Arthur Levitt, Jr., the 25th chairman of the United States Securities and Exchange Commission, (SEC) spoke yesterday, Monday March 2, 2009, at Indian River State College, a recently expanded 2-year community college in Fort Pierce, Florida. His topic, “America’s Turbulent Markets – How did we get here and where are we going,” was heavy on where we were and how we got here; however, not much was offered about were we are going.
Mr. Levitt gave a view of the current economic situation from his perspective as chairman of the SEC during the boom times of the Clinton years. Curiously, he did not mention Alan Greenspan who served during the same period, even though he listed the Federal Reserve as the first culprit in his list of who to blame for the situation The other three sharing the fault were the SEC, rating agents and appraisers (real estate and financial), and “professionals who got paid” for selling property and securities (agents and brokers). These four share the blame for letting the crisis happen, along with a big dose of “greed” which blinded the usually effective self-regulating controls normally functioning in a capitalist system.
Why did the SEC so blatantly fail in its responsibility to oversee the financial markets? Shortage of staff, limitation on budget, and improperly trained staff, specifically the absence of personnel knowledgeable in the trading of financial instruments, were the main reasons. Poor oversight by the commissioners as a contributing factor was minimized.
His explanation of how the SEC missed the Bernard Madoff debacle was “we simply dropped the ball.” This was despite the fact, according to Levitt, that over 40 complaints had been filed with the SEC, eight before he arrived in 1993, and some 20 during his tenure. Levitt said he had checked with all the SEC commissioners that served during his term, and not one of them had ever heard about a problem with Madoff’s funds.
Levitt emphasized that he did not foresee a depression similar to the 30s, however, he thought that home values may have to even drop another 40% before finally “finding their level” of stability. He also felt that we could not let the automobile companies go bankrupt, if for no other reason, the prestige of American industry.
“Transparency” was the purposed cure for the current catastrophe. Strictly enforced rules and standards by the accounting profession would open the books of banks and companies. This action and the accompanying availability of information would bring about the independent watchdog necessary to regain and insure confidence in the financial system.