HLP Keynote Address

SEC Historical Society Annual Meeting

New York, New York

June 9, 2005

Good afternoon.

I’m pleased and honored to be back at Bear Stearns today, as the SEC Historical Society holds its 2005 Annual Meeting here in New York City.   The SEC, as most of you know, is an agency for which I’ve unabashedly had great affection for nearly forty years, since I began my legal career there.  And, the SEC Historical Society, which commemorates the agency’s illustrious history, is also near and dear to my heart.

The Society came to life under the patient and nurturing care of former SEC Chairman David Ruder, who served as the Society’s first Chairman.  David is a very special person, and a dear friend; he deserves a place of honor in the annals of the SEC’s historical saga.  It was, therefore, fitting that he was the Society’s first Chairman.  Since David has relinquished the reins to Ted Levine and Bob Kueppers, the Society has continued to evolve and flourish, and now even has an actual bank balance filling its coffers!   Of course, it goes without saying that credit for the Historical Society’s terrific growth and great accomplishments are due, in no small measure, to the efforts of Carla Rosati, it's first, and only, Executive Director.

The last time I was physically at Bear Stearns — a scant forty-five months ago — its then auditorium served as the locus for a joint press conference conducted by the heads of the NYSE and Nasdaq, Peter Fisher of the Treasury Department, and me, to report on our first day of discussions regarding the reopening of our nation’s equity markets, in the aftermath of the hideous terrorist attacks of 9/11.  Today, I think it’s important that the Society is dedicating this Annual Meeting to recalling the events of 9/11, and the SEC’s role, among others, in addressing those events.

Given the impressive panel discussion you’ve just heard, I’m afraid this “Keynote Address” is at best redundant.  The people from whom you’ve just heard had to eat, drink and breathe the consequences of 9/11; they’re in the best position to tell you, and posterity, what really happened after our equity markets went down, and how we were able to respond.  Nonetheless, in the time we have together, I’d like to share with you some of my impressions and personal recollections of those terrible, yet ultimately rewarding, days, and then try to respond to any questions you may have.

Tacitus, the Roman historian, once observed that “history’s highest function is to let no worthy action go uncommemorated, while at the same time, holding out the possibility of reprobation by posterity to discourage evil words and evil deeds.”  Even back then, historians recognized that worthy actions and evil deeds were flip sides of the same coin.  It’s clear that those who rose to the occasion of 9/11 deserve commemoration; unfortunately, those who inflicted the evil deeds were not deterred by what they surely knew would be history’s stinging judgment of their behavior.   Oh no, they were counting on that.

But, unlike those who say one can never learn from history, I believe we must, and 9/11 is a paradigm of how a crisis could and should be handled, and how we benefit from history reminding us of what went wrong, and what went right.  In doing this, it’s unfortunate that we must reopen old wounds.  That, of course, is the process of the science of History.  They say that time heals all wounds; I suppose time will tell whether that’s even possible with respect to 9/11.  A part of me hopes it isn’t.  I believe we must remember, and feel the anguish and pain we all suffered that terrible day, in order to avoid repeating the causes that led to those dastardly acts. 

For me, here with you, almost four years later, it’s still chilling to recall the events of September 11^th, and their aftermath.  I guess it’s as someone once observed, “In this life we encounter hurts and trials we won’t be able to change; we’re just going to have to allow them to change us.”  September 11^th definitely changed all of us. 

In a sense, the starting point for me is to observe that, if there ever was a justification for government, it was 9/11.  It’s hard to imagine the private sector having been able to overcome the obstacles we collectively faced without its partnership with federal, state and local government bodies, and industry self-regulators.  That being said, it’s also impossible to imagine how the government could have achieved so much, so quickly and impressively, without the partnership we forged with the private sector.

September 11^th showed the incredible character of our unique Nation.  We’re bound together by our shared values.  These shared values represent, in the most fundamental terms, our commitment to Democracy.  Every day, our commitment to Democracy is tested.  No matter how well we’ve done in the past, the price of Freedom and Democracy is constantly rising to new tests and challenges, and meeting them handily.

When tragedy struck, everyone’s first reaction was disbelief, shock, remorse, grief and even fear, but those reactions quickly were overtaken by strength, courage, resolve and, finally, anger.  It’s somewhat trite, but nonetheless accurate, to say this Nation came together, and pulled together.  Police, firefighters, telephone technicians, electricians, financial institutions, members of the military, governments at every level, and civilians, all participated in rescue efforts.  This same spirit of cooperation imbued the efforts by so many in the public and private sectors to restore the vitality of our securities markets.

First, last and foremost, we were all painfully aware of the human aspect of this tragedy.  Sadly, many people employed in the securities industry, as well as countless others, died, and we’ll forever grieve over our losses.  Fortunately, many people miraculously were evacuated to safety and reunited with loved ones.  This included all of the SEC’s employees, when our Northeast Regional Office at 7 World Trade Center was destroyed in the aftermath of the attacks.  

When tragedy struck, we were in immediate contact with the leaders of our various securities markets, and in particular, Dick Grasso, who admirably became the face of American Capitalism.  I personally started every day after 9/11 talking with Dick, and his counterpart, Wick Simmons at Nasdaq, and Dick was the last person I spoke to at the end of every day, something my wife noted at least a little wistfully at times.  Although we were all surprised by these attacks, and the ultimate damage they inflicted, it seems obvious now to say that, of course, was their intent.  The perpetrators of this outrage intended to take down our financial institutions, and cripple American capitalism.

Theoretically, I suppose they could have succeeded, but the reality was that they really couldn’t.  The tragedy produced a great outpouring of compassion and common sense.  Rather than turn a crisis into some sort of competitive or political advantage, the securities industry and our government came together. 

At the SEC, we let our non-essential staff go home early — you know, as an aside, I’ve always feared that it’s just a little derogatory to refer to many of the wonderful folks at the SEC as “non-essential” staff.  Everyone at the SEC was, and is, essential, but that’s the administrative term, so I suppose I’m stuck with it.  Of course, Annette, David Becker, Mark Radke, my Chief of Staff, and I were joined at the hip for the remainder of the day.  I know I benefited from being joined at the hip with my colleagues; I’ll leave it to them to say whether they felt similarly.

The common refrain was, “how can we help?”  To borrow from Dickens, it was the worst of times, but it was also the best of times.  Working together with so many capable and concerned individuals was definitely inspirational.    When the markets closed, or more accurately didn’t open, as indeed they couldn’t, the President’s Working Group on Capital Markets sprang into action.  That Group’s principals were Treasury Secretary Paul O’Neil, Federal Reserve Board Chairman, Alan Greenspan, Chief Presidential Economic Advisor, Larry Lindsey, CFTC Chairman, Jim Newsome, and me, as SEC Chair.  Of course, the real work was performed by, among others, Treasury Undersecretary Peter Fisher, Fed Vice Chairman Roger Ferguson, SEC General Counsel David Becker, and Roger Ferguson’s wife, whose secret identity is the SEC Market Regulation Director, Annette Nazareth.

It’s important to recall that there was no precedent for what had just happened, and certainly no precedent for how to deal with it.   Indeed, it took two planes crashing into two buildings to persuade some of us, like me, that we weren’t dealing some vacationing yahoo who’d lost his way.  It’s also interesting to reflect on the fact that, at the SEC, the tragedy required every single office and division to reflect on what issues were created by these events, and what we needed to do to resolve them.  You may not think the terrorist attacks raised ’40 Act problems or issues for our Chief Accountant’s Office, but they did.

Over the course of our efforts, we developed several core tenets that guided our conduct and our decisions throughout the aftermath of 9/11, including:

·        First and foremost, focusing on the safety and well-being of the valiant citizens who were trying to rescue people trapped in the rubble created by the twin tower collapses;

·        Being sensitive to the needs of our employees — not just in DC and New York, but throughout all our offices nationwide;

·        Coordinating the responses and reactions of the equity and options markets;

·        Ensuring that, when the markets reopened, they would stay reopened;

·        Providing critical government transparency.  In times of crisis, the public has a legitimate need to know exactly what’s going on, what we’re planning to do, and why we’re moving in whatever directions we’re moving;

·        Figuring out what potential problems could be caused by this catastrophe, and how we could address and resolve them;

·        Creating a working team of all the various private and public sector organizations that had, or could have had, some role to play in resolving the aftermath of 9/11;

·        Making critical decisions on site; it was imperative that we be physically present in the heart of New York’s financial district, to help assess the realities of the situation, and facilitate the implementation of necessary solutions; and

·        Viewing the problems we faced as collective problems, and encouraging those subject to our regulation to be equal partners in figuring out, and implementing, the methodology to get out of that mess.

Barely hours after I finally went to sleep on 9/11, I was at ABC’s Good Morning America studios to update the public on what was happening.  I remember vividly just how startled the hosts of the program were when, toward the end of the interview, I gratuitously volunteered that, when the markets reopened, there would be some nifty values to be realized for those who purchased various equity securities.  I’m not sure Congress intended the SEC’s Chairman to advocate stock purchases, but we were already focused on avoiding an imbalance of supply and demand when the equity markets reopened, and necessity is always the mother of invention.

Immediately after the TV interview, David Becker, Annette Nazareth, Mark Radke, Lisa Panisiti, my Deputy Chief of Staff, Peter Fisher, and I, took the train to NY.  It was difficult not only to get into New York, but also to travel around certain portions of it.  We found this out, first hand, when, after our arrival and first meetings, we visited the NYSE, and the surrounding financial district, on Thursday morning.  The scene was eerie, and akin to something straight out of some science fiction movie depicting an invasion from outer space.  The usually teeming streets of the financial district were barren of cars or people, save for marines in camouflage uniforms, sporting machine guns, and wearing surgical masks.  A thin white powder covered the streets and sidewalks, and I remember thinking that this looked not like the financial district of the most sophisticated financial center in the world, but rather, like a third-world country.  Believe me when I say it was chilling, and that I’ll never forget those images.

Our first step was to convene a meeting of the major markets, the major brokerage firms, Con Ed, Verizon, FEMA, the federal government’s emergency management agency, the New York City Mayor’s emergency agency, and Governor Pataki’s emergency representatives.  Our goal was to understand, first hand, what was physically possible, and what was not.  Our secondary goal, once we’d achieved the first, was to figure out how to get our markets back up and running.  We proceeded to receive updates on the damage inflicted, the extent of the communications outages, the state of readiness of the major brokerage firms, and of course, the precise status of rescue efforts. 

There were some who felt the markets should reopen immediately.  The truth was that they couldn’t.  More importantly, we were terribly worried that, if the markets reopened, and then collapsed, we’d never regain investor and public confidence.  That meant that the markets should reopen just as quickly as they could, but not a moment sooner than reasonable assurances could be provided that once reopened, they were likely to stay open.  I know that view was shared by both Dick Grasso and Wick Simmons, but because so much pressure was anticipated, we thought it best for the SEC to assume publicly the full responsibility for the decision to defer reopening the markets.  I learned later that the White House had sent out communications to certain of its mailing lists expressing the hope that “Harvey Pitt would allow the markets to reopen in the next day or two.”

What was interesting about our decision to shoulder the responsibility for that determination was that it was inconsistent with the actual way we approached this crisis.  We thought it was important that the government act as a facilitator for the goals we all agreed upon, not as the dictator or sole decision-maker resolving all questions.  We received marvelous support and assistance from all the firms.

On Thursday morning, we met at the NYSE with the Exchange’s excellent regulatory and senior executive staff, and with Verizon and Con Ed officials.  That meeting was the only one that occurred without the major industry representatives present, because we wanted to get the straight skinny — just how bad really was the problem?  What we learned was depressing.  About 80% of the NYSE communications network was routed through a West Side Verizon routing station, and that station was inoperative.  To make the system function again, we were going to wait until all of those communication lines were rerouted through a major East Side routing station.

Worse, FEMA and the Mayor’s emergency personnel advised us that, if the financial district were reopened in the next day or two, allowing thousands of people to stream through the destroyed area, the efforts to search for and recover the bodies of possibly still living victims of that horrible day would be unalterably damaged.  Some of the firms thought they could resume trading immediately; others knew they could not.  It made sense to us to proceed carefully.  Although by Thursday morning I was fairly certain that Monday would be our target date for reopening, I also thought it would be a mistake to decide that on Wednesday or Thursday.  We all agreed that we should decide matters one day at a time, and that proved to be the right course.

On Thursday afternoon, we met at the offices of CS First Boston, and we again agreed that the markets shouldn’t open on Friday.  Another press conference was held.  Throughout both days, I was in constant communication with Paul Sarbanes, Phil Gramm, Mike Oxley and John LaFalce, the chairs and ranking minority members of both the Senate Banking Committee and the House Financial Services Committee.  They offered encouragement and assistance at every step of the way. 

On a personal note, I was diverted momentarily from our meeting when Lisa Panasiti pulled me out.  Prior to the meeting, she had once again commandeered my BlackBerry and cell phone, as she was wont to do, and she told me that she had received a call, on my cell phone, from my wife.  My wife and two younger children and I live in an area of Washington, DC called, not surprisingly, Kalorama.  Our house is very close to the Islamic Mosque.  My wife had called Lisa to alert her to the fact that she, our two children, and our two dogs, had been compelled by local authorities to evacuate our house and neighborhood.  Lisa was in tears as she reported all this to me, but by the time I talked to my wife, it was clear things had calmed down considerably; there no longer was any danger, just inconvenience. 

On a related note, my family has always believed one of its principal functions is to keep me humble.  And, they’re quite good at it, perhaps because they have so much material to work with!  Robert, my youngest son, who was then eleven, asked my wife whether, since I was a Government official, the terrorists might try to kill me.  Saree, my wife, who’s very level headed and quick, looked Robert straight in the eye and said, “no Robert, it’s not a problem; no one other than your Dad really cares about the SEC”!

For the SEC, the terrorist attacks imposed a triple whammy — the markets were taken down, many friends and colleagues of ours were murdered, and our New York Office, located then at 7 World Trade Center, crumbled into rubble, taking with it not just offices and computer files, but also personal treasures and possessions.  Shortly before I returned to the SEC, my former law firm was able to persuade Carmen Lawrence, Wayne Carlin’s predecessor as Head of the SEC’s Northeast Regional Office, to join the firm in New York.  Carmen had left much of her memorabilia back in her old office, and of course, those irreplaceable items were gone forever.

Of primary concern was the need to account for every member of our New York Office’s Staff.  The last person, a young woman who was a compliance inspector, called me back shortly before midnight.  She’d been in the second tower, ready to do a compliance exam.  When the first tower was hit, she began running down flights of stairs, eventually running past firemen rushing up as the second plane hit, and she made her way out of the building safely.  She told me that she’d then walked all the way home to the upper west side, showered and, starting at 4 pm, spent the remainder of the day in Church, thanking God for sparing her life.  We were both rather emotional during that conversation, as you might imagine.

Just as in the private sector, we needed to move quickly to attend to the details of making our New York Office vibrant and functioning again and to begin the healing and emotional recovery process.  Under Wayne Carlin’s effective leadership, all staff members were able to communicate electronically, the staff received lap top computers, and many cases were discussed or resolved in various living rooms and kitchens around the tri-state area.  One of our most remarkable accomplishments, due to Wayne Carlin’s and Jayne Seidman’s leadership, was to rehouse the agency back in the financial district little over a month later.  We were the first federal agency to return.

It’s hard to focus on just how devastating these tragic events were on those fortunate enough to survive.  People in the financial district saw friends, relatives and colleagues throwing themselves out of the windows of buildings that had been struck.  All of our employees were encouraged to use our Employee Assistance Program, and those who couldn’t work were given very liberal leave.  In a few cases, some asked to be reassigned.  I remember receiving a handwritten note from a father of one of our newest hires in New York.  He told me how excited and thrilled his son was to be working at the SEC, but he confided that his son simply couldn’t bring himself to go back to work in New York.  We reassigned that young man, and I’m proud to say we fulfilled every such request without question or recrimination.

Next, we focused on restoring our markets.  This was critical.  It was critical to our Country, it was critical to the American psyche, and it was critical to the message we sent around the world:  Our freedom and way of life are bedrocks that terrorists can never destroy.  People worked day and night to ensure that trading in our securities markets resumed without a hitch and that all trading opportunities were once again available to investors. Everyone wanted to make a contribution, and everyone did.

On Friday, we focused on how we would reopen our markets.  It was decided to defer reopening until Monday, so that we could use the weekend to test out the new communications and electrical networks that had been installed.  That was where the non-event of Y2K came in very handy.  Because of the work the agency had done in preparing for that potential, but never materialized, crisis, we were able to send teams of volunteers to major locations around New York City, to assist the firms and markets in testing the equipment over the weekend.  We thought it better to do the testing on dummy transactions, rather than on live actual trades.  The few glitches found were readily repaired.

Over the weekend, we negotiated an agreement between Dick Grasso and Wick Simmons to deal with the possibility that one or the other of those major markets might stumble.  We wanted an agreement in place that assured everyone that trading could continue in all securities if one or the other of them went down.  To their credit, they readily agreed.

By Monday September 17^th, all the Nation’s securities markets resumed trading — less than one week after these heinous attacks.  The markets did not give way to panic selling.  The delays in resuming trading gave investors time to reflect and to speak up about the strength of America’s markets.  And the world heard them.  Our free markets are not located in any one building or city or place.  It’s not possible to destroy them.  They’re an amalgamation of people and ideas and freedom.  And they’re emblematic of our great Nation.

In the wake of September 11th, we witnessed an extraordinary level of cooperation among market participants. For instance, the New York Stock Exchange opened a portion of its floor to accommodate trading in equities and exchange-traded funds by the Amex.  In less than a week, the entire options business of the Amex was moved to the Philadelphia Stock Exchange.  And, brokerage firms that, prior to September 11th looked for every advantage over their competitors, afterwards were providing space to competitors that suffered as a result of the attacks. In short, the most competitive markets in the world demonstrated they were also the most compassionate.

It was this spirit of cooperation and compassion that we sought to continue throughout my tenure at the SEC.  We can be justifiably proud of the public and private sector cooperation that followed September 11^th.  Everyone pulled together to overcome this disaster.  We learned a number of lessons, lessons that continue to have relevance to every issue the SEC grapples with.  Some of those lessons were:

·        The importance of people — there are no insignificant people

·        The value of listening as well as speaking

·        The importance of risk assessment

·        The need for planned redundancy without geographical overlap or proximity

·        The need for City, State and Federal agencies to work together

·        The advantages of a partnership between the public and private sectors

·        The understanding that government has to apply it's creative ideas and requirements to itself

·        The need to reassess what had happened, not for the purpose of affixing blame or approbation, but to share with all the lessons we’d learned in a difficult time.  The Fed, OCC and SEC collaborated on a lessons learned monograph which was excellently put together and

·        The realization that no matter how bad things seem, they can always get worse!

The City of New York, my hometown, really showed its greatness.  New York was long ago dubbed “the most hopeful city on earth.”  It still is.  E.B. White compared it to a local willow tree.  His prophetic words have renewed resonance today:  “It’s a battered tree, long suffering and much climbed, held together by strands of wire, but beloved by those who know it.  In a way it symbolizes the city:  life under difficulties, growth against odds, sap-rise in the midst of concrete, and the steady reach for the sun.”

I hope we continue to grow, and always “reach for the sun.”  If we do, we’ll honor the spirit of those we lost on September 11^th, and we’ll meet whatever challenges confront us.

Thank you.