VideoHarvey Pitt may be gone, but what he left undone can't be forgotten.
The perpetually embattled chairman of the Securities and Exchange Commission resigned on Election Night after 15 tumultuous months in office. Criticized for being too close to his former Wall Street clients, unable to build consensus, and arrogant to boot, he finally succumbed to criticism over his selection of William Webster to head the Public Company Accounting Oversight Board.
The leadership vacuum he leaves behind, however, especially coupled with the subsequent resignation of chief accountant Robert Herdman, could have a major impact on how regulatory reform is carried out. The SEC is charged with devising 24 sets of rules, completing six major studies, hiring 200 new employees, and reviewing one out of three filings by next year. By law, these duties must be fulfilled, says Greg Bruch, a partner at law firm Foley & Lardner, but the lack of a chairman could mean they are done in "a compromised way" that could lead to "more legal challenges and less public acceptance."
Georgetown law professor Donald C. Langevoort agrees that without a permanent chairman, "there will be little effort to be aggressive" on the rule-making side. And with the White House warning that finding a replacement could take months, don't be surprised, says Bruch, if other forces step in. "For corporations, not having an SEC chairman could mean more actions from the states," he says, citing as an example the campaign of New York State Attorney General Eliot Spitzer.
Retired judge Stanley Sporkin, who's been mentioned as a possible successor, speculates that the next chair might have it easier. Where Pitt was consumed by the accounting scandals and political upheaval, he says, his successor "will have time to study what went wrong and be proactive rather than reactive."
Not that he or she won't be busy. "There is so much the SEC has to do in regards to [the] Sarbanes-Oxley [Act of 2002]," says Dennis Beresford, professor of accounting at the University of Georgia, "that there will hardly be time to do anything else." —Lori Calabro
Is This the End?
When is a recession over? When these folks say it is.
So, while many economists agree that the recession that began in March 2001 ended earlier this year, the official arbiter — the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) — has yet to call it over.
Part of the problem is that economists disagree over the indicators of a recession. "If you ask three economists, you'll get four answers," jokes Ken Goldstein, an economist at The Conference Board. The common notion that a recession is defined by two or more consecutive quarters of decline in gross domestic product (GDP) is just "a rule of thumb," explains Goldstein.
The NBER doesn't even use GDP in its analysis. Instead, it focuses on such monthly indicators as unemployment, personal income, and industrial production.
The committee may be delaying its call to see if the economy worsens again. Then it will have to decide if the recession ended and began again — the dreaded double dip — or if it was one protracted decline. According to Goldstein, another downturn "is just not going to happen." Ask another economist, though, and you'll get a different answer. —Joseph McCafferty
Somebody's Watching You
If you're looking to launder money, a pawnbroker is a better bet than a bank — at least for now.
While banks labor under the strict guidelines of the anti-money-laundering Patriot Act, the Treasury Department is still laboring to set rules for small businesses that deal with large purchases, such as used-car dealers, pawnbrokers, jewelers, travel agencies, and a host of others.
The Patriot Act, passed in October 2001 in hopes of tripping up terrorist financing, requires all such institutions to establish anti-money-laundering programs within six months. In April, the Treasury Department issued regulations to the traditional financial-services sector, but so far it has failed to do so for the odd coterie of remaining companies.
Why the delay? The rules for banks are absurd for certain small businesses, which typically don't even have CFOs. "Having an individual trained in [money-laundering] compliance makes sense if you're American Express, but not if you're two guys with a jewelry cart at the mall," explains Karen Shaw Petrou, managing partner at consulting firm Federal Financial Analytics Inc.
But large financial institutions aren't complaining about the disparity. Instead, they're in overdrive to avoid "reputational accidents" that could prove far worse than the money-laundering scandals that plagued some major banks in recent years, says Alan Abel, head of PricewaterhouseCoopers's money-laundering compliance practice. "September 11 put money laundering and terrorist activity high in everyone's thoughts." That means even corporate banking customers will find themselves under tighter scrutiny.
"Customers are going to have to provide lots more information to banks and broker/dealers," agrees Petrou. "Banks want to determine not only that their own customers and counterparties are reputable, but that their customers in turn deal only with reputable people. There is a lot of contagion risk that everyone wants to insulate themselves from." —Tim Reason
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