"OUR CHANGING CAPITAL MARKETS"
THE OPENING PAGES OF THIS SPEECH AND OTHERS, GIVING A PERSONAL IMPRESSION OF RAY GARRETT, JR., HAVE BEEN GRACIOUSLY PROVIDED BY HARVEY L. PITT.

An Address by
Ray Garrett, Jr., Chairman
Securities and Exchange Commission

Presented before
THE COMMONWEALTH CLUB OF CALIFORNIA
St. Francis Hotel
May 8, 1974
San Francisco, California

Our social disability suffered by SEC personnel and securities lawyers generally is that we tend to be conversational bores. I don't really know whether we are much worse than other people engaged in complicated pursuits that are equipped with their own occult lexicon and folklore and an endless stream of insoluble problems that are easy to make intellectually complicated. I only know that we are bad enough.

It is also true that in any such complicated field, you can easily become so absorbed in fascinating technical problems that you lose sight of where you are heading and even whether the problems are worth solving. For this occasion, knowing that you are not all professional technicians with respect to our federal securities laws, I propose to do the best I can to raise my head above the morass of specific matters with which we are concerned and look ahead a bit to where we are trying to go and consider why this might be of interest to concerned citizens.

Let me first go back a bit and consider where I think we have been and why I think it has been a pretty good trip.

The SEC was born of pain and sorrow 40 years ago, at the depth of the Great Depression, as one of the first and, as it turned out, more durable products of the New Deal. In the words of Variety's famous headline, Wall Street laid an egg in 1929 and, to mix up the metaphors a bit, there was still blood all over the street. Congressional committee hearings naturally ensued and by 1933, with the new administration of President Roosevelt, it was certain that there was going to be Federal securities legislation. It was arguable then, as it is now, whether the crash caused the depression or whether the underlying forces that caused the depression also caused the crash as the first symptom. While one might reason that, if the crash was simply the effect of problems with the economy, attention should be directed to the economy and not the stock market, in fact too many suspicions had been aroused and too much evidence collected of inequities in the processes for the distribution and trading in corporate securities. Quite apart from other measures aimed at restoring a healthy economy -- mot of which were ineffective or unconstitutional or both -- it was inevitable that our securities markets would receive some drastic legislative attention. What resulted was at the same time more conservative and more enduring than some of the more direct attacks on the economy during that period.

Although the story has been told before in treatises on the subject, it is still worth recalling what happened at that time and what might have happened. It all began shortly after President Roosevelt had been inaugurated in March of 1933 and delivered his State of the Union message calling for legislation requiring truth in securities. The first legislative approach was to attack the process of the distribution of securities by companies through underwriters to the public. This seemed the more fundamental problem, and, anyway, Congressional studies of the more complex subject of market regulation were still in progress. The Securities Act of 1933 was the result.

Even today it is helpful to remember the alternatives facing the draftsmen and Congressional sponsors, bearing in mind that no legislation at all was not one of the alternatives....

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