The United States has experienced a confidence crisis before, which is one of the reasons why the SEC was created in 1934. The SEC's main function is to oversee the federal securities acts, which essentially boil down to forcing public corporations to honestly tell the public about themselves . However, is what the SEC requires of our corporations enough? Or, on the other hand, is the SEC even necessary in the first place? Former SEC Chairman Arthur Levitt wanted the SEC to be stronger. While nobody seems to be blaming the SEC for the current crisis, many people, including former SEC Chairman Harvey Pitt, seemed to believe that the SEC now has to do more. Some SEC reforms are on the table, and while they all seem well intended, perhaps the key question that we have to ask ourselves is, "How much will such reforms contribute to restoring investor confidence?" This question especially warrants consideration if the size of the SEC's role in the current crisis is questionable to begin with.
Increasing the SEC's budget and hiring new employees will surely increase enforcement in the short term. However, we feel this is only a short- term solution. Years from now, after investor confidence has been restored, who's to say that those budgets won't be cut back again? The government tends to spend money where the public and the media have their attention and cut budgets elsewhere. In the 1990s, the number of investors in the stock market quadrupled, but the SEC budget hardly grew. In 1996, a Senate committee initially tried to cut the SEC budget by 20 percent. It ended up keeping the budget at the existing level. In 1998, Chairman Levitt appealed to Congress for an emergency $7 million for special bonuses to stem the high turnover of the SEC's attorneys and investigators . Congress rejected the proposal. Finally, in 2001, Congress agreed to increase the SEC budget, but it never appropriated all of the money for the increase. What will happen to the SEC's budget, and its ability to regulate several years from now when the public focus has moved elsewhere?