President Bush came out with a plan last week to crack down on rogue businessmen, but the market fell more than 500 points after the speech. Does the president have to do more? Are these scandals isolated or are there more to come?
We'll ask the administration's point man on this issue, SEC Chairman Harvey Pitt. And we'll get the view from the Democrats from their leader in the House, Dick Gephardt. Gloria Borger will be here and I'll have a final word on investor confidence.
But first, Harvey Pitt on Face the Nation..
And good morning again. Harvey Pitt is in the studio with us this morning.
Thank you for coming, sir. Let me get right to it. The present makes a speech on corporate responsibility and the market immediately drops 500 points. Why do you think that was?
HARVEY PITT, Securities and Exchange Commission Chairman: Well, one thing I've learned, Bob, in about 34 years, is never to try to predict what's going to happen in the markets.
But I'll tell you one of the things that I think contributed to it is that the public is getting a lot of political crossfire and not enough about what we in the government are doing to help investors. And that can help drive prices down and confidence away.
SCHIEFFER: Well, do you think it could have meant that the public does not think you're doing enough?
PITT: I don't think it meant that because, frankly, I don't think the public has been able to hear what we're doing. The reason is there are so many political sound bites that the public isn't being told how the SEC is working for their behalf.
SCHIEFFER: Let me ask you about some of the charges that have been leveled against you, because as you well know, before you took this job, you represented people, you were a lawyer, you were accused of insider trading.
You represented CEO's, you represented the Big Five accounting firms. There were times when your critics say, when people were trying to strengthen the rules that accountants operate under, you were one of those that tried to weaken them. How can you be the right person for the job right now?
PITT: Well, first of all, that last sound bite, and that's what it was, from some politicians, happens not to be true. I worked with two firms to try and help get Arthur Levitt's reform program through the rule-making process.
But the Senate, fully aware of all of my background, which they thought qualified me, voted unanimously to confirm me as SEC chairman. Once we entered a political election year, somehow suddenly my background seems to be a disadvantage. To me, that makes it clear we're dealing with politics, not with substance.
SCHIEFFER: Do you -- let me make it clear. You have no intention of stepping down and do you believe you enjoy the confidence of the president?
PITT: I have absolutely no intention of stepping down. I believe I enjoy the confidence of the president and I'm certain if I don't, he'll let me know.
GLORIA BORGER, U.S. News & World Report: When you became SEC chairman, you agreed not to participate in decisions involving your recent clients for a one-year period, it's called a cooling-off period. That ends on August 3rd. U.S. News this week reports that that kept you out of the decision-making process on about 112 companies. Do you intend now to get back into that decision-making process?
PITT: Well, I intend to continue to adhere to both the letter and the spirit of the ethics rules. I don't want to do anything that gives our critics an opportunity to raise issues. But the SEC needs my leadership. Public investors need my leadership. And we are going to do our utmost to make sure we serve them.
BORGER: So you're no longer going to recuse yourself then from these decisions?
PITT: I'm going to make a case-by-case decision. If I think there is an appearance issue or some other problem, I may still recuse myself. But I will tell you one other thing, Gloria, and that is that the number of my recusals is not nearly as high as my predecessor's.
BORGER: Well the vice president's former company, Halliburton, is being investigated right now by the SEC. Should you recuse yourself from that investigation, given the fact that the vice president was involved presumably with your appointment to head the SEC?
PITT: Absolutely not. I head an independent agency. And while an investigation is going on, the chairman of the SEC has no part in the investigation. We have an enforcement staff of dedicated professionals.
They're going to follow the trail wherever it leads. And as I've said previously, no one gets a pass. When there's something for me to decide, then I'll decide it.
BORGER: Well, do you expect the SEC to interview the vice president then?
PITT: I expect our Enforcement Division to do whatever they think they would do in any situation like this. No one gets special treatment.
SCHIEFFER: Well, you will have to eventually make the final decision on whether whatever the SEC investigators find is turned over to the Justice Department. Do you think it will be appropriate for to you do that, or should you recuse yourself from that decision?
PITT: I absolutely believe it will be appropriate. But we're way ahead of ourselves. At the moment, the enforcement staff is doing its usual thorough and professional job and when they have a recommendation to make, we'll then all be able to look at it and decide what we're going to do.
BORGER: How many more cases of corporate wrongdoing is the SEC investigating right now?
PITT: We are, unfortunately, investigating a record number. If you compare what we're doing now to the year 2000, the increase is staggering.
But on August 14th, because of an order that we issued under my direction requiring the heads of all the largest public companies to certify their filings with the SEC, we'll get an idea of just how many problems are lurking out there. And that will give people another reason to have more confidence when people certify their results.
BORGER: Are we talking 10 companies, 20 companies, 50 companies, 100 corporations?
PITT: I wish I could answer that for you, Gloria. But I will put it this way: If there's only one, it's one too many. We have a zero tolerance approach, zero tolerance.
SCHIEFFER: Go ahead.
BORGER: I was just going to say, is it a few rotten apples, as the president says, or do you think it's more than that?
PITT: I think it's a few rotten apples. But if I were a retiree who lost his or her entire life savings, that would not give me a lot of comfort. What would give me comfort is knowing that the SEC is going to go after these people, and people who do hard crime will do hard time.
SCHIEFFER: The -- up on Capitol Hill right now, Senator Sarbanes, as you know, has a reform bill that truly has some teeth in it. Putting in a new kind of board to oversee accountants, strict rules on how the board operates. Do you support that, or are you against that?
PITT: I support what Senator Sarbanes has done. I think Chairman Sarbanes of the Senate Banking Committee has conducted model hearings. They have been full of integrity. They're not political, unlike some of the sideshows we've seen. And I think that his bill contains the right approach and the right directions. And we want to work with him, and Chairman Oxley on the House side who also produced a bipartisan bill, to come up with the very best legislation that will help the American public.
SCHIEFFER: Well, if the Sarbanes bill passes, and it appears now that it will, and then it'll have to be reconciled with Representative Oxley's bill -- if it passes in substance as it is now, do you think the president ought to sign it?
PITT: I think that the president needs to sign legislation. I can't be more specific, Bob, because there have been enough floor amendments and the process still isn't finished, that I don't know everything that's in it. But I do believe that Chairman Sarbanes has done a phenomenal job of marshalling the evidence and facts, and that there is a need for legislation and we will support it.
SCHIEFFER: Well, I must say, I do not find that much enthusiasm at the White House for the Sarbanes legislation as I hear from you this morning.
PITT: Well, we're an independent regulatory agency. And as anyone who knows me knows, I call my own shots.
BORGER: If you were running a company, would you count stock options as expenses?
PITT: No. But if I were running a company, I would comply with the existing requirements. And I would make certain that my shareholders got to vote on every stock option plan and they got to know whether the stock options would allow senior officers to benefit and profit while the rank-and-file shareholders and employees lose millions of dollars. That's unacceptable. We want to put a stop to that.
SCHIEFFER: Should there be a law to that effect?
PITT: Well, I think there should be a requirement to that effect. And as you may know, Bob, I asked the New York Stock Exchange and Nasdaq to proceed with that. And for the first time, both New York and Nasdaq have agreed to implement the proposal that I first surfaced.
SCHIEFFER: What about some sort of new regulation -- because these are all things that are being talked about by various people on the Hill -- that would prevent company CEOs from selling stock until they leave the company? Do you think that's a good idea?
PITT: I don't think that it's a necessary idea and I think it could have unintended consequences. The law prevents any CEO from profiting based on inside information. And in my view, we are cracking down on that. And that's the place to make certain that CEOs don't do anything adverse to the interest of shareholders. But a blanket rule doesn't make sense because there are always special circumstances.
SCHIEFFER: Do you think that some people are going to jail as a result of what we know so far about what's happened on Wall Street?
PITT: I certainly hope so. We are working with the Department of Justice. Deputy Attorney General Larry Thompson heads up this task force that I'm a member of. And he is committed to ferreting out people who did wrong and sending them to jail and we support that.
SCHIEFFER: All right. Chairman Pitt, thank you very much for joining us this morning.
PITT: Thank you.
SCHIEFFER: When we come back, we'll get another view on this from the House Democratic leader, Dick Gephardt. In a minute.
SCHIEFFER: And we're joined now by the House Democratic leader, Dick Gephardt.
Mr. Gephardt, thank you very much for coming.
You heard Harvey Pitt say just now that if it comes down to making a final decision on whether to turn the investigation into Halliburton, and that, of course, involves the vice president, over to the Justice Department, that he does not intend to recuse himself as part of that decision-making process. Do you have a response to what he said? Is that the right thing for him to do?
MINORITY LEADER. RICHARD GEPHARDT, D-MO: Well, I think it would be best if he did recuse himself and I think it because he was selected by a transition team that was headed by Dick Cheney. And I think in all of this, what we need to do is establish credibility and get through these investigations and get the right rules in place so we can get this economy moving again. That's really what's at stake here, people's 401(k) plans and pension plans. And anything we can do to move that in the right direction we ought to do.
SCHIEFFER: Well, as you know, some Democrats and one -- at least one Republican, John McCain, and there's another over in the House, have said that Mr. Pitt is just the wrong person to be doing this. Do you think he ought to resign?
GEPHARDT: That's a decision that really the president and he has to make finally. I think that in this time, it would be better to have someone who did not have his history in business. Not that he did anything wrong or that there's anything wrong with his service. It's just that, again, we need credibility at this very important time.
He lobbied for and worked for many of the top accounting firms and he probably lobbied against some of the very rules that are now contained in the Sarbanes bill and that Arthur Levitt, the prior secretary of that department, put forward.
SCHIEFFER: Well, that sounds like a yes to me, that yes he ought to leave.
GEPHARDT: Well, that's not a decision that anyone can make other than the president and Mr. Pitt.
SCHIEFFER: But you're saying it would be better if he did.
GEPHARDT: I just think we're in a tough time right now. We need to get this economy back in shape. And people's investments, their lifetime savings are at stake and we need to get the best possible job done of getting business back in good shape.
I have business people coming to me all the time and say, "Please get this done. I run a good business and my good business needs to have a well run SEC and a well run government effort to clean these problems up."
BORGER: Republicans are saying that you Democrats are just looking for the issue du jour; that you've tried on assorted issues, on oil, for example, on energy, on the environment, and you haven't been able to attack the president on the war on terror. And that this is something finally you've glommed onto because it's just an easy political win for you. How do you respond to that?
GEPHARDT: Gloria, that's probably what they say about everything we bring up. "Oh, it's political. It's not a real issue."
This, this is an important set of issues. And it's important to people. We now have 90 million people in this country who are invested in the stock market. They've got 401(k) plans or pension plans. They've lost $7 trillion of wealth in the last few months. And they want the thing corrected. They know that rules have been broken, rules have been stretched and they want it fixed. And we have a duty to try to figure out what went wrong and to fix it.
SCHIEFFER: You know, I totally agree with you and that's what people want. But let me just -- I've got a newspaper clipping here from the Saturday morning Washington Post by Tom Edsel. And let me just read you the lead here. It says, "Right after voting yesterday to limit debate on legislation clamping down on corporate abuses, 16 Democratic senators flew on corporate jets from Washington to Nantucket, Massachusetts, for a weekend retreat with 250 major campaign donors. The jets were supplied by BellSouth, Eli Lilly, FedEx and AFLAC."
Given that, why should people take you seriously when you say you really want to clean this up? Aren't you doing the same thing the Republicans are?
GEPHARDT: Bob, I get asked all the time. People say, "Well, Democrats took contribution from corporations. How can they be credible on these issues?"
The question is, I think, what did you do after the campaign? What did you do on the issues that are important? We put out a report the other day that talked about what Republican leaders said in 1995 after the Contract With America was passed. They said their number one goal -- Tom DeLay, Newt Gingrich, said their number one goal was to deregulate American business.
Then we cite instance after instance where they either did something to unwind those regulations on corporations or they didn't do something that they should have done.
Arthur Levitt and President Clinton tried to get the Congress to put new regulations; that we're finally getting to now after the crisis is where it is. They are were refused time and time again by Republicans.
So you've got to look at not just where the money came from, but what people did, what actions they took or didn't take after the money came in.
BORGER: What do you want to hear from the vice president on the Halliburton accounting issue?
GEPHARDT: Gloria, we've all been through enough of these that I think if we know one thing, we know that the best policy is to just get the information out. Get it out in front of the American people.
BORGER: So what do you want them to do? What would you like them to do?
GEPHARDT: Get the investigation done and get the information out.
Now the investigation is going on. I hope it will be done quickly. But at some point, you just got to put the information in front of the American people and they can make their own judgment.
Dick Cheney is someone I've served with in the Congress. I have enormous respect for him. And I'm sure when all the information is out there, this is not going to be the kind of issue that some suspect it is. But let's get the information out.
SCHIEFFER: What has he done wrong in your view?
GEPHARDT: I don't know. I don't know the answer to that. That's what the investigation is for. There are thoughts out there that some of the things that went on in that company are the same kind of things that have gone on in some of the other companies there have been problems with: WorldCom, Enron, what have you. I don't know whether that's the case or not, but at the end of the day, we're better off if we get the information out and people can judge it for what it is.
SCHIEFFER: The Senate appears on the verge -- in fact, they're now predicting that they will pass a very tough reform bill putting in this new oversight board to regulate what accountants can and cannot do, new laws that will make it easier to put CEOs into jail and make them serve real jail time when they defraud investors. They say they're going to pass that on Monday night.
What do you think the chances are that the House will go along with the tough provisions that the Senate has put in this bill? Because as you know, the bill that passed the House was not nearly as tough as this one.
GEPHARDT: I'm very worried about it. And I'm holding a hearing next week on the Democratic side with people like Paul Volker, people like Arthur Levitt's top researcher and aide, to try to bring across what ought to happen in this legislation.
I'm worried that what will happen in the House is what happened last April, which is they had a very good bill from John LaFalce, our Democratic ranking member. It was tougher than the Sarbanes bill, and it was voted down with almost every Republican vote. Mr. Oxley was quoted as saying the other day, "Let's have a cooling-off period before we even go to the conference."
That's, you know, watering-down language to me. They're going to water this thing down and try to get out the parts that they've been against from the beginning.
BORGER: You don't think Republicans will be running to vote for this measure, given the fact that there's an election in four months?
GEPHARDT: Gloria, as our report pointed out yesterday, they said 1995, the main goal of the Contract With America was to totally deregulate American business. And they have set about doing that every day since then up to and including last April when they turned down the Sarbanes bill, turned down the LaFalce bill and passed the Oxley bill which, frankly, is an enshrinement of the status quo.
What is to lead us to believe they've changed their mind? This is -- their main goal in life is to get rid of necessary government efforts to keep business honest and good for investors and good for businesspeople.
SCHIEFFER: What is your latest thinking on running for president? I know you've thought about it a lot. You're out now working to try to get more Democrats elected to the House. But do you still have the idea of perhaps some day, somehow, running for president, next time out, for example?
GEPHARDT: Bob, my goal is to win the House back. And I work hard at it every day. And we're very close to it. We're only six seats away. I think we have a great chance to do it.
We need to do it to have a new agenda for America that is on a lot of these issues that we're talking about. I'll figure out what happens after that, after that.
SCHIEFFER: OK. Dick Gephardt, thank you so much.
GEPHARDT: Thank you.
SCHIEFFER: I'll be back with a final word in just a second.
SCHIEFFER: I don't know much about the arcane rules of accounting or much about high finance for that matter, but I know this much: When the economy is growing at a healthy rate, consumers are spending and inflation is down, but the stock market keeps on sinking, we've got a problem.
And it is not hard to figure out what it is. Investors no longer feel they're getting the straight story when they read a company's balance sheet. And who can blame them when a company like WorldCom collapses just after an independent audit and the auditors say with a straight face they never saw it coming?
Americans like to keep the government at a distance, but if we've learned one thing from all this, it is that self-regulation by the accounting industry simply hasn't worked. Too often auditors have become facilitators for the company's CEOs that hire them, rather than the watchdogs for investors they are supposed to be.
Congress has finally recognized that and will soon pass tough new laws to place the accountants under strict regulations and make it easier to put CEOs who defraud investors in jail.
The administration was slow off the mark but now is moving in the same direction.
All sides have wasted too much time blaming the other. This is beyond that.
This is about cleaning up crime, a task no different on Wall Street than any other street. A task that requires tough laws enforced by honest cops.
The American economy is the most powerful force on Earth; more than the military, it is the cornerstone of our national security. But until Americans believe they're getting the straight, honest story about American companies, they're not going to invest in them. We cannot afford that, literally.
That's it for us. We'll see you next week right here on Face the Nation..