Former SEC Chairman: Greater Regulation Needed

William Donaldson , the former chair of the Securites and Exchange Commission i i

William Donaldson, the former chairman of the Securities and Exchange Commission, says he voted for regulation — and that some of the SEC's actions have been misunderstood. Art Silverman/NPR hide caption

itoggle caption Art Silverman/NPR
William Donaldson , the former chair of the Securites and Exchange Commission

William Donaldson, the former chairman of the Securities and Exchange Commission, says he voted for regulation — and that some of the SEC's actions have been misunderstood.

Art Silverman/NPR

William Donaldson, the former chairman of the Securities and Exchange Commission, has worn many hats on Wall Street — from the CEO of Aetna to head of the New York Stock Exchange.

He joined the SEC in February 2003, after the Enron scandal — in an era of heightened awareness of the power of public companies — and he says he voted for more regulation during his time there. Some of the SEC's actions have been misunderstood, he says.

Donaldson says regulating a financial industry that knows no boundaries — where capital flows freely between developed and emerging economies — is the "immediate challenge" and acknowledges that there's a "need for greater regulation."

"We're going to have to — first of all — readjust our institutions of regulations to adjust to the circumstances that exist today, one of which is global ownership," Donaldson tells NPR's Robert Siegel. "The second thing is that we're going to have to work with regulators and in other countries, both at the very highest level and at the enforcement level, to try to get some mutually recognized rules for regulation."

Donaldson notes that stocks have performed as well if not better when the market has been under stricter regulation from the SEC. And he says that the U.S. has always been the "gold standard of regulation."

Donaldson also says that the media — along with the rise of electronic trading — have "fanned" the idea that people bet on the market versus invest in the market.

"We've gotten away from fundamental investing," Donaldson says. "I feel distressed and concerned by how far away from fundamentals the marketplace has become over a short haul. You must remember, too, the market is like an iceberg — any individual stock, the great bulk of the stock holding is under the water. It's just the tip of the iceberg that's up above the water. That's where the trading mentality or betting mentality prevails."

As for whether the market will look up in a few years, Donaldson says he thinks the market has to go through a major adjustment.

"I think we're beginning to solve the credit crisis and the de-leveraging that's going to come with that, but now we're in the impact of that on the economy itself," he says. "Again, I think we're going to have to go through some rough times here before the economy itself turns around."

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