Consider this tidbit (cribbed from The Number, an outstanding book by New York Times reporter Alex Berenson due out from Random House in March):
In 1939, when a total of 260 million shares traded – all year – the S.E.C. had 1,700 employees. In 2001, when 2 billion shares traded a day, the S.E.C. had the equivalent of 2,936 full-time employees.
The number of brokers and mutual funds and annual reports and proxy statements had exploded – not to mention hedge funds and all the rest – yet the agency itself was little bigger than it had been in 1939.
What’s more, the loss of experienced personnel had become chronic. Why? First-year associates at major law firms earned more than senior S.E.C. attorneys.
On July 30, in the wake of Enron, the collapse of Arthur Anderson, and so much else that was shaking confidence in the trustworthiness of the U.S. securities markets – a national asset of incalculable importance – the President signed the Sarbanes-Oxley bill authorizing an increase in the S.E.C. budget from $438 million to $776 million. ‘Then, astonishingly,’ writes Berenson, ‘Bush proposed that the S.E.C. not be given all the money that it had been authorized in July.’
The Bush budget would be for $568 million, enough to improve the pay of existing employees, but not nearly enough to grow the commission to the size it needs to be.
The particular irony is that the S.E.C. is a net money-maker for Uncle Sam. In the fiscal year ended September 30, 2001, it collected a total of about $2 billion – $987 million in registration fees and $1.04 billion in transaction fees – or about five times its budget.
Even this year, with registrations way down, and the fees themselves mandated to be a much smaller sliver, more than $1.3 billion in receipts is expected.
Why not spend that on an S.E.C. that is equal to its task? Or at least more nearly equal? Today, the S.E.C. sees lots of likely frauds it simply lacks the resources to pursue. If you are a shareholder who’s been taken to the cleaners in one of these, doesn’t that gall you?
Instead of giving the S.E.C. the resources it needs, the emphasis seems to be on cutting the revenue it collects. Registration fees, which nicked companies $250 for every $1 million raised in 2001 will be cut to $80.90 per million for 2003. So instead of having to tip the croupier $25,000 for each $100 million a company raises, it’s going to be $8,090. I’m all for saving the shareholders $17,000 for each $100 million raised, but let’s at least spend what’s left to fund the S.E.C. Transaction fees of $33 per $1 million of stock traded were collected from the stock exchanges in 2001 and are slated to fall to $25.20 for 2003. These fees are often passed through to us and reflected on our brokerage confirmation slips (but as there are two parties to each trade, you only get nicked half the time, when you sell). The practical effect is that if you buy $10,000 of some stock and then later sell it for $10,000, you get dinged for 25 cents.
I’m a guy who – without meaning to brag – sometimes trades in amounts even greater than $10,000, so in the course of the year my share of the S.E.C. fees might total ten bucks or even twenty. But it’s a small price to pay to have cops on the beat – both to discourage deceptive practices in the first place and to pursue those that take place anyway.
As usual, it comes down to priorities. The Treasury is going to collect more than $1 billion from S.E.C. fees this year. So if Sarbanes-Oxley authorizes $776 million, why not accept that authorization and appropriate it? And plan to spend even more in future years, once the S.E.C. has time to ramp up and use the additional resources appropriately? How come the Bush/Cheney administration and many Republicans in Congress (and some Democrats) generally want to underfund the agency? It’s the sort of budget appropriation only an insider trader or a market manipulator would applaud. (As has been much noted, both Bush and Cheney have some firsthand experience with these murky waters. The less S.E.C. scrutiny of outfits like Harken and Halliburton, they may instinctively feel, the better.)
[Next preposterous idea: How about adequate funding for the IRS? Much as we all hate taxes, honest taxpayers, which is most of us, should really, really want this.]
Quote of the Day
Every debt is ultimately paid, if not by the debtor, then eventually by the creditor.~Jim Grant
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