Stop Sign on Wall Street
A fortnight before the latest round of arrests of prominent financial figures, one of Wall Street’s most respected leaders recommended additional legislation to control financial institutions and the stock market, and tougher enforcement of existing regulations. The wisdom of his proposals is more evident with each new revelation.
The advice came from Felix G. Rohatyn, a partner in Lazard Freres & Co., an investment banking house, addressing the Senate Committee on Banking, Housing and Urban Affairs.
“I believe that, as a result of the ongoing revelations of scandals, the securities industry will have to accept new legislation and regulation to curb the speculative abuses of the past several years,” Rohatyn testified. “This is long overdue.”
He called on his colleagues to cooperate in the effort and not to “fight against the inevitable.” He chose the right word. New legislation would now seem to be inevitable, and that is a good thing. As Sen. William Proxmire (D-Wis.), chairman of the Senate Banking Committee, said, “Right now, it is far too easy for market manipulators to make a quick killing by putting a company into play and cashing in on the rise of the price of its stock.” Proxmire said that he plans to introduce legislation for comprehensive changes in “our laws regulating insider trading and corporate takeovers.”
More is at stake than the crimes of some of the principals in the feverish securities business. The uncontrolled activities on Wall Street are placing the national economy at risk.
“The financial markets now have a life of their own, seemingly unrelated to many underlying realities,” Rohatyn said. “The need for productive investment in this country, together with the risks created by the level of existing speculation, makes it more important than ever that the integrity of the markets be assured and that capital be used to build and not to speculate.”
He was scathing in his analysis of the financial community: “An industry which traditionally provided independent financial advice and distributed securities on behalf of its clients has turned into a business creating and selling new products and relying more and more on the trading of securities for its own account to generate profits.” The blame is shared by clients, lawyers and bankers. As a result, the integrity and safety of the securities markets are in jeopardy, and so is “the constructive use of capital as an engine for growth,” he said.
Rohatyn gave the committee a dozen specific remedial actions targeted at controlling junk bonds, arbitrage and greenmail, and writing rules to make takeover bids and takeover defenses fair.
His goal, he emphasized, is to encourage long-term investment instead of speculation, strengthen the competitiveness of industries, reduce risks in the securities markets and wrest those markets from the control of professionals and insiders. In other words, he is talking about strengthening vital elements of the national economy at a time when “deregulation and market ideology” have encouraged “a general climate of speculation we have not seen since the 1920s.”
His words give urgency to the work that Congress is undertaking.
