Geoff Wisner

Take On the Street: What Wall Street and Corporate America Don't Want You to Know. What You Can Do to Fight Back

by Arthur Levitt. Pantheon, 2002. 338 pages.

Take On the Street, by former SEC chairman Arthur Levitt, is an odd combination of memoir and investment manual. Levitt has interesting things to say about his career at the SEC and some useful advice on investing, but the reader may finish the book wanting more in both areas.

The book's introduction gives a fairly breathless summary of Levitt's life. Born in 1931 (according to the copyright notice), he grew up in Crown Heights. His mother taught second grade, and his father was New York State comptroller for 24 years. In the late '50s and early '60s, he says, "I sold cattle and ranches to wealthy people who needed tax shelters" -- and lobbied Congress to protect those shelters. In 1963 he became a stockbroker with a start-up brokerage company. One of his young partners was Sandy Weill, the future chairman of Citigroup. In 1978 he left the company, then called Shearson Hayden Stone. And in 1992 President Clinton selected him to be the new chairman of the Securities and Exchange Commission. Wait a second ... what was Levitt up to between 1978 and 1992? Nothing sinister, perhaps, but it's just one of many odd omissions in the book, which alternates between disarming frankness and apparent evasiveness.

First, the frankness: Levitt is the first to admit that becoming head of the SEC may have had less to do with his qualifications than with the $750,000 he helped raise for Bill Clinton's presidential campaign. And as early as page 11, he admits that his "single biggest mistake" at the SEC was his failure to support the Financial Accounting Standards Board when it wanted to require companies to count the stock options they issued as an expense.

To be fair, every reform move Levitt backed or proposed came up against well-funded and well-entrenched financial and political interests. Levitt is just as frank (if not more so) when it comes to naming names as he is when admitting fault, and his discussion of various dirty doings is some of the most interesting material in the book.

For example: Corporate scandals at Enron, Tyco, and WorldCom are famous, but it may be less well known that Waste Management colluded with Arthur Andersen to hide $1.7 billion in expenses, or that Xerox agreed to pay a $10 million fine in April 2002 for overstating revenues by $2 billion from 1997 to 2000.

According to Levitt, the NASD, owner and regulator of the Nasdaq market, "turned a blind eye" to the "shameful and shocking" agreements among some Nasdaq market-makers to rip off investors by keeping the spreads on transactions wide. (A side effect of the change to quoting stock prices in decimals rather than 1/8s, he says, is that spreads were reduced almost overnight.)

Finally, one might have expected Levitt to encounter flak from Republicans in Congress, but it was Joe Lieberman who led the fight against expensing stock options. Lieberman also joined Chuck Schumer in signing letters opposing more independence for company auditors.

Now, the evasiveness: Levitt's book makes it clear that he understands how things work on Wall Street -- how brokers are rewarded for churning their clients' accounts, how financial analysts are rewarded for praising companies that do business with their employers, and so on. His remarks on the "seven deadly sins of mutual funds" (high fees, tax liabilities, emphasis on past performance, etc.) are not very surprising, but his discussion of the hidden costs of online trading may be more so.

It's less clear when he attained all this wisdom, or when he started to do anything about it. He was "shocked," he says, when he realized after an incident in 1996 that auditors "failed to rally to the cause of investors, and instead supported the demands of their corporate clients." This realization comes rather late in the day, it would seem, for someone who had worked on Wall Street for 28 years and had been running the SEC since 1993.

Levitt cites a 1972 speech in which he said brokers should be paid on the basis of how well they perform for their clients, not on how many transactions they execute, but apart from that he didn't seem to have shown much zeal for reform before joining the SEC. It's not too surprising that senior staff there "viewed me as a wealthy New Yorker who got the job by raising lots of money for Clinton."

Nonetheless, once at the SEC Levitt does seem to have done quite a lot to help clean up the securities business and protect the interests of individual investors. He held town hall meetings to try to educate and organize those investors, opened an Office of Investor Education at the SEC, and required that prospectuses and other financial documents be written in plain English. He proposed rules to make auditors independent of their corporate clients, and passed Regulation Fair Disclosure to make sure companies release important information to all investors at the same time (rather than releasing it to a favored analyst at the golf course).

These efforts weren't enough, though, as Enron and other corporate scandals made plain after Levitt left office in February 2001.

Despite all his years in the industry, was Levitt unaware of just how deep the corruption went? Were the anti-reform forces -- in industry, in Congress -- just too powerful to overcome? Or was Rep. John Dingell right when he said to Levitt, "Arthur, I worry you're not tough enough for these bastards"? This cagey book never really makes the answer clear.



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Geoff Wisner Take On the Street: What Wall Street and Corporate America Don't Want You to Know. What You Can Do to Fight Back by Arthur Levitt. Pantheon, 2002. 338 pages. Take On the Street, by former SEC chairman Arthur Levitt, is an odd combination of memoir and investment manual. Levitt has interesting things to say about his career at the SEC and some useful advice on investing, but the reader may finish the book wanting more in both areas. The book's introduction gives a fairly breathless summary of Levitt's life. Born in 1931 (according to the copyright notice), he grew up in Crown Heights. His mother taught second grade, and his father was New York State comptroller for 24 years. In the late '50s and early '60s, he says, "I sold cattle and ranches to wealthy people who needed tax shelters" -- and lobbied Congress to protect those shelters. In 1963 he became a stockbroker with a start-up brokerage company. One of his young partners was Sandy Weill, the future chairman of Citigroup. In 1978 he left the company, then called Shearson Hayden Stone. And in 1992 President Clinton selected him to be the new chairman of the Securities and Exchange Commission. Wait a second ... what was Levitt up to between 1978 and 1992? Nothing sinister, perhaps, but it's just one of many odd omissions in the book, which alternates between disarming frankness and apparent evasiveness. First, the frankness: Levitt is the first to admit that becoming head of the SEC may have had less to do with his qualifications than with the $750,000 he helped raise for Bill Clinton's presidential campaign. And as early as page 11, he admits that his "single biggest mistake" at the SEC was his failure to support the Financial Accounting Standards Board when it wanted to require companies to count the stock options they issued as an expense. To be fair, every reform move Levitt backed or proposed came up against well-funded and well-entrenched financial and political interests. Levitt is just as frank (if not more so) when it comes to naming names as he is when admitting fault, and his discussion of various dirty doings is some of the most interesting material in the book. For example: Corporate scandals at Enron, Tyco, and WorldCom are famous, but it may be less well known that Waste Management colluded with Arthur Andersen to hide $1.7 billion in expenses, or that Xerox agreed to pay a $10 million fine in April 2002 for overstating revenues by $2 billion from 1997 to 2000. According to Levitt, the NASD, owner and regulator of the Nasdaq market, "turned a blind eye" to the "shameful and shocking" agreements among some Nasdaq market-makers to rip off investors by keeping the spreads on transactions wide. (A side effect of the change to quoting stock prices in decimals rather than 1/8s, he says, is that spreads were reduced almost overnight.) Finally, one might have expected Levitt to encounter flak from Republicans in Congress, but it was Joe Lieberman who led the fight against expensing stock options. Lieberman also joined Chuck Schumer in signing letters opposing more independence for company auditors. Now, the evasiveness: Levitt's book makes it clear that he understands how things work on Wall Street -- how brokers are rewarded for churning their clients' accounts, how financial analysts are rewarded for praising companies that do business with their employers, and so on. His remarks on the "seven deadly sins of mutual funds" (high fees, tax liabilities, emphasis on past performance, etc.) are not very surprising, but his discussion of the hidden costs of online trading may be more so. It's less clear when he attained all this wisdom, or when he started to do anything about it. He was "shocked," he says, when he realized after an incident in 1996 that auditors "failed to rally to the cause of investors, and instead supported the demands of their corporate clients." This realization comes rather late in the day, it would seem, for someone who had worked on Wall Street for 28 years and had been running the SEC since 1993. Levitt cites a 1972 speech in which he said brokers should be paid on the basis of how well they perform for their clients, not on how many transactions they execute, but apart from that he didn't seem to have shown much zeal for reform before joining the SEC. It's not too surprising that senior staff there "viewed me as a wealthy New Yorker who got the job by raising lots of money for Clinton." Nonetheless, once at the SEC Levitt does seem to have done quite a lot to help clean up the securities business and protect the interests of individual investors. He held town hall meetings to try to educate and organize those investors, opened an Office of Investor Education at the SEC, and required that prospectuses and other financial documents be written in plain English. He proposed rules to make auditors independent of their corporate clients, and passed Regulation Fair Disclosure to make sure companies release important information to all investors at the same time (rather than releasing it to a favored analyst at the golf course). These efforts weren't enough, though, as Enron and other corporate scandals made plain after Levitt left office in February 2001. Despite all his years in the industry, was Levitt unaware of just how deep the corruption went? Were the anti-reform forces -- in industry, in Congress -- just too powerful to overcome? Or was Rep. John Dingell right when he said to Levitt, "Arthur, I worry you're not tough enough for these bastards"? This cagey book never really makes the answer clear.