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Friday, July 30, 2010

Repeal Sarbanes-Oxley!

Sarbanes-Oxley is a failed financial reform law. Sarbanes-Oxley was passed after the Enron fraud, to prevent executives from lying about earnings. Sarbanes-Oxley failed to prevent financial fraud at Lehman Brothers. Similarly, the recent financial "reform" law will not prevent the banksters from stealing.

Lehman Brothers used the "Repo 105" accounting trick to hide shaky assets off their balance sheet. Loans were disguised as sales. Lehman Brothers did $50B of Repo 105 fraud. Lehman Brothers raised approximately $50B in capital while lying about their earnings.

If there's no Sarbanes-Oxley prosecution for Lehman Brothers, then State thugs might as well repeal the law. Sarbanes-Oxley compliance costs are $3M+ per year, for both small and large public corporations. Sarbanes-Oxley is a huge regressive tax on small public corporations.

Lehman Brothers' CEO Dick Fuld was not prosecuted for accounting fraud. Sholom Rubashkin was convicted for accounting fraud, which wasn't the original reason State thugs raided his business and seized his records. There are two justice systems in this country. There's one for insiders and one for non-insiders. It is hypocritical for State thugs to prosecute non-insiders but not insiders.

A pro-State troll says "Enron's fraud is completely different from Lehman Brothers' fraud." Enron used off balance sheet partnerships to hide losses. Lehman Brothers used the "Repo 105" trick to hide losses. There's no similarity at all.

Sarbanes-Oxley compliance costs $3M+ per year. The compliance cost is nearly the same for small corporations and for large corporations. If a corporation has $5B+ in revenue, then $3M is negligible. If a small public corporation has $100M in revenue, then $3M is a huge cost.

The CEO of a large corporation likes Sarbanes-Oxley. It's a tax on smaller competitors. Many small corporations have been "taken private" to avoid the Sarbanes-Oxley compliance cost. Some small corporations were bought out by larger corporations, due to Sarbanes-Oxley.

Sarbanes-Oxley particularly hurts the software startup market. Before Sarbanes-Oxley, a startup could "go public" with a valuation of $1B. This enables the VCs and founders to cash out their investment. Now, small startups must sell to a larger corporation or stay private.

Knowing that small startups can't go public, large corporations offer lower buyout prices. Sarbanes-Oxley had a huge chilling effect on software startups. Now, a startup needs to be almost as successful as Google to be a public corporation. Facebook is not a public corporation, partially due to Sarbanes-Oxley.

Sarbanes-Oxley is a failed reform law. The "financial reform" law is no different. The State explicitly encourages and rewards fraud by insiders. There are many ways that the State encourages accounting fraud.

  • Negative real interest rates encourage executives to load up on as much debt as they can. Then a bankruptcy or bailout occurs during the next recession.
  • Limited liability incorporation provides a free put option for executives to declare bankruptcy and cheat creditors.
  • "Too big to fail" means that there's no risk when lending money to a "too big to fail" organization.
  • There's the Principal-Agent problem. A CEO is gambling with other people's money. Therefore, he takes unreasonable risks to maximize short-term profits.
  • Government regulations and government violence shield insiders from competition. With a fake free market, there's no penalty for inefficiency and waste and fraud.
Sarbanes-Oxley and the financial "reform" law are evil fnords. These laws provide the illusion of accountability, while insiders may continue to loot and pillage. The biggest State evils are the Federal Reserve and income tax. They are politically untouchable. Too many insiders profit from the corrupt way things are now. They will never allow real reform. Instead, fake reform is sold to the public as real reform.

If there isn't a Sarbanes-Oxley conviction for Lehman Brothers, then that law may as well be repealed. That law is a huge tax hike, due to excessive compliance costs. Small corporations and startups are hurt the most by Sarbanes-Oxley. That's exactly the way insiders like it.

3 comments:

Anonymous said...

I apologize if this comment is a little off topic. In previous posts you have stated you believe that registration to pay income tax is wrong because in effect it is asking permission to do work, which is a natural right.

I agree with you to some extent. In my country, the tax system for self-employment is lightweight. You can file tax returns electronically and the system has good explanations of what each field means. If you run a simple small business and don't need to claim many expenses, it is not too burdensome. Unless of course you need a tax refund and then you will have to wait a year or two!!!

However due to trivial lawsuits, you really need a limited liability company and that needs reports field in a certain format. You need an accountant for that and if your earnings are small, this starts to make it unaffordable. Do you want to risk making only 14K in your first year and then having to pay 5K in accountancy fees?

The real point I want to make is that you have not covered the fact that employees need a reference from their previous employer in order to take a new job. THIS IS THE REAL PERMISSION SLIP NEEDED TO WORK.

In the field of software (and probably anything technical) you have idiot bosses, mistakes and death march projects that will blow up. An honest employee might point out the disaster. However being honest at work with an idiot boss can get you sacked with a bad reference.

I once heard that one guy was about to leave a large tech company and had applied for a new job. The company had rules that you cannot ask co-workers for a reference. So he had to get the company HR department to provide a reference and they only stated dates of employment. The new company had a woman in charge of recruitment. As he could not provide a detailed reference he did not get an interview for the job. This HR woman used to work at the same company as me and she had posted this problem to an ex-XXXX mailing list. I did try to explain to her that what the guy had told her was straight-up. His company do not provide detailed references and a few companies do prohibit asking co-workers for references. However the woman ignored me.

What an irony? The guy worked at the biggest, most famous tech company in the world and was barred from getting a new job interview because of the reference policy.

Anonymous said...

I apologize if this comment is a little off topic. In previous posts you have stated you believe that registration to pay income tax is wrong because in effect it is asking permission to do work, which is a natural right.

I agree with you to some extent. In my country, the tax system for self-employment is lightweight. You can file tax returns electronically and the system has good explanations of what each field means. If you run a simple small business and don't need to claim many expenses, it is not too burdensome. Unless of course you need a tax refund and then you will have to wait a year or two!!!

However due to trivial lawsuits, you really need a limited liability company and that needs reports field in a certain format. You need an accountant for that and if your earnings are small, this starts to make it unaffordable. Do you want to risk making only 14K in your first year and then having to pay 5K in accountancy fees?

The real point I want to make is that you have not covered the fact that employees need a reference from their previous employer in order to take a new job. THIS IS THE REAL PERMISSION SLIP NEEDED TO WORK.

In the field of software (and probably anything technical) you have idiot bosses, mistakes and death march projects that will blow up. An honest employee might point out the disaster. However being honest at work with an idiot boss can get you sacked with a bad reference.

I once heard that one guy was about to leave a large tech company and had applied for a new job. The company had rules that you cannot ask co-workers for a reference. So he had to get the company HR department to provide a reference and they only stated dates of employment. The new company had a woman in charge of recruitment. As he could not provide a detailed reference he did not get an interview for the job. This HR woman used to work at the same company as me and she had posted this problem to an ex-XXXX mailing list. I did try to explain to her that what the guy had told her was straight-up. His company do not provide detailed references and a few companies do prohibit asking co-workers for references. The woman ignored me.

Anonymous said...

I once worked at a famous tech company. Its policy was to require five references in order to get a job. This is quite a lot.

The bitter irony is that after working hard at this company, they themselves won't provide a good, detailed reference for me, because of their messed up policies and lack of management forthrightness.

So this company really is taking from the system, but not giving to the system in terms of company references.

You go into a valued worker with a set of good references and come out the other end scum.

This Blog Has Moved!

My blog has moved. Check out my new blog at realfreemarket.org.