Last Tuesday, during the middle of the tumultuous mid-term elections, Harvey Pitt, chair of the Securities and Exchange Commission, submitted his resignation to President George W. Bush, thereby ending one portion of the drama that has entangled the SEC over the past several years of Pitt's reign.
Now that Pitt is out, Bush has the perfect opportunity to appoint someone to the position who will clean up the accounting mess and restore investor confidence in the SEC and the markets. Bush should obviously choose a new candidate who is as squeaky-clean as they come and as committed and able to root out corporate fraud and treachery as possible.
The importance of having a vigilant regulatory agency for the financial markets cannot be overstated. Properly functioning financial markets are the most efficient way to allocate resources. However, financial markets cannot function without a free flow of information, and if corporations are cooking the books then the financial markets do not work as they should.
It is abundantly clear that Pitt was not the right man for the job and that he was not as dedicated to rooting out corporate fraud as he should have been. For example, Pitt missed the accounting irregularities that brought down Enron, Co. and Worldcom, Inc., and, in general, he is far too close to the companies he is trying to regulate. He has had to recuse himself from many hearings because of conflicts of interest and he is too sympathetic to business interests. Indicative of this problem is Pitt's statement that he wants a kinder, gentler SEC--one thing this country and the markets do not need is a gentler SEC that is less willing to investigate corporate malfeasance.
Of course, any qualified head of the SEC will have some ties to corporations; however, it is surely possible to find someone who has fewer ties than Pitt and can be a more objective observer and regulator of financial markets. The SEC also suffers from other problems unrelated to Pitt, such as a serious lack of funding that prevents it from undertaking all necessary investigations. In addition to selecting a new qualified, objective head for the organization, Bush should also work to increase the funding of the SEC in order to ensure that it can carry out its assigned tasks.
At this time, what the nation's economy really needs is a boost of confidence. Pitt's resignation gives the administration a chance to start over with the SEC and consequently gives the agency a chance to restore the credibility of businesses and the faith of investors in the market, which is still feeling the fallout from recent corporate scandals.
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