Wall Street and the states

Washington Post: Anyone who's watched the scandals that engulfed Wall Street over the past few years understands the importance of the role played by state officials in going after corporate wrongdoing. While the Securities and Exchange Commission snoozed, New York state Attorney General Eliot L. Spitzer led the way in cracking down on firms whose stock analysts simultaneously evaluated companies for investors and milked them for investment banking business.
Settlement
The $1.4 billion settlement obtained by state and federal regulators (who belatedly joined Mr. Spitzer's push) imposes important -- and overdue -- rules aimed at preventing such conflicts. That's why we're concerned that a measure before the House Financial Services Committee would severely restrict the states' power to undertake such corrective action.
The measure, promoted by Rep. Richard H. Baker, R-La., would not block state officials such as Mr. Spitzer from prosecuting firms that engage in fraudulent conduct. But it would remove an important arrow from the state quiver, barring state officials from imposing disclosure, conflict-of-interest or reporting requirements different from those established by the Securities and Exchange Commission or self-regulatory organizations such as stock exchanges. "It would have made it impossible to accomplish what we accomplished on Wall Street in the last two years," Mr. Spitzer says.
SEC Chairman William H. Donaldson, who supports the Baker measure, argues that while states have a legitimate role, they go too far "if the solution is beyond a financial fine ... and it gets into the structure of the markets." For his part, Mr. Baker says he is seeking to shield firms from having to comply with myriad regulatory regimes and to make sure that a single state regulator doesn't set national policy.
Recent problems
But there's ample room for more than one cop on this beat -- the recent problems in the securities markets have involved the absence of adequate enforcement, not the burden of too much regulation. And whatever the right balance may be between the SEC and the states, diminishing state officials' power in favor of such self-interested parties as stock exchanges is the wrong way to go, at the wrong time.