NYT Interview with Arthur Levitt - Why SEC missed on Madoff

Interview by DEBORAH SOLOMON
Published: January 22, 2009

As the former chief of the Securities and Exchange Commission, which is supposed to protect the American people from investment fraud, how do you feel when you look at the current economic landscape and see 401(k)’s going up in smoke?
I feel saddened. I feel saddened that so many people have been hurt; that, on reflection, we’ve all acted foolishly. We’ve spent too much money on too many frivolous things.

How could a journalist spend too much money? That defies logic.
You have changed your spending habits.

Have you changed yours?
Yes. I canceled a vacation to the Far East that I had planned for the spring. I don’t feel right about spending large sums of money in this environment.

As the chief of the S.E.C. under Clinton, are you kicking yourself for not having caught Madoff at his game?
I believe that our commission was the most investor-friendly in the history of America. Bernie Madoff was simply not on our screen, except as a leading market maker.

In 2000, you put Madoff on an advisory committee, presumably because he was a pioneer of electronic trading.
The S.E.C. had perhaps 14 committees to evaluate a variety of issues. Madoff served on one dealing with market structure. At that time, his reputation was as a trader, not a money manager.

How would you describe him, personality-wise?
He was intelligent and gentlemanly with a certain amount of charm. He smiled easily, rarely lost his temper and was a good listener.

Did you happen to notice that photograph of him, where he is posed in front of a series of Roy Lichtenstein lithographs of bulls?
You see a bull in every Wall Street office. People on the Street tend to be aggressive, macho, positive.

The other meaning of bull has lately seemed more pertinent, I’m sorry to say.
Unfortunately, history seems to prove you correct.

After you left your S.E.C. post, what led you to become an adviser to the Carlyle Group, the investment firm known for its ties to the Bush family and defense contracting?
That’s such a Michael Moore-like exaggeration. I was an adviser to the Carlyle Group before I went to Washington as well. I’m proud of their intelligence, professionalism and business ethics.

Frankly, I can’t understand why the S.E.C. culls its leaders from the world of high-stakes investment. What about what economists call the “capture theory,” whereby regulators become co-opted by the industries they regulate?
The 4,100 people who worked for me at the S.E.C. were as patriotic as anyone I served with in the U.S. Air Force or the several government commissions I’ve served on, and I’ve worked for four presidents.

That’s just boosterism. You’re not answering the question.
The European system of gray bureaucrats running government agencies forever is far less effective than the refreshing American system of repotting private-sector talent to bring in new ideas.

Your father, Arthur Levitt Sr., was the New York State comptroller for more than 20 years.
Yes, he was fiercely passionate about protecting the interests of pensioners. My mother was a schoolteacher for 38 years.

You grew up in Brooklyn, in the years following the Great Depression.
We lived with my grandparents. My grandfather was so thrifty that every time a light bulb burned out, he’d place it in a bushel basket. When the next bulb burned out, the basket would come out and he would try every one of maybe 75 burned-out bulbs to see if one might possibly work. That’s a story you ought to use.

I’m using it. It’s in. Do you ever feel as if you should apologize?
For what?

Does anything keep you up at night?
Indigestion.

INTERVIEW CONDUCTED, CONDENSED AND EDITED BY DEBORAH SOLOMON