DAYTON, OHIO (AP) - Harvey Pitt, former chairman of the U.S. Securities and Exchange Commission, said Friday he believes it could be up to two years before the economy bottoms and then rebounds.
Pitt, who was SEC chairman from 2001 to 2003, spoke during a symposium at the University of Dayton School of Law.
“I think we may go 18 to 24 months before we bottom out,” Pitt said following his talk to law students and others at the symposium. “Let me put it this way: I think there’s a lot more pain we’re all going to experience.”
Pitt said consumers have cut back on spending, which is causing companies to lay off workers. That gives people less money to spend, he said.
“We have to basically break into that, and it’s going to take a long time to get there,” he said.
Pitt said he supports the federal stimulus package, “but money needs to go to people who will spend it, not to businesses who created the problem in the first place.”
And while Pitt said he is predisposed against bailouts, he feels the bank bailout may have been necessary.
“I would like to see the economy jump-started, and that means to get some of these toxic assets off bank balance sheets and encourage banks to start making capital available,” he said. “I think that will be what is going to be a critical component of recovery.”
Pitt called the Bernard Madoff fraud scandal “tragic.” He said he would have like to have heard the SEC tell the victims: “We’re sorry. We blew this one.”
Madoff, a 70-year-old financier, pleaded guilty last week to perhaps the biggest swindle in Wall Street history.
Pitt said Madoff made it difficult for regulators to detect his actions early on, but that the SEC did receive tips about his activity.
“They had Madoff in their sights and let him get away,” Pitt said. “The system is not foolproof. People are human.”
Pitt said he doesn’t believe the solution is for the victims to sue the SEC.
Pitt said the erosion of the U.S. financial system was caused by national leaders encouraging the expansion of credit and banks being allowed to move liabilities off their balance sheets; the regulatory system that governs capital markets being broken; and an “appalling lack” of transparency in the distribution of securities.
Pitt said the federal government must begin collecting data that measures risk, and the data must be disseminated to the marketplace. In addition, Pitt said, the government must have the authority to redress crises, and the compliance examination and inspection system of the SEC must be restructured to prevent massive fraud.