Thanks for your response, Gillian. You have articulated exactly the view with which I disagree. "Heavy criticism," eh? Poor Dick Fuld! I don't know how he would hold up under the strain of some really sincere and constructive condemnation.
First off, let me try to respond to your idea that sticking Enron executives in jail did nothing to prevent the same games at other companies. I disagree entirely. I think high-profile prosecution deters white-collar crime. White-collar criminals have a much larger stake in society and are therefore tractable. They see ex-Tyco CEO Dennis Kozlowski rotting away in Sing Sing, and they don't want to be like him.
What's more, I think Sarbanes-Oxley, while slightly flawed in parts, did its job. Here's an anecdote, which Dan can vouch for. A hedge-fund manager told us, when we were sitting in a roundtable discussion about "Ethics and Capitalism" (don't laugh) at the Chautauqua Institute, that he had wound up his accounting-fraud group within his fund because corporate books were so clean the team wasn't ferreting enough bad stocks out.
Some data appear to back this up. Mark Cheffers at Audit Analytics, an accounting research firm, sent me his group's recent report about annual restatements. In 2008, restatements at U.S. corporations fell to 869 from 1,235 in 2007. The 1,235 figure from 2007 was itself a 31 percent decrease from 2006. He wrote: "The downward trend appears to be attributable to the improved reliability of internal controls over financial reporting (ICFRs) implemented in response to the Sarbanes Oxley Act of 2002." (He concedes that it may have to do with lax accounting enforcement at the SEC, so we'll have to keep an eye on it.)
Yes, we need big structural regulatory reforms, as I have written.
We need better capital-adequacy requirements and limits on leverage. We need to regulate the derivatives markets and hedge funds. We need to bring back muscular antitrust restrictions and probably enact some form of Glass-Steagall again. Paul Volcker's Group of 30 report is a good place to start.
But I don't think you can separate the issue of criminality or jettison the idea that executives conducted themselves illegally. In fact, I think reform cannot happen if we let everyone off with some heavy criticism.
I don't think criminal trials will "distract us all from the real reforms." On the contrary, I believe they would help create the political will to carry through with true reform. Without it, we will get a show of remorse from the bankers and window-dressing instead of overhaul.