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Brett Cenkus
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Trump Won't Kill America, Bitcoin Will

In this shared piece, author Brett Cenkus argues that nation-states will cease to exist not because of a who, but a what - and it's already here.

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April 12, 2007

Strengthening America

By Rep. Vito J. Fossella (R-NY)

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The increased risk of liability, including government and shareholder litigation, has also spurred corporations and investors to consider the overseas markets. The number of securities-related class-action settlements-as well as their total dollar value-set a record in 2005. No one argues that the courts remain essential to protecting investors who have been wronged. However, an unpredictable legal system impedes businesses' ability to adequately manage legal risk, leading to risk-averse behavior and undue costs that dampen growth.

Not surprisingly, capital raised in the private equity markets is now more than 10 times greater than in the public markets in the United States.

The key to reclaiming our competitive advantage does not lie in the wholesale elimination of regulations and litigation. On the contrary, we must create a more predictable legal environment that offers comprehensive protection for investors, and we must establish effective regulation that instills confidence in the market without dimming innovation and progress.

Improving the regulatory agencies is central to improving the regulatory environment. That is why I introduced legislation in 2005 to make structural and procedural improvements to the Securities and Exchange Commission. Among other things, my bill sought to merge the policy-making and examination divisions of the agency to enhance communication and to ensure the costs of compliance for registered firms were consistent with the risks posed to investors.

The legislation was intended to spark debate on the need for reform. To its credit, the SEC implemented recommendations contained in the bill less than six months later, creating the possibility of more comprehensive reforms in the years ahead.

Other areas in which we can take immediate action to begin reclaiming our economic competitiveness include:

Enhanced Communication: While the regulatory agencies are staffed with decent, hardworking individuals who believe in a robust marketplace, we can enhance communication between the regulators and the regulated to help reduce companies' fears that interaction-including how-to questions about compliance-will result in an examination or investigation. The SEC should consider moving toward more prudential regulation that will foster an open-door policy to clarify regulatory requirements and explore new, innovative products.

Further, we should improve inter-regulator communication by establishing universal, overarching principles to guide financial regulators in the rulemaking process. This would provide additional certainty in the regulatory environment and increase information sharing, reducing the possibility of systemic risk. Inherent in these principles should be a thorough cost-benefit analysis of new rules and regulations.

Principles-Based Rules: We should consider the benefits of moving away from the prescriptive rules-based system that currently governs corporate behavior and government enforcement.

This one-size-fits-all approach fails to acknowledge the uniqueness of individual companies and prohibits them from developing their own internal systems to meet the highest standards of conduct. A principles-based system like those employed in many overseas markets would offer greater flexibility, lower compliance costs and increased competition.

SOX Implementation Reform: The implementation of SOX has veered from Congress' intent. Using the recent guidance of the Securities and Exchange Commission and Public Company Accounting Oversight Board as sound footing, we can make necessary modifications in implementation to reduce costs, including ways to define and evaluate materiality.

Litigation Reform: While we need to ensure enforcement of all laws and regulations to discourage illegal behavior, improvements can be made to both the public and private systems. The emphasis must remain on bringing to justice those who violate the law-not on destroying entire companies staffed by individuals innocent of wrongdoing.

The United States must re-establish our nation's capital markets as the destination of choice for investors and companies. The good news is that this slide in economic competitiveness can be reversed with bold action from policy makers at all levels of government.

Vito Fossella (R-NY) represents Staten Island and parts of Brooklyn.