The Rittenhouse Review

A Philadelphia Journal of Politics, Finance, Ethics, and Culture

Saturday, October 19, 2002  

Bush Administration Raids SEC Budget

Now we know how the Bush administration plans to fund the war on Iraq: by cutting back on previously authorized federal spending, even spending targeted at critically important issues and on programs for which the administration has loudly trumpeted its virtue for political purposes.

“Less than three months ago, President Bush signed with great fanfare sweeping corporate antifraud legislation that called for a huge increase in the budget of the Securities and Exchange Commission to police corporate America and clean up Wall Street. Now the White House is backing off the budget provision and urging Congress to provide the agency with 27 percent less money than the new law authorized,” reports Stephen Labaton in today’s New York Times (“Bush Seeks to Cut Back on Raise for S.E.C.’s Corporate Cleanup”). [Emphasis added.]

“Administration officials say their proposed increase is enough and that other budgetary needs, like the military and security against terrorism, make it impossible to afford more,” Labaton reports.

Democratic lawmakers and SEC officials argue the decision “reflects the administration’s calculation that corporate scandals have begun to recede as a political issue. They say that the administration’s more modest increase will not be able to pay for the expanded role of the agency, bring salaries up to levels at other financial regulatory agencies, finance the start-up costs of an accounting oversight board and significantly expand a staff that is already overwhelmed.”

In other words, the SEC won’t be able to launch or complete the additional investigations and perform the oversight functions expected to result from the Sarbanes-Oxley Act to at least try to prevent a recurrence of the great corporate scandals of the past two years.

The Sarbanes-Oxley Act, signed with ersatz bravado by President George Bush, authorized a 77 percent increase in the SEC’s budget. However, all funds authorized during the federal budget process must subsequently be appropriated, a second step that allows lawmakers of the unscrupulous sort, that is, the type that populate the current administration, to back track from previous decisions while escaping the close scrutiny associated with the authorization process. In this particular case, the Bush administration is asking for appropriations for the SEC that would increase spending by just 30 percent, less than half the increased authorization in the bill, according to the Times.

Even SEC Chairman Harvey Pitt is publicly complaining that the lower level of appropriations would make it difficult for the agency to undertake important initiatives in the area of technology and enforcement.

How bad are things at the SEC? According to the Times, “nearly a year after those corporate scandals began with the collapse of Enron [Corp.], commission officials say that they have struggled to keep up with their growing number of responsibilities and cases. Senior agency officials say that they are still unable to open many of the investigations that they want and that, as cases near trial, they will be stretched thin. The agency’s computer systems have not been updated in many years. The agency is unable to review the vast majority of corporate documents filed every day. And one investment house alone, Merrill Lynch, has more professionals in its legal and compliance departments than the commission’s entire enforcement staff.”

Sen. Paul S. Sarbanes (D-Md.) called the White House position “disheartening,” adding, “I can’t understand why they are taking this position. We didn’t pull the $776 million out of a hat. The costs of increasing pay, hiring new staff and increasing the volume of their business presents a case for a higher budget that is overwhelming.”

Says Sen. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee’s Subcommittee on Securities and Investment: “My sense is this is a White House that is sensing some political relief that this is no longer the issue on the table so they can take a political pass on this. They touched the critical issues last summer and now it’s gone. Now the issue is Iraq all the time. I think they are politically mistaken and also dangerous substantively. You have to have the resources and do the job. You need the right cops on the beat to get it done.”

With all due respect, Sen. Dodd, I believe that’s the point of the exercise. Is there any doubt, at least among rational, thinking people that the administration is thrilled to be impeding the SEC’s ability to perform its statutory obligations with respect to corporate accounting, reporting, and governance? The administration finds funds for the war on Iraq through what I would generously call non-traditional methods, and gets to trash Sarbanes-Oxley in the process. And I thought these guys were stupid.

And here’s a surprise: “The White House has put Mr. Pitt in the awkward position of having to choose between Congressional Democrats who want a larger budget and administration officials who want less,” Labaton reports.

Well, of course they have. And what is Pitt to say or do in response? He has no independent political base and no credibility, and the Democratic leadership is calling for his resignation. Pitt badly needs White House support right now as he faces questions about his past work for America Online Inc. and AOL Time Warner Inc. and criticism regarding his cavalier approach to establishing the accounting oversight board.

Simply put, Pitt has no choice but to go along with the White House on this issue, so don’t look for much noise from the SEC as its prospective budget is gutted.

Amazingly, this news appears in the Times on the very day the Bush administration is trumpeting its new plan to protect the integrity of 401(k) plans. “Feds Order 401(k) Crack Down,” blares the headline at CBS MarketWatch, which helpfully reports, “The announcement was met with skepticism by Democratic lawmakers, who said Bush was obligated to initiate such a reform under an already passed bill by Oct. 15. ‘The President’s announcement today is a non-announcement,’ Rep. George Miller, D-Calif, said in a statement. ‘It is merely his latest attempt to appear to be concerned about the plight of investors in decimated 401(k) accounts while he continues his non-stop, cross-country fundraising trips.’”

Day after day after day the Bush administration reveals an extraordinary, indeed unconscionable, degree of deceit and dishonesty, and an audacious disregard for the intelligence of the American people. And the White House press corps, together with nearly every segment of the media, looks the other way while leading Democrats cower in supine submission.

Hell, even the author of the Times article allows presidential spokesman Ari Fleischer to weasel around the issue. Pressed for an explanation of the Bush administration’s plans for the SEC, Fleischer said the major accomplishment of the end of the last session of Congress was that lawmakers left Washington without increasing spending. “Typically, when Congress leaves, they pay an exit fee, where spending is increased above and beyond what the Congressional budget authorized, and the taxpayers are always the victims. This year, the chain was broken,” said Fleischer, in remarks that would appear to have been intended as a response to a different question entirely.

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