Former SEC Chairman William Donaldson Offers His Outlook For The Economy
Tuesday, January 13, 2009SUZANNE PRATT: One major issue that the Obama administration must soon tackle is the potential reform of securities regulation. Joining me now with a discussion of that topic and more is former SEC Chairman William Donaldson. Mr. Donaldson led the SEC from 2003 to 2005. He is also a member of President-Elect Obama's transition team of economic advisors and chairman of Donaldson Enterprises. Mr. Donaldson, welcome to our program this evening.
WILLIAM DONALDSON, CHAIRMAN, DONALDSON ENTERPRISES: Nice to be here, Suzanne.
PRATT: To that long list of accomplishments I have to add founder of DLJ. So I want to begin my questions this evening with a quick one about the Citi and Morgan Stanley merger of those brokerage units. What do you make of that deal?
DONALDSON: Well, I think the deal makes sense. I think putting together those two retail brokerage forces and creating the largest force in the country is probably a step in the right direction. It won't be easy to merge the two when you have that many people with ways and territories of doing business. It will be a management challenge, but I think it makes sense.
PRATT: Let's shift for a moment, if you will, to a discussion of the Madoff scandal. Most would definitely agree 2008 was a nightmare for individual investors capped off by the Bernard Madoff scheme. Now what do you think needs to change to make sure that another Madoff scheme or scandal on something of that magnitude never happens again for individual investors?
DONALDSON: Well, I think we're entering a period now where there's going to have to be a major change in the whole regulatory scheme in the United States. The securities acts of '33 and '34 and Glass Stiegle were put into being 70 years ago and times have changed. With the Glass Stiegle act, with the (INAUDIBLE) Filey (ph) act, everybody is in everybody else's business. And so the regulatory authorities are going to have to be remodeled to make sure that the whole landscape is covered.
PRATT: How is it though that -- I mean, explain for individual investors, if you will, how it is that the SEC failed to protect investors from a scheme, a multibillion dollar scheme? I mean, what do you think went wrong?
DONALDSON: Well, I think plain and simple, reading the report that was put to the SEC in 2006, I guess, I think somebody must have dropped the ball. Although it's hard to know what exactly how that happened. But certainly the outline of the Madoff scheme that was presented to the SEC in 2006 deserved action and somebody must have dropped the ball.
PRATT: I want to switch gears and talk to you about the remaining TARP funds that the president-elect was asking for on the Hill today. What do you think the most effective use of that money would be?
DONALDSON: Well, I think that basically the use of the money to reliquify the equity in the banks has been a step in the right direction, giving them the opportunity to make loans. I think that's been a more effective use of the money to date. We now have the toxic access. We also have to pay attention to the mortgage market and the housing market. And I think we're going to have to see some acceleration of relief if you will to homeowners who are in deep trouble. PRATT: You've also said that part of restoring confidence in U.S. financial markets is more transparency. How would you advise the Obama administration so that future TARP bailout funds are less opaque? DONALDSON: Well, I think one of the problems we've had is that there's been very little transparency in the actions that have been taken to date. A lot of money is being handed out and I think the public and industry and the financial industry, nobody is quite sure what the -- what exactly the terms of these financings are, what are the requirements in terms of the use of the money. What are the criteria that are being used to decide where the money is going to go? I think because the public doesn't understand that and it hasn't been transparent, it creates confusion and creates the image -- and it's kind of an ad hoc program.
PRATT: Unfortunately we have to leave it there. Thank you for joining us this evening.
DONALDSON: Glad to be here.
PRATT: My guest William Donaldson, former SEC chairman.
