Why didn’t Sarbanes-Oxley prevent the subprime mortgage crisis? That is the unspoken question asked in a piece titled “Criminalizing Capitalism” written by a Manhattan Institute scholar, Nicole Gelinas. She reminds us that the legislation passed in the wake of the Enron scandal was meant to reform corporate governance and head off punishing meltdowns of investor wealth. It hasn’t.

Instead, what Sarbox did was to open the door to excessive and sometimes careless criminal prosecution of corporate wrongdoing. The savaging of AIG and of the now-defunct Arthur Anderson are cases in point. According to Ms. Gelinas, the 20-year prison sentences available to prosecutors has created an environment of fear in the executive suite, which in turn has led to a wanton disregard for the rights of corporate defendants and, on occasion, flagrantly unfair treatment of companies and individuals.

This reality is not likely to be picked up and chewed over on “Oprah.” Americans don’t have much sympathy for corporate leaders. Follow-up interviews disclosed that the juries that tried the Enron executives were biased from the start and didn’t understand the charges against the defendants. They convicted them nonetheless out of a pronounced distrust of complex accounting, wealthy executives, collapsed stocks, and ski houses in Aspen, Colo. All of Houston, and indeed the world, found Jeffrey Skilling and Kenneth Lay guilty as charged.

Ms. Gelinas raises a good point: With the millions of dollars and man hours spent by corporations to comply with the provisions of Sarbox, how could the country be suffering from yet another gigantic corporate collapse? More to the point, how can we better protect investors, as this legislation has visibly come up short?

My view is that Sarbox cannot amend human nature. Greed will always drive speculation, which will lead to bubbles that inevitably burst. Those who took out subprime mortgages to buy “investment” properties that they intended to flip for quick profits; the mortgage brokers who made quick bucks when the deals closed; the mortgage providers who allowed the slippage in credit quality; the investment bankers who earned yummy fees bundling mortgage backed securities, and the investors who chased the extra yield points and only casually investigated what lay behind them — all were driven by profits. It was a typical musical-chairs boom and bust; Until the music stopped, everyone was happy.

Ms. Gelinas puts it as such: “No law can guarantee against economic disruption. A tiny percentage of executives are criminals. Mostly, people get caught up in trends, and at the end they are embarrassed.”

Her main concern is that Sarbox has given people a false sense of security. The cumbersome legislation is meant to provide safeguards, but really does little to prevent busts in the financial market. This concerns Ms. Gelinas because, as she says, “This is the first generation relying on themselves for retirement income. Increasingly, there are no more defined benefit pension plans — people’s accounts have become very important.”

Ms. Gelinas advocates creating rules that would prevent retirement accounts such as 401Ks and IRAs from being overly concentrated in any one stock or type of security. Apparently, in the wake of the Enron collapse, such a proposal was circulated, which prohibited the owners of such accounts from having more than 15% of retirement assets in one company or 20% in one industry. Ms. Gelinas would have these rules apply to Americans whose net worth or income is below perhaps $200,000, so as to exclude corporate types who have much of their compensation tied to a company’s stock.

While well intended, such a proposal makes me shudder. The idea of the government looking over the shoulders of tens of millions of Americans to vet their investment portfolios is horrific. Imagine the resources required. It would be almost impossible to prevent an investor from getting around such concentration restrictions. The use of derivatives, ETFs, and other vehicles to increase exposure to a sector or even a company could help individuals “game” the system.

Also, if someone were required to divest a security that then tripled in price, that person would no doubt turn around and sue the government for lost profits. And who’s to say that the government would limit its requirements to diversification? Mightn’t the same authorities then preclude investors from channeling money into small stocks? Young companies? Foreign issues? Opaque vehicles such as hedge funds or private equity funds? Yikes.

This is not an appealing concept. Even Ms. Gelinas admits that the proposal has faults, but she is concerned that baby boomer retirement assets have been and remain at risk. She is right.

“The worst thing about the Enron scandal was that the management encouraged employees to invest as much as possible in the company’s stock. People lost everything,” Ms. Gelinas writes.

Is there a better way to protect investors? Improved education might be a starting point. There are those who would start with introducing required personal finance courses into our school curriculum. There is a large segment that comes of age with little concept of how to balance a checkbook or how a mortgage works. These simple and necessary concepts should be taught early on. If Americans are to become more self-sufficient, they should be provided the necessary tools.

These issues will become more pressing as time passes. The looming inadequacies of the Social Security system will cast a spotlight on the need for Americans to manage their affairs more intelligently. The pending disaster that is the Social Security system also suggests strongly that the government is not the organization to give us guidance.

peek10021@aol.com