Seeking reassurance

August 14, 2002

IF THE MOST VEXING problem afflicting the economy is a deep crisis of confidence, then reassurance is found less in yesterday's presidential dog-and-pony show in Waco than in the one-page notarized forms now filtering into the Securities and Exchange Commission from the CEOs of the nation's largest corporations.

At his Texas economic forum, President George W. Bush sought to get ahead of an economic downturn given staying power by continuing revelations of corporate abuses. "I'm incredibly optimistic," he proclaimed. He also said he's killing $5 billion in spending, as if that will undo damage from the first national budget deficit in four years, a hole now some $200 billion deep.

Instead of this posturing, renewed optimism can only rest on a thorough cleansing -- and a welcome inkling of that comes with today's SEC deadline for the top officers of the country's 947 largest companies to swear to the veracity of their financial reports. As of yesterday, the agency's Web site listed hundreds of companies that had already complied.

In itself, the new SEC requirement doesn't solve anything. Top executives only have to attest that "to the best of my knowledge" their books are straight. Many companies don't have to file until later this year. Some likely will miss their deadlines.

But this simple step -- and the greater accountability and liability it puts on CEOs -- offers greater reassurance the era of overly creative accounting is ending than the president's happy talk. At the same time, there's a real question as to whether the SEC will follow up on this start.

The long-starved agency is getting a 65 percent funding increase, but for the foreseeable future it's swamped -- considering that it oversees 17,000 public companies, thousands of mutual funds and all the brokerages and exchanges that make up America's $12 billion stock market.

Fortune magazine says the agency, with only 100 lawyers to review the disclosures of 17,000 public companies, has only been studying one in 15 annual reports. SEC employees are so underpaid that a third leave every year.

Meanwhile, the SEC last year took in $2 billion in fees, income five times its budget and largely diverted to other federal pursuits. Why not really empower the agency by letting it keep more of its fees and fines?

Then there are doubts about the willingness of SEC head Harvey Pitt, a former accounting industry lawyer, to get tough with his ex-clients. The president has ignored calls to sack Mr. Pitt, which may be renewed this fall if the agency fails to name truly independent members to its new accounting regulation board. The outcome of the behind-the-scenes tussle over the board's composition will be a key threshold in the quest for economic security.

These challenges take the SEC back to its birth as Wall Street's sheriff in the wake of the 1929 stock market crash. Now with more money and powers, it finally has at least a shot at catching up with the abuses underlying the badly burst bubble of the 1990s.

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