And I think it certainly gives meaning to and substance to the work of the ISB, and to treat that as a side bar might be a diminishment in some way. I understand that.
JOHNSON: First, let me thank the SEC for the opportunity to testify before this organization today, and I’d also like to applaud the SEC and Chairman Levitt for addressing this issue in a very timely fashion
MR. ALLEN: Thank you. I think that we’re dealing with the structure in the ISB structure which was conceived at one point in history and is going through an evolution that may not be entirely planned.
It’s, sort of, reacting. We have this conceptual framework. We’ve been working on it for a couple of years, and it’s still probably a year away. It’s designed to give the largest thoughtful frame for thinking about issues of independence.
Your proposal rule-making has what I think of as a fairly minimal conceptual structure. I don’t disagree with it. It has these four notions — mutuality of conflict of interest, reviewing your own work, advocacy, et cetera.
What is unclear is how this conceptual underpinning of the proposed rule is going to affect everything hence forward, because there’s this whole group that has been doing this conceptual framework and coming back to the board, and so forth.
What they’ve been doing has a threats andsafeguards theory to it; that is, it focuses on particular areas in which there might be independence concerns or problems, and then once it focuses on such an area it invites you to consider whether this requires a prohibition, whether there may be safeguards that would satisfy the world that the situation does not constitute an unreasonable risk to independence.
The proposed rule does not adopt a risk and safeguards approach. I think that the SEC, particularly through the enforcement aspect, is suspicious that safeguards are a reasonable way to proceed.
And I think that somehow we have to get agreement or deep understanding either with the Commission or with the staff or somebody. We need some guidance because there seems to me a fundamental difference between the underpinnings of the proposed rule and where the ISB has been.
Let me conclude, then, my remarks. It’s a pleasure to appear before you, and I’m sorry I don’t have insights that are — Dean Hunt this morning said that these were strongly held views. Well, I wish I could have some more strongly held views about this, and I could, perhaps, be more help to you.
But I do very much appreciate the proposal ondisclosure. I think I’m a minority in thinking it’s a very important thing, but I do think it’s an important thing. Let me turn to my colleagues.
My background is as an economist with the Federal Reserve, so I’m a layman in this area. But as Chairman Allen pointed out, we have acquired some knowledge, maybe enough have a peek at this link just to be dangerous but certainly have acquired some knowledge in this area and feel like we have some opinions but certainly not expert opinions.
The fourth point that I mention is really a point of a bit of confusion on my part
First, the U.S. capital markets are the strongest globally by far because investors trust or system relative to all others.
It would be impossible for the U.S. to finance an unprecedented economic expansion like we’ve had while running a huge trade deficit unless foreign investors — as well as domestic but especially foreign — were confident that their hard-earned savings would be protected, and the financial information they were provided regarding prospective investments was accurate and comparable across the economy.