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Use the Presidential Broom

July 23, 2002

One day Wall Street is spooked by WorldCom's filing for bankruptcy, the next by Citigroup's apparent ties to Enron. Small investors haven't a clue about what's coming and whom to trust.

They have plenty of reasons to be dazed. Even before Monday, the market had recorded its worst two-week drop since the 1987 crash. But is a fundamental shift taking place, one in which small investors are bailing out for good? Or is this just part of an ordinary if unusually nasty market cycle, the decline before the ascent?

Richard Grasso, New York Stock Exchange chief, says the market is in the down part of a cycle and eventually will recover and investors will be rewarded if they remain calm. But according to Allen Sinai of Decision Economics Inc., if they don't, there's a big chance that the market will drag down consumer spending and the still-weak economy will follow.

There are many confounding factors, including public anger at executives who walked away with millions before their companies tanked. There's impatience to see corrupt executives punished sharply for cooking the books--and not much belief that it will happen, despite all the promises of crackdowns. There's fear that many other phony bottom lines simply haven't been exposed yet. And there's the wild card--will foreigners continue to pull out of U.S. investments?

The best way to avoid the doomsayers' scenario is for President Bush and Congress to sweep faster. Bush should start with his own house, ordering the Securities and Exchange Commission to release any documents related to his controversial sale of energy company stock in 1990. Get it out and get it over with, like any smart company with bad news to impart. Right now, Bush's history is an albatross.

He also needs to fire the head of the SEC, Harvey L. Pitt, who was a prominent attorney for the big accounting firms and has had to recuse himself from more than 20 investigative cases because of his links to industry. Pitt is not the right leader for a crisis of this magnitude.

Bush, instead of merely agreeing to sign whatever is passed, should openly urge congressional Republicans to support the strict Senate version of the accounting reform bill. House Republicans need to get behind the bill and pass it swiftly, not chip away at it with amendments.

Bush keeps trying to build consumer confidence by simply saying the economy is fundamentally sound and that he supports reform. Workers and retirees watching their assets sink aren't buying it. When Bush offers vague generalities rather than specific reforms, frightened investors pull out and the market tumbles, as it did by more than 200 points at the end of a wildly gyrating day Monday. Bush should be able to detect a pattern by now and alter his course.

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