An Old, Valuable Map

“I believe that the officials, and, especially, the directors of corporations should be held personally accountable when corporations break the law.” Sounds like President Bush addressing Wall Street executives Tuesday about the corporate scandals that have undermined the nation’s economy. Actually, it was Theodore Roosevelt in 1910 in his “New Nationalism” speech. Then, as now, big business attacked any regulation--and change arrived only after fierce political fights. Bush, if he studied this history, would see that political survivors ride the wave of reform rather than try to stem it.

The first reforms came after the robber baron era in the late 19th century. Before that, big corporations hadn’t existed, so there was no need for broad federal regulations to disclose the financial health of companies to potential investors. After the Civil War, railroad tycoons like Jay Gould used every trick in the book to manipulate stocks, including issuing phony ones, to create gigantic trusts and monopolies. An alarmed Congress created the Interstate Commerce Commission in 1887. But not until trust-buster Roosevelt won passage of the 1906 Hepburn Act was the commission empowered to set uniform accounting standards for railroads.

If Teddy Roosevelt championed saving capitalism from itself, it was left to his nephew, Franklin D. Roosevelt, to carry out a revolution in regulation after the 1929 stock market crash. In the 1920s, the financial information that corporations released was largely up to them. There was little or no protection against fraudulent stock sales. Even as he was called a dictator and communist by Republicans, Roosevelt created the Securities and Exchange Commission, which regulated the stock market and required full disclosure of stocks being sold. The aim was to restore investor confidence.

Now that the 1990s bubble has popped and companies are confessing to cooking the books, New Deal regulations are showing their age, and their loopholes. The auditing industry and corporations need new, stiff regulations tailored to an age of corporations with intangible products, like wireless services.

In his Wall Street speech last week, President Bush huffed about punishing corporate bad guys but ignored measures to prevent artificial inflation of revenue and fraudulent bookkeeping in the first place. He failed to push hard for an auditing regulatory board free of industry influence. Nor did Bush mention stock options, currently issued without counting their costs on the books.

With dozens of pieces of legislation addressing misconduct before Congress, covering everything from cracking down on accountants who consult at the companies they audit to beefing up market oversight, Bush has plenty to choose from. The most comprehensive bill remains Sen. Paul S. Sarbanes’ (D-Md.) proposal to make audits transparent and create a public oversight board.

Bush shouldn’t just sound like Teddy Roosevelt, he should act like him. History shows that public revulsion and investor anxiety will force through reforms, whether the president and his corporate backers like it or not. If Bush gets on board now, he can make the reforms happen faster and claim some credit.