Regulators
The surest bet in Washington these days is the appointment of TIAA-CREF pension fund manager John Biggs to the board that is being created to crack down on the accounting industry.
Foes and allies alike figure that's the only way Securities and Exchange Commission Chairman Harvey Pitt can quiet the latest round of cries for his resignation. But as of Thursday, Mr. Pitt clearly wasn't in the mood to compromise with his critics. Asked about the calls for him to step down, Mr. Pitt told reporters: "Been there, done that. It is not worth taking time to respond."
Ouch. Not exactly the response Democratic leaders Sen. Tom Daschle and Rep. Richard Gephardt were expecting. On Wednesday the two charged Mr. Pitt with "inappropriate or improper actions" and asked President Bush to replace him. The White House dismissed the call as politically motivated to focus voters' attention on the nation's economic and corporate corruption problems before the November elections.
House Financial Services Committee Chairman Michael G. Oxley came to Mr. Pitt's defense, calling the Daschle-Gephardt letter "amazingly hypocritical."
But the "Harvey has to go" sentiment reverberated Thursday on the editorial pages of both The Wall Street Journal and the New York Times.
The Journal called Mr. Pitt "inept" for his handling of the Biggs appointment and the corporate scandals that helped precipitate the market downturn. It also took a swipe at Rep. Oxley for reportedly leading the GOP's objections to Mr. Biggs. "With his market experience and reputation for independence, Mr. Biggs has the credibility that markets now need," the editorial said, adding that Rep. Oxley and Mr. Pitt are "fronting one more time for the accounting lobby."
The accounting oversight board was mandated by the Sarbanes-Oxley Act, which gave the SEC until Oct. 28 to appoint a five-member board. A Times story named Mr. Biggs as the SEC's choice for the board's chairman, but then Mr. Pitt denied it and many cited opposition by Rep. Oxley as the reason the SEC had backed away from Mr. Biggs. That led to allegations that Mr. Pitt is a pawn of his party. (It didn't help much that the Bush administration dispatched Anne Womack, a 26-year-old from the White House press office, to "advise" Mr. Pitt.)
"If Harvey Pitt wants to retain sufficient credibility to stay on the job, he should hasten to name Mr. Biggs or someone of his caliber as chairman of the accounting oversight board," the Times wrote.
The fiasco over the accounting oversight board is not the only problem dogging Mr. Pitt. Just as momentum was building for his plan to require investment banks to separate research from underwriting, a senior Bush administration official came out against it.When the London Times asked John B. Taylor if break-up proposals should be acted on, the Treasury Under Secretary for International Affairs said, "I don't think so."
"Let's see what they do voluntarily. ... We don't want to overdo or make things too restrictive where they shouldn't be," he added.
Sen. Phil Gramm of Texas, the top Republican on the Senate Banking Committee, who will retire from Congress in January and join UBS Warburg as a vice chairman, also said the idea is not "practical."
"What you've got to do is be sure your research is credible, and the way to do that is give the research department autonomy to call things as they see it."
Sen. Joseph Lieberman, D-Conn., disagreed.
At a news conference Monday - at which the chairman of the Senate Governmental Affairs Committee released a 127-page report on a nearly yearlong investigation into whether the SEC, research analysts, and other private sector "watchdogs" were asleep at the wheel - Sen. Lieberman called for an "impregnable wall to be built between [analysts] and investment banking."
Asked whether he would try to construct the wall with laws if the SEC fails with regulations, Sen. Lieberman answered: "Yes."
"If they don't do it, I expect there will be a lot of support in Congress to do it legislatively." he said.
Congress
Not much seems to be coming out of the myriad congressional investigations into investment banks' relationships with failed companies such as Enron Corp., and conflicts of interest involving initial public offerings and research analysts.
Rep. Oxley seems the most uninterested in pursuing corporate misdeeds. He waited until 9 one night last week to release a four-page summary of his four-month probe into Citigroup Inc., Credit Suisse First Boston Corp., and Goldman Sachs Group Inc. The Ohio Republican is not expected to take the matter any further. Rep. Oxley told CNBC's Capital Report: "I don't think that Congress ought to legislate in this area.
"This is a very complicated issue, very difficult to get your hands around, and so I think it's the appropriate procedure to work through the SROs [self-regulatory organizations]."
House Energy and Commerce Committee Chairman W.J. "Billy" Tauzin, R-La., got a lot of press in the spring for requesting documents and questioning executives at Citi, J.P. Morgan Chase & Co., and Merrill Lynch & Co., CS First Boston, Deutsche Bank, Lehman Brothers, Wachovia Corp., and Canadian Imperial Bank of Commerce for their relationships with Enron - including executives' investments in and financing for the energy trader's special-purpose entities and other partnerships. But the committee remains silent on whether it found anything.
The Senate permanent subcommittee on investigations, which spent nearly a year probing the role Citi, Morgan Chase, and Merrill had in arranging off-balance-sheet financing for Enron, is promising a substantive report by yearend.
The deadline is today for the Federal Reserve Board and the Office of the Comptroller of the Currency to answer a second round of eight questions posed last month by Rep. John Dingell of Michigan.Rep. Dingell, the top Democrat on the House Energy and Commerce Committee, is investigating whether commercial banks are mispricing or tying credit and securities products. He asked the regulators to contact bank borrowers to find out if "they feel pressure to award investment banking or other services as a condition to obtaining commercial bank participation in loans?"
Quotable...
"I had an urge the other day to go buy a sympathy card and send it to SEC Chairman Harvey Pitt."
- Jim Hance, Bank of America's chief financial officer
