The Rittenhouse Review

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

Friday, November 01, 2002  

The Papers on Pitt

Surprisingly few newspapers and print pundits have anything to say today about the Securities and Exchange Commission’s top Keystone Kop, Harvey Pitt. I say surprising because we haven’t been presented with so clear cut an ethical lapse in the Bush administration since, what, Monday? But, to be fair, to the media, the election is just four days away and many papers are issuing or re-issuing their endorsements.

Among the notable standouts is the allegedly uncorrectable New York Times, which not only rectifies an error made last week but rightly, and alas in vain no doubt, calls upon Republicans to join Democrats in demanding Pitt’s ouster:

A correction is in order here. Last week we mistakenly wrote that William Webster lacked any relevant experience to serve as chairman of the new oversight board for the accounting profession. It turns out that Judge Webster has some very relevant experience, but of the kind that should have automatically disqualified him from being considered for the post, to which he was appointed last Friday.

In his desperation to use . . . Mr. Webster to derail the appointment of John Biggs . . . Mr. Pitt did what any manipulative proponent of the indefensible would have done. He hid the facts from his fellow commissioners before last Friday’s vote. When another commissioner complained that the selection process was tainted, he didn’t know the half of it. Now the cleanest way out of this mess is for Judge Webster to step down from the post he never should have accepted, and for the S.E.C. to appoint Mr. Biggs in his stead.

As for Mr. Pitt, there appears to be no bottom to the hole he keeps digging for himself and the S.E.C. The new accounting oversight board was the centerpiece of the corporate reforms Congress passed this summer in the wake of the Enron and WorldCom scandals. Mr. Pitt, knowing full well that the spotlight was trained on him, has managed to bungle its creation. Democrats are lining up to call for Mr. Pitt’s resignation, but the outrage must come from both parties. President Bush’s continued loyalty to Mr. Pitt mocks his administration’s promise to restore investor confidence.

Also writing on the controversy, in an article that will here at the Review be filed in the folder “Great Minds Think Alike,” is Times columnist Paul Krugman. He calls Pitt’s motive for selecting Webster “The Pitt Principle”:

[I]t’s no accident that Mr. Pitt picked the wrong man. Mr. Webster was chosen over better candidates precisely because accounting industry lobbyists -- a group that clearly still includes Mr. Pitt -- believed he would be ineffectual.

Let’s call it the Pitt Principle. The famous Peter Principle said that managers fail because they rise to their level of incompetence. The Pitt Principle tells us that sometimes incompetence is exactly what the people in charge want.

In this particular case, ordinary investors demanded a crackdown on corporate malfeasance -- and Mr. Pitt pretended to comply. But this administration is run by and for people who have profited handsomely from their insider connections. . . . So he picked someone with an impressive but irrelevant background, whom he could count on not to get the job done.

Then of course, there’s The Wall Street Journal, which, near as I can tell, isn’t happy with Pitt, though the ire of Paul Gigot & Co. goes far back. In the Journal editorial board’s worldview, expressed in a piece entitled “In the Pitts” [Subscription required.], the Keystone Kop’s most recent misstep wasn’t pushing the appointment of Webster to the Public Company Accounting Oversight Board (PCAOB), oh no: “In the latest banana-peel episode,” the Journal says, “Mr. Pitt has ordered a probe into his own appointment of William Webster to lead the new accounting standards board.”

On that we agree, at least in part. Yes, Pitt is an idiot, and arrogant and contemptible, for authorizing, hell, I don’t know, a couple of people at the SEC to take ex post facto notes about the whole matter. But it seems rather clear to everyone outside the World Financial Center with half a brain that there is quite a bit more to it than that.

Later in the piece, however, the editors add, “The problem here is Mr. Pitt’s credibility; you don’t have to be an ethicist to think he owed his colleagues the Webster news before they made a highly public and contentious vote.” So which is it, Mr. Gigot? Does Pitt have a credibility problem or an ethical problem? With all due respect, sir, if you think it’s only a credibility problem you are sorely mistaken and will be bound to continue to underestimate the political -- and financial -- ramifications of Pitt’s ineptitude.

The Journal editorial, naturally, includes a gratuitous swipe at that great bogeyman of 200 Liberty St., “trial lawyers,” and claims Democrats “are ecstatic that they can howl again for Mr. Pitt’s head five days from Election Day,” as if the issue will recede immediately thereafter. Don’t count on it, fellas.

In the end, however, to the Journal editors, good right-wing Republican boys that they are, this is just “politics.” But they graciously warn us “politics and honesty also matter to markets,” and Pitt’s failure was not his decision to maked a questionable appointment to head the PCAOB, but his resistance, along with “his fellow Republicans” (though none of the G.O.P.’s best and brightest at the Journal), to “any accounting reform for so long that when the WorldCom fraud broke no one believed their enforcement pledges.” And then those nasty Republicans, “They then ran for political cover and stuck everyone in business with the regulatory bill,” a reference to the bipartisan-supported and hardly onerous Sarbanes-Oxley Act.

It is for this great act of treachery that Pitt must . . . must . . . well, nothing. There apparently is no reason for him to resign. In fact, all the Journal can manage to say is that “Mr. Pitt is proving to be an expensive man to defend.” Better stock up on that pricey newsprint, guys. If you want Pitt to hang around, you’re going to need it.

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