Meet the New Boss, Same As the Old Boss

The Bush administration has finally found someone to head the Securities and Exchange Commission, the nation's stock market watchdog, after the disastrous tenure of Harvey Pitt, who resigned November 4.

Asking anyone but the most faithful to head a non-Cabinet level, foundering agency at the lowest point in its history is like asking someone to captain the Titanic, post-iceberg. Hence the large number of rejections before William H. Donaldson, a Wall Street insider with tight links to the Bush family, agreed to take the job.

But the naming of the chairman-designate raises more questions than it answers, some of them basic: Can any SEC chairman, as things stand now, protect investors from the fraud that attends a pervasively greedy Wall Street? Isn't any SEC chairman simply hamstrung so long as the SEC rule-making process is controlled by Wall Street interests -- the brokerage industry, banks and accounting professions -- and their allies in Congress? And, at core, does anyone in political Washington seriously care about investor protections, save as a sporadic exercise in political gamesmanship?

In the current situation, certainly, the administration's ability to attract decent candidates was hampered by the SEC itself, an agency characterized by low morale, meager resources and inadequate salaries. For years now, the SEC has lacked the staff to truly keep tabs on the markets.

What we know about Donaldson is that he has a great establishment resume: founder of a brokerage, dean of the management school at Yale, former head of the New York Stock Exchange, service in the Nixon and Ford administrations. What's less clear is whether he is committed to protecting mom and pop shareholders from the predations of corporate crooks. We don't know if he can provide the firepower to effectively take on CEO felons.

Then there's the matter of the SEC budget, for years used as a political football while it begged for more money to fight financial fraud. In time the SEC lost the workload war and its ability to perform even its most routine duties was destroyed. Now, on the first anniversary of the Enron debacle and the worst corporate scandals in our nation's history, the SEC finds itself equipped with only symbolic ability to police companies and markets.

True, administration spin doctors tout a record number of cases filed this year (given the pervasive fraud, one would hope so) and the adoption of a series of tough rules as a rebound by the agency. Those close to the situation, however, note that the commission's divisions are still losing ground. The New York Times recently reported that the agency's enforcement division and office of compliance inspections were understaffed by hundreds of officials, its corporate finance department couldn't begin to keep up with the deluge of filings, and the market regulation division -- having tried for years -- still couldn't persuade the agency's five commissioners to adopt rules on the way markets set stock prices.

What should most concern Donaldson, though, if he really wants to be an impact player, is that the political shell game that has shaped the SEC for years continues. It appears that his friend the President is really only interested in investor protections during photo ops and election years. Why else would the president call for a 66 percent budget increase in July, when he signed the corporate antifraud legislation, and then almost immediately pare that increase from $776 million to $568 million when no one was looking?

Freelance writer James A. Thompson is a former Wall Street Journal staffer and employee of the federal Commodity Futures Trading Commission.


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