This is the Cato Daily Podcast for Tuesday, September 25th, 2007. I'm Caleb Brown.

In the wake of the meltdown of the subprime mortgage market, what lessons should we have learned from the regulation that followed the collapse of Enron and WorldCom?

Regulations like Sarbanes-Oxley have left U.S. capital markets much less competitive worldwide, that according to Cato Institute

Chairman William Niskanen, he says if Congress hasn't learned its lesson, there could be more

regulation of capital markets afoot.

We overreact to whatever is the financial crisis at the moment.

Starvings actually probably wouldn't have happened if it had not been for the

collapse of WorldCom in the summer of 2002. I think the primary evidence for what is going

and wrong is the consequence of Sarbanes-Oxley is that

American corporations have become far too much risk-averse. That is

indicated by three phenomenon is that the price earnings ratio has dropped more

or less continuously since the Sarvians actually was drafted in the spring of 2002, which means that people are unwilling to pay

any more. They're in fact willing to pay less for any given expected stream of earnings than

was the case before.

And second, there are two important studies just released this summer that look specifically

at the risk behavior of firms that are subject to Sarbanes-Oxley and ones that are not.

And it's quite clear that just in the last few years American corporations have become

far too risk-averse, that will ultimately prove to be, I think, the major problem of Sarvians-Oxley.

With the meltdown of the sub-prime mortgage market and the residual effects of that meltdown,

there is a move of foot in Congress to tighten regulations on mortgage brokers or in fact the entire mortgage

industry. First of all, how well stated is the impact of the subprime collapse on the

larger market? Well, it's too early to tell in a way, in the sense that there's been relatively little effect on the total market, total American market.

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