Is Pitt's SEC a Toothless Watchdog?

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If you were to ask the most partisan Democrat for a caricature of a Bush Administration regulator, it would go like this: someone who got rich defending the industry that he now oversees, someone who came into the job promising a "kinder, gentler" agency that offers "respect and cooperation" to those it regulates, someone who has met privately with his old clients while his agency was investigating them, and someone who, just to complete the picture, favors retro three-piece suits.

This someone looks a lot like Securities and Exchange Commission chairman Harvey Pitt, which is why he makes such an irresistible target and why even the Wall Street Journal's conservative editorial page has suggested that he lacks credibility as the nation's top securities cop. Financial scandals are mounting so rapidly on his watch that Pitt's boldest acts — his recent proposal to create an independent oversight board for the accounting industry, the fraud charges he has brought against WorldCom — seem to come a few beats late. "He is not doing the job, in my opinion," Senate majority leader Tom Daschle declared as the WorldCom news broke.

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WorldCom's misdeeds are so big and brazen — and investor confidence is so fragile — that politicians can no longer afford to treat the accumulating scandals as anomalies in an otherwise healthy system. "The tipping point has been reached," says lobbyist Kenneth Duberstein, who served as chief of staff for Ronald Reagan. When the Senate Banking Committee passed new accounting regulations on June 18, few thought the bill would get the 60 votes it needed to overcome an almost certain filibuster. But after the WorldCom scandal broke, Daschle announced that the bill would be the first order of business when the Senate returns from its Fourth of July recess and predicted that it would get 80 votes.

Senate Democrats have begun pondering even tougher provisions, such as imposing criminal penalties for securities fraud now treated as a civil offense. And it seems a good bet that the Senate bill will prevail in conference over a weaker measure that the Republican-led House passed in April. The latest scandal has also breathed new life into legislation that would protect worker retirement accounts and change the way corporations report stock options.

With polls showing voters growing more jittery over their finances, the scandals have opened up a potential vulnerability for the Republicans. Even though President Bush's overall approval rating remains above 70%, surveys consistently show that significant numbers of Americans believe he is too close to business and that their opinion of how he handles the economy is slipping. Bush plans a major speech on corporate responsibility on July 9. Sources tell TIME that top political adviser Karl Rove and deputy chief of staff Josh Bolten are pushing hard for proposals that go well beyond the President's earlier calls to hold executives more accountable for the accuracy of their balance sheets. One option under consideration: appointment of a special counsel within the Justice Department, in part because Pitt has failed to restore investor confidence.

All this leaves Pitt right where he has spent much of his tenure as SEC chief — behind the curve. In a speech last week to the Economic Club of New York, he invoked the signature line of Howard Beale, the daffy anchorman of the movie Network: "I'm mad as hell, and I'm not going to take it anymore." It might have been more persuasive if it hadn't raised the obvious question: What took Pitt so long?