Is Washington Just Faking It?

We don't get it. Just when investors are beginning to believe in the stock market again, the Bush Administration is undercutting their confidence by subverting corporate reform. The President had a fine start in getting out ahead of the accounting and business scandals with an unexpectedly tough speech on CEO responsibility, but now the Administration is signaling that enough is enough.

Well, it isn't. Investors still feel deeply betrayed by the business fraud and blatant Wall Street conflicts of interest that cost them billions in wealth. The Administration should support a broad-based equity culture over the narrow and corrupt crony capitalism that has done so much harm to the U.S. To do that, it should fully implement the reform measures passed in recent months.

The first sign of backsliding: Republican pressure on Securities & Exchange Commission Chairman Harvey L. Pitt to withdraw his backing for John H. Biggs, former chairman and CEO of TIAA-CREF, to head the accounting oversight board established by the Sarbanes-Oxley Act. Indeed, it was Representative Michael G. Oxley (R-Ohio), a heavy backer of the accounting industry, who leaned hardest on Pitt to reject Biggs precisely because he promised serious reforms. If Pitt caves, it'll seem that Washington just toyed with investors, giving the appearance of reform while undermining real change.

Another sign is the Administration's recent attempt to lowball funding for the SEC. The agency desperately needs to increase staff to properly oversee Corporate America and help prevent a recurrence of this year's wave of scandals. The White House is now saying it is willing to go beyond a $568 million cap it had proposed. But if the SEC is to do its job, the Administration should back the full $750 million Congress wants to spend on the agency.

An equity culture of widespread stock market participation offers the best path back to growth and prosperity. But it rests on investors believing that they can rely on financial numbers, that corporate crooks will be punished, and that markets will be open and fair. A strong SEC is needed for this. The Administration is being shortsighted. Reform is just what investors--and the stock market--needs right now.

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