds and a raft of international pension money."

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Dec 3, 2008 1:21 AM kengon kengon  says:
From all of the reading that I've done, it seems that the best thing that gov't could do is to enact legislation that enhances visibility. If "shadow" markets were harder to build, we might have been able to lessen the impact of the crisis. Still, as your last quote notes, there's still a lot to be watchful for. I don't think this has been fully unravelled yet. Reply

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