SEC head gives insider take on financial matters

JULIA TIERNAN/YH MONEY TALKS: Securities and Exchange Comissioner Arthur Levitt, Jr., thinks investors should educate themselves for their own protection.

On Mon., Feb. 22, Securities and Exchange (SEC) Commissioner Arthur Levitt, Jr., spoke at the Yale College Student Union on the topic "Where are America's markets headed?" The Yale Herald sat down with Levitt to talk about his views on new market risks and U.S. government plans to purchase stocks.

The Yale Herald: Is the SEC concerned with the rise of day traders participating in the stock markets?

Arthur Levitt: Yes, it is very much a concern. Day traders don't adequately understand the risks they pose. Studies show that 80 percent of day traders don't know what a limit order is. Day traders pay more when they buy and get less when they sell because they do so without a limit order.

YH: Should the SEC monitor day traders more rigorously?

AL: It's a question of trying to educate investors to protect themselves. Ultimately, that's the best protection for investors.

YH: Do you think the U.S. government should be buying stocks?

AL: The president has proposed the alternative of investing part of the social security reserve in common stocks versus government bonds. I think it's an issue--we should see to it that investors are protected and individuals are allowed to make their own investments. My concern is that investors should be protected. This depends on which of the various schemes out there should be embraced. I don't endorse any one of those schemes. But I do think there are certain problems with the government investing, such as `Will the process be politicized?' or `Will the government or Congress say that investments can't be made in weapons and tobacco?' This would potentially endanger investments.

YH: Given the volatile nature of hedge funds, will the SEC impose more regulations?

AL: It's too easy for hedge funds to move out of our jurisdiction. Also, most deal with sophisticated investors who can make their own investment decisions. We should strive for greater disclosure. Currently, the largest banks and brokerages have formed a task force to promote greater disclosure and exchange of information voluntarily. This is a good first step. The president is working to supplement these efforts.

YH: The current price-earnings ratio is high in the stock market. Are you worried that a bubble might occur?

AL: Markets will go up and down. I really don't try to predict when the market will rise or fall.

YH: Will there ever be a point where the stock market will be accessible to people of all economic backgrounds?

AL: It already is. Look at the people who own mutual funds and 401K funds. I think accessibility is a good thing.

YH: What do you like best about your job?

AL: The caliber of people who work at the Commission. They are the true patriots--they're underworked and overpaid. I enjoy working with them.

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