Dick Morris
http://www.NewsAndOpinion.com | The New York Stock Exchange and NASDAQ are not in the middle of a cyclical downturn or suffering from jitters about the economy. This continued slide of the indexes is due to an investor strike in which individual market investors are refusing to commit more of their personal wealth and remaining assets to a market fraught with fraud and clearly unable to police itself.
An online survey taken by Vote.com on July 11 indicates that 34 percent of individual investors have owned or now own stock in a crippled giant: WorldCom, Qwest, Global Crossing, Enron, Merck, Merrill Lynch and the like. Badly burned, nearly 40 percent of individual investors now say they'll decrease their holdings of stocks unless and until the fraud scandal is cleaned up.
In the wake of the pileup of corporate fraud cases, the Securities and Exchange Commission (SEC) has become a bad joke - its investigations too little and too late; its rules filled with loopholes. Harvey Pitt is not the man to rally confidence. Nobody is going to rally around him, breathing a sigh of relief that a tough hand is at the helm.
When Franklin Delano Roosevelt faced a similar meltdown in confidence in the markets in the '30s, he saw the need to establish the SEC in the first place to police the markets and keep them honest. But, aware as we all are that a watchdog agency is only as good as the dog's sense of smell, FDR named Joseph P. Kennedy as its first chairman and future Supreme Court Justice William O. Douglas as its second.
In nominating Kennedy, FDR said, in effect, that it took one to know one. In naming the man who had probably gamed the markets in every way conceivable en route to amassing his large fortune, FDR was appointing someone who knew how the game was played and so knew how to counter it.
Today, President Bush and his challenged economic team will not restore investor confidence until he names as a new SEC head someone who instantly kindles credibility in the markets and sends a message to all who would defraud the system or cook the books: A tough cop is on duty. Watch out!
In all of the United States, only one name comes to mind: former New York City Mayor Rudolph Giuliani. Before he acquired his reputation for cuddly compassion, he was known, and feared, as a tough-as-nails prosecutor and hard-line mayor. As a U.S. attorney, he led investigations into quick-change artists such as Michael Milken and Ivan Boesky, never hesitating to handcuff wrongdoers in their capacious office power suites.
Giuliani's prosecutorial instincts, his administrative skills, and his popular credibility make him the ideal candidate to replace Pitt at the SEC.
It is not that Pitt has done a bad job. It's that a superstar is now needed at that agency. Bush should not let a misplaced personal loyalty lead him astray. He must act boldly to avert a market meltdown and Giuliani is just the man for the job.
Both parties, and the administration, are, of course, transparently phony in their supposed solutions to the market crash. As they well know, doubling prison terms for mail or wire fraud is a totally symbolic measure meaning absolutely nothing in real terms. Since each indictment contains multiple counts, ringing them up at five years each is not much different from 10 years each. In both cases, the sentences will come to impossibly long life terms. The real sentences must, of course, be lower. Raising a sentence that will never be imposed is political tomfoolery.
The real measures needed are those embodied in Sen. John McCain's (R-Ariz.) proposals. America's most honest senator has once again stepped in where campaign contributions - and lobbyists (such as Linda Hall Daschle) - have stopped legislators from treading.
We need to require expensing of stock options, ban incentive schemes without downside risk, ban sales of stock by CEOs and other top executives until a year after they have left office, ban stock holding by corporate board members, separate accounting and auditing, and a host of other tough measures.
But laws and bills won't solve this problem. Men and women who win the
public's confidence will - and Rudolph Giuliani is the key.
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JWR contributor Dick Morris is the author of, among others, "Power Plays: Top 20 Winning and Losing Strategies of History's Great Political Leaders" Comment by clicking here.
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