US Capital Markets Competitiveness Panel - Buffett, Immelt, Schwab, Dimon, Cox

Hank Paulson opens by asking Warren Buffett about the impact of new regulations on Berkshire's 73 companies. Buffett acknowledges corporate America 'brought it on themselves' in the 1990s, noting Berkshire spent $24 million on audit fees last year - more than necessary for good information. He shares that a new board member requested 'no audit committee' as a prenuptial agreement, highlighting how process has become tedious and detracts from more important board issues. Jeff Immelt emphasizes the problem isn't regulation itself but the loss of independent auditor credibility and judgment.

Ann Yerger from the Council of Institutional Investors emphasizes the importance of remembering the 'remarkable crisis of confidence' five years ago. She argues regulations were necessary and have made great strides in restoring trust. She notes boards failed investors, auditors became consultants rather than watchdogs, and the rules formalized best practices. Chuck Schwab focuses on individual investor confidence, noting two-thirds of Americans have stock market exposure and want transparency with adequate returns. He warns regulation can turn into litigation that harms investors.

John Thain presents concerning statistics: in 2005, only one of the 25 largest IPOs was registered in the US (improved to two in 2006). He identifies five reasons for decline: Sarbanes-Oxley 404 costs exceeding benefits, litigation environment deterring foreign companies, excessive regulatory regimes, lack of accounting convergence, and maturation of global markets. Jamie Dimon shares a revealing anecdote about due diligence in Britain - asked for litigation files, the company had just two lawsuits versus a 'busload that would fill this room' in America. He warns the legal system may be in the book on 'the rise and fall of America.'

Buffett explains Berkshire directors don't have D&O insurance - he wants them to profit or lose with shareholders, not off shareholders. Directors receive nominal $900/year fees but must have substantial Berkshire investment. He emphasizes directors must be business savvy, noting he's been on 19 public boards and seen smart people who are 'an absolute cipher' on business matters. The board's main job is having the right CEO and ensuring the CEO isn't overreaching. Buffett admits being nominated for compensation committees is rare because 'they look for cocker spaniels than for dobermans.'

Jeff Immelt clarifies there's nothing wrong with regulation - GE competes in healthcare and aviation with FDA and FAA oversight, and high standards can make companies more competitive. He emphasizes the desire is not for less regulation but for 'balance and judgment.' Jamie Dimon notes private equity is merchandising the 'nirvana' of being private (more money, less work, no quarterly earnings), but predicts a 'counter revelation' when they eventually go public again. Chuck Schwab observes individual investors care about returns, not regulations behind international funds - they want net returns and competitiveness.

Hank Paulson raises the rules vs principles debate. Buffett questions whether principles-based accounting works in the US legal system - how do you defend yourself in court saying you followed principles? Jamie Dimon notes accounting complexity where half the street does it one way, half another, and 'the SEC can't tell us' the right answer. Jeff Immelt points to 900 pages of hedge accounting rules that five PhDs can't agree on. Buffett counters with option expensing - when FASB said expensing was 'preferable,' only 2 of 500 S&P companies chose it. Chris Cox notes Congress has directed SEC to move toward principles-based accounting and integrate with global standards.

Chris Cox asks about global comparability and what system to build toward. Ann Yerger reports the institutional community strongly favors convergence and is comfortable eliminating reconciliation requirements, though individual investors may need more education on differences in treatments. John Thain confirms the US should accept full IFRS. There's broad support that convergence is in everyone's best interest in the marketplace.

Warren Buffett provides crucial context: corporate profits as percentage of GDP at well over 8% are the highest in US history, and return on tangible equity is also at historic highs. This cannot be regarded as a broken capitalistic system. American business will be ingenious about coping with almost anything. Jamie Dimon emphasizes America needs good non-partisan politics, energy policy, environmental policy, and pension policy for competitiveness. He warns that trust in all professions has fallen below 50% - 'we don't trust anybody: doctors, lawyers, accountants, business people.' The country needs higher-level, fact-based, non-partisan debate.