Editorial: Tough talk, but where’s the beef?

Thursday, July 11, 2002 | 8:50 a.m.

George W. Bush, the first president with an MBA, went to Wall Street on Tuesday and laid out his plans to deal with the recent corporate scandals that have shaken investor confidence and have been a drag on the economic recovery. Bush did lecture corporate executives and said that they must embrace "a new ethic of responsibility," but the policy proposals he spelled out wouldn't do nearly as much as competing proposals in Congress.

The president made a splash about wanting to add another $100 million to the Securities and Exchange Commission's budget, but a former Republican chief of the SEC said this wasn't nearly enough. Proposals in the House and Senate would add about $300 million to the SEC's budget, allowing it to hire more employees and update their computer systems. Equally as important, the extra money sought by Congress would lift the pay scales of SEC investigators and attorneys, so that they're more in line with similar government agencies and the private sector. The turnover rate has been high at the SEC and low salaries are a big reason.

Bush also said that he wanted stiffer sentences for those found guilty of securities fraud, and while this sounds good, an analysis in Wednesday's Washington Post noted that obtaining a conviction under current securities laws is extremely difficult. So tougher penalties might not serve the deterrent effect if executives don't think they'll be convicted in the first place.

If the president genuinely wanted to make an impact, instead of emphasizing a retroactive approach with tougher sentences, he would be pro-active and stress stronger regulations that would head off fraudulent accounting and other abuses in the first place. A Democratic-sponsored proposal in the Senate, which Bush referred to but didn't endorse, would put in place stricter oversight of the accounting industry that is sorely lacking now. If the president really wanted to boost investor confidence, he would embrace accounting reforms such as those in the Senate. Instead he delivered a speech that was more an attempt to lessen the political fallout he and his party are receiving in light of their failure to aggressively push for reforms that would help prevent the kind of corporate scandals we've recently seen.