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Pitt Falls and Cowboy Regulation
Paul Corrigan

The Bush administration is adept at personifying its disdain for regulating business. Securities and Exchange Commission Chairman Harvey Pitt is the proverbial fox put in charge of the henhouse. When Bush nominated Pitt, I recalled Ronald Reagan's appointment of James Watt as Secretary of the Interior. Both appointments were more than poor choices. The Watt and Pitt appointments were abdications of the role of government as regulator of corporate America. Bush's cowboy act may not scare terrorists, but it has the American capital markets shaking in their boots.

Pitt, to the glee of Democrats, has turned out to be as politically inept as Watt. In the face of deficits and tax cuts, he asked for a pay raise that the White House rebuffed for political reasons. Pitt began his term touting the Bush line of deregulation just before a wave of corporate scandals. Pitt's credibility was tarnished by revelations that he was playing Mini-Me to Dick Cheney's Dr. Evil: he had cozy relationships with the accounting firms that he used to represent, relationships evidenced by ill-advised private meetings wherein the regulated played policymaker. Pitt's actions bore a strikingly similar pattern to Cheney's approach to the energy industry. Pitt became a public relations problem for the administration when the large public accounting firms, capitalism's private watchdogs, were found to be incompetent at best and criminal at worst, in auditing a large number of public companies.

Both Cheney and Pitt, who wear their business credentials on their sleeves, made a joke of the vetting process intended to ensure that the best candidates, not political hacks, are appointed to key government positions. Cheney vetted himself into the vice presidency and Pitt vetted William Webster into the new board overseeing the accounting profession. Pitt chose to hide from members of the SEC who voted on Webster's confirmation that Webster was recently a director and head of the audit committee of US Technologies, a company being sued for fraud by its investors. The timing, a week before congressional elections, could hardly have been worse.

Despite Pitt's image problems, he remains an obedient servant to Bush. Pitt has kept the Bush code of silence. Unlike Janet Reno, Pitt will not be inviting any inquiries into the president that appointed him. This is true despite the fact that the issues of potential fraud relating to Bush's sale of his Harken Energy stock appear much more serious than the allegations in Whitewater. Bush appreciates loyalty to him and to his family. If Bush moves to replace Pitt, it will be with Pitt's acknowledgment that he has became a political liability. Any replacement would likely be an individual with strong ties to the Bush family and more than willing to abide by the unofficial loyalty oath.

Bush appears unfazed by the growing public perception within the capital markets that his administration is incapable of corporate governance. Reneging on his promise to increase SEC funding only increases the negative perceptions. The capital markets have long accepted the role that regulators like the SEC and the Federal Reserve play in capitalism; they should be fearful of an ideologue like Bush. Bush doesn't need regulation in his black-and-white world. He just sends in the troops after the bad guys, whether they are Saddam Hussein or "Corrupt Corporate Kingpins." With Bush, we get cowboy diplomacy and cowboy regulation. The problem with that philosophy is that we are in the 21st century, not the Wild West.

Despite the constant bellicosity, Bush's cowboy diplomacy appears to be held in check. The United Nations and world leaders have held the reins on Bush's war efforts. Elder statesmen and sage observers like Walter Cronkite have warned Americans that the administration's cowboy diplomacy could start World War III. Early on, astute investors like Warren Buffett had the courage and foresight to speak out against Bush's tax cut, but much more needs to be said and done about Bush's cowboy regulation. America needs more than just a policeman in the White House. We need a leader who understands that corporate scandals and limited growth run much deeper than a few bad guys and their access to world oil reserves. Conflict of interest is the status quo on Wall Street, in American boardrooms, and, alas, in the White House. September 11 reminded all Americans that we share the task of making a better world for our children. America's economic security is the real security for American families, not an all-encompassing war on terrorism. Making the economic pie larger, instead of grabbing an extra slice, should be everyone's responsibility.

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