In the current New Yorker, James Surowiecki defends Sarbanes-Oxley. I enjoy Surowiecki’s writing, especially his recent book, “The Wisdom of Crowds.” My problem, however, is that his article doesn’t defend the law itself, in fact Surowiecki calls it “decidedly flawed,” but he defends the law due to its good intentions.

Surowiecki writes that fraud was “becoming endemic” on Wall Street, and that there were “nearly a thousand earnings re-statements” between 1997 and 2002. But an earnings restatement isn’t an admission of fraud. Under current accounting rules, a company can legally—and I might add, ethically—report wildly different earnings for a given quarter. The reason accounting rules are so complex is because it’s a complex thing to do.

Surowiecki says that “fraud cost investors and lenders an enormous amount of money, vaporizing hundreds of billions of dollars in shareholder value.” Fraud is already illegal, and there’s no economic incentive to lie. If a guy in a bar tells a girl that he’s a billionaire, that fact that she may believe him has no effect on his bank account.

The tech bubble, much like the tango, needs two parties—companies and an investing public. Business Week had a fascinating article about how Cisco (CSCO) managed its earnings. On the last day of the quarter, the company frantically loaded boxes on to trucks so it could record them as “sold” for accounting purposes (and yes, that’ the rule).

Do you want to point the finger at Cisco and say what a horrible company they are? Fine, go right ahead. Oh by the way, here’s another fact. When midnight came, Cisco failed. The company had to report that it missed earnings by a wee penny a share. The stock promptly dropped 13%. Now, is it still Cisco’s fault?

While Sarbanes-Oxley has good intentions, the law is not increasing transparency. The law has fueled a private equity boom that’s decreasing transparency. Sarbanes-Oxley has also a huge boon for the accounting industry. Just look at the stock chart of a company like Resources Connection (RECN).

So far, the public hasn’t realized how dramatically Sarbanes-Oxley has hurt corporate efficiency. Autodesk (ADSK) said that 130 of its 135 internal auditors are solely focused on Sarbanes-Oxley. In the spirit of Sarbanes-Oxley we need an honest accounting of this misguided law’s true impact.

For more on Sarbanes-Oxley, you can read this, this and this.