What's the Real Threat to Wall Street?

Worries about erosion in Wall Street dominance of global financial markets have been getting a lot of play lately. The Treasury department has been reviewing post-Enron corporate regulation. A former Bush economics advisor chaired a blue-ribbon committee that blamed Sarbanes-Oxley for driving U.S. and foreign companies away from U.S. exchanges. And a recent McKinsey report lamenting that New York is now falling behind fast-rising London attracted a lot of attention when Senator Charles Schumer of New York and New York mayor Michael Bloomberg stood shoulder to shoulder (somewhat paradoxically) with now New York Governor Eliot Spitzer to decry the trend. The hand wringing continued at press time as Treasury Secretary Henry Paulson was set to convene a conference on the problem and the U.S. Chamber of Commerce was also set to weigh in, both likely to fault Sarbox for the flight to London.

Our global economics correspondent Alexei Bayer, just back from an official press tour of London’s financial institutions, critiques this tide of pessimism in our cover story, “London Calling.” But here it is worth noting that the top companies in U.S. and global markets are based in New York, and Wall Street profits are breaking all records. And the regulations, while in some instances excessive, were put in place to respond to the real problems exemplified by Enron, WorldCom and other recent scandals. Companies that are discouraged from doing business in the U.S. because of our high accounting standards may not be up to the scrutiny U.S. shareholders deserve. It is no coincidence that U.S. shares are more widely held by U.S. shareholders than are the shares of other world markets; it is because of the trust that our regulatory system instills. (Contrast that to foreign markets, most especially developing world markets as alluded to in our story about a Senegalese broker, “A Bet on the Future.”) As economist Irwin Stelzer has remarked, and I paraphrase: It’s easy for the critics to quantify the costs of our regulations — but can they quantify their benefits?

Also coming from a global perspective in this issue are a pair of articles on “terror-free” investing, the newest iteration of socially responsible investing. We profile Missouri Treasurer Sarah Steelman, a former A.G. Edwards broker, in her gutsy move to make her state the first to screen out companies that do business with terror-sponsoring regimes. Her ploy has already brought results. UBS, taken off Missouri’s list of approved investment companies, divested of its controversial business and will now be readmitted. The state’s anti-terror fund is managed by State Street, which relies on the research of Conflict Securities Advisory Group, whose Adam Pener is interviewed in our Q&A. This budding movement may be an answer to the real threat to Wall Street, which is not London or Sarbox, but the terrorists who incinerated the World Trade Center and 3,000 New Yorkers and who have not given up on their destructive ambitions.