Man Without Qualities

Monday, February 18, 2002

Pandemonium at the SEC

According to the Washington Post, a remarkably telling comment escaped a few days ago from Arthur Levitt, the former chairman of the Securities and Exchange Commission: "The business community now looks at things in terms of what they can get away with, not what is right."

In other words, Mr. Levitt, the Federal government’s chief securities enforcer for eight years, now tells us that he actually believes that the entire business community is a bunch of crooks. His comment helps explain why the securities markets may have gone so far off track on his watch.

The basic tenets of “community policing” teach that the police must establish rapport and sympathy with, and an understanding of, the policed community. A police officer who thinks the entire community is criminal is simply incapable of enforcing the law, and a real menace to that community. It is a question of the proper application of finite resources. There can never be enough resources, nor should there ever be enough resources, available to any police authority to put almost EVERYONE in jail. It is perhaps the most basic part of a police officer’s job to understand that criminals are always a small minority. That understanding is absolutely necessary if the officer is to have any hope of telling the criminals from the law-abiding citizens. If the police can’t tell the criminals from the law abiding, then law enforcement is doomed to fall unjustly on the innocent as well as the guilty, eventually resulting in widespread contempt for the law. All of this is as applicable to the Securities and Exchange Commission as it is to the police department of any large city.

And all of it seems to have been lost on Mr. Levitt.

Deep suspicion of the entire business community such as that expressed by Mr. Levitt should be expected to result in gross misapplication of SEC resources, eventually resulting in contempt for the agency. And it certainly seemed as though during his tenure the SEC constantly complained that its resources were inadequate, complaints that seemed to go far beyond those of his predecessors.

It has already been noted here that Mr. Levitt attempts to explain how Enron’s alleged long-term malfeasance slipped through undetected in all the years of his watch by arguing that he had to direct SEC resources onto the wave of initial public offerings that crested during his term, and away from policing “established companies” such as Enron. But Mr. Levitt’s comment condemning the business community as a whole savors of a paranoia that suggests that he was much more scattered and incompetent than his facile explanation allows. When the head of the SEC becomes so delusional as to believe that the entire business community cares only about “what they can get away with, not what is right,” the SEC is probably going to spend most of its resources on fool’s errands, trying to scare the demons out from under every bed. There won’t be many resources left over for finding the real crooks. All of which goes a long way towards explaining how irregularities at companies such as Global Crossing - a huge, volatile start-up with a flaky business plan which was and is run by Gary Winnick, a former close associate of Michael Milken and big-time Democrat contributor - might have escaped the notice of Mr. Levitt’s SEC.

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