Investors of the world, unite!

Does that mean that the exuberance we once saw over the market -- the feeling that it would lead to instant wealth -- is that gone forever?

I think that traditional [methods for valuing stocks] -- those verities have shown their true place, and the talk about a new paradigm that calls for different standards to apply to technology-oriented companies is being exposed for its innate weaknesses.

In the book, I was struck by all of the lobbying efforts that went on to prevent you at the SEC from enacting regulations. And it seemed to come to a head with the efforts to regulate stock options --

You know, that's not quite right. There was huge lobbying about the options issues when I got there. But there was even greater lobbying -- much better financed, much more comprehensive and much more destructive -- towards the latter part of my term on issues such as auditor independence and Regulation Fair Disclosure. [Regulation Fair Disclosure, or Reg FD, was enacted by the SEC in 2000 to ensure that every investor in a firm received information at the same time, outlawing "selective disclosure" to analysts and brokers. The rule was criticized by many Wall Street firms.]

And auditor independence was introduced in the "corporate responsibility bill" [the Sarbanes-Oxley Act of 2002] which passed this year -- but expensing stock options was not?

That's correct.

So does that show that the lobbying efforts are still intense?

Yes -- oh, my goodness yes. The only answer to all of this is a public investor universe that's prepared to organize to protect their interests. Because at any point in time, as we talk now, the lawyers of America, the stockbrokers of America, the stock exchanges of America and the accountants of America have their lobbyists on Capitol Hill lobbying for issues that may very well be against investor interests. What I'm suggesting is that potentially the most powerful lobbying force in the country is probably the weakest.

So what should investors do?

I think they should get organizations such as the AFL-CIO, the Motley Fool, the Consumer Federation of America, the AARP engaged on securities issues. Everybody that has any access to a portfolio of securities [should be engaged on the issue.]

Also, I noticed in the book that although Republicans were often more on the side of the corporations, there were many Democrats pushing you to slow your regulations.

I think that's true. I think that in general the Republicans tended to be more deregulatory but on critical issues they crossed party lines and there were people whose support was gained by contributions on both sides of the aisle.

Why do you think that is -- why do you think more Democrats didn't step forward forcefully in favor of your regulations?

Well -- when I really needed them however, Larry Summers [Bill Clinton's last treasury secretary] and Tom Daschle were there for me when they tried to cut my budget. So I think when they saw it as a political issue they rose to the occasion.

Would you say that the Democrats have responded better, recently?

Yes, I would say that.

What do you think of the regulations that were passed?

I think the Sarbanes-Oxley bill was one I could support and did support. It raised the budget of the SEC and it also provided oversight for the accounting profession. And maybe most importantly it gave independent funding to [the Financial Accounting Standards Board, which sets accounting standards].

Do you think the current SEC has been forceful enough in its efforts?

I think that by and large it's the same commission I headed and I think they're doing a competent job.

There were calls earlier for Harvey Pitt's resignation --

Not recently, though. That's kind of died down.

One of the things you outline in the book is that the incentive structure on Wall Street is all wrong -- brokers aren't paid to look out for investors, and analysts aren't either. Do you think that many people are wondering why they should invest -- whether the whole thing's stacked against them?

Well, I don't think you have any alternatives. You're investing when you put your money in the bank, and I think it's a quality of where you invest and what the quality of your investments should be. Should you invest in an index fund, which spreads your risk, which is what I urge small investors to do. Should you hire an investment advisor, which I think is preferable to hiring a stockbroker.

But it seems much harder to be an investor these days than it was made out to be in the '90s -- it's a lot more work.

I think that's true and I think that's to the good. I think investors ultimately are the line of best protection for their own economic well-being.

What's your take on the latest CEO compensation scandals -- the lavish pay packages?

I think compensation has become outrageous and the recommendations of the Conference Board, I think, are an appropriate road to go down. [The Conference Board, a nonprofit business research firm, recommended, among other rules, that stock options given to executives be accounted as an expense on a company's balance sheet.]

Do you think that the extravagant compensation led to some of what we're seeing?

Yes, absolutely. I think it led to the blind support for the granting of stock options that were not performance-based. And the competitive juices that fuel American business to begin with led them in a direction of ever-increasing pay packages as a sign of leadership skills. I think the leaders of the future will be somewhat more thoughtful and less muscular.

How will such leaders come into power?

I think societal change, the media, will cause that.

Do you think that the days of the $200- or $300-million CEO are on the decline?

Yes, I do, and I certainly hope so.

What do you think, then, of the Bush administration's explanation for all this -- there are a few bad apples, and everyone else is OK?

No, no, I think this is much broader than that. I think that a lot of people, investors, business, have been caught up in the hype of a 20-year bull market.

Is that 20-year rise now finally over?

Yes.

Do you think we're due for a long bear market?

Don't know. I think that some of the [changes in corporate governance] will help reassure investors, will reassure public confidence in the system.

Are people on Wall Street going to get anything out of your book -- parts of it are written like an exposé, and I wonder whether that will get some people to see these things as a real problem.

I don't know. It's hard to tell; they'll be angry at me. I'm not sure it will go beyond that.

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