The mission of the Securities and Exchange Commission, in its own words, is: "to protect investors and maintain the integrity of the securities markets." That might give us comfort in this year of scandal, but remember that the SEC can only do what it can afford to do -- without adequate funding, the agency can't provide adequate protection. As it stands, the SEC is far outpaced by many companies' legal coffers, and it has an outdated computer system and an underpaid, insufficient staff.
SEC funding has become a hot issue, for those paying attention. As this nice recap of recent SEC funding history by Neal Lipschutz of Dow Jones explains, the Sarbanes-Oxley Act included an increase in SEC funding from $438 million to $776 million. President George W. Bush also vowed to increase SEC funding when he addressed the nation on corporate responsibility in July of this year.
But The New York Timesreports (free registration required) the White House has backed off the budget provision and is now urging Congress to provide the agency with $568 million, 27% less than the new law authorized. According to the Associated Press, Sen. Paul Sarbanes, chairman of the Senate Banking Committee, recently warned Bush that the SEC's "effectiveness will be seriously compromised" unless it gets more money.
It's hard to understand what the president and Congress are thinking in not quickly allocating some big bucks to the SEC. In 2001, national defense discretionary spending totaled an estimated $292 billion, some 16% of our national budget. That's 376 times more than the proposed $776 million for the SEC. Just today, President Bush signed an increase in military spending of more than $34 billion over the previous fiscal year. Of course, our national defense is important -- but so is our financial defense.
This should be very disheartening to investors. We need -- and deserve -- markets and financial information we can trust. If the SEC doesn't have the teeth it needs to enforce tougher rules and higher standards, then we're much less likely to see a real change in corporate behavior. How are we to have more faith in our financial futures, given these circumstances?