FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you for that introduction, Jimmy (Lee, Vice Chairman of J.P. Morgan Chase and 2002 Greater New York Volunteer Committee Chair). Before I begin my remarks, I would like to recognize several individuals and organizations who have made special contributions to the Greater New York Volunteer Committee’s efforts.

The first one is you, Jimmy. Because of efforts by you and your other volunteers, more people know about the value and benefits of Treasury securities, and that is really a service to our country.

I would like to present you with this certificate appointing you Chair of the Greater New York Volunteer Committee. And I want to thank you and the members of your committee for your leadership on behalf of Treasury securities here in New York.

I would also like to recognize two organizations for their achievements in last year’s savings bond effort. First I’d like to thank Johnson & Johnson. Eighty-two percent of Johnson & Johnson employees bought savings bonds last year, making J&J the country’s participation leader. For that achievement, I would like to present them with Treasury’s Golden Eagle award. Fred Rush has been a leader in J&J’s savings bond efforts for many years, and I would like to invite him up to accept this award. Great job, Fred.

Finally, I would like to present the Honor Roll Award to the City of New York. More than 4,000 city employees chose to invest in savings bonds last year. I would like to invite Martha Hirst, Commissioner for Administrative Services, to receive the award for the City. Martha, thank you, and thanks to your colleagues, for your tremendous support.

I want to give you a brief report on our economy, as I see it. The fundamentals of our economy continue to be strong. The recent economic slowdown proved to be the briefest and shallowest in post-War history.

Thanks to President Bush’s well-timed tax relief package last year, the Fed’s monetary easing, and the resilience of American consumers, businesses, and the financial sector, I believe we are on track to reach 3 to 3.5% growth by the end of this year.

There are signs that business investment, so far the missing ingredient in this recovery, is picking up. Most encouraging to me, American productivity growth continues to soar. Productivity is, essentially, a measure of Americans’ ability to turn new ideas for doing things better into real world practice, increasing value and increasing living standards.

Most important to the President and this Administration, unemployment fell to 5.8% last month, and the number of new jobs grew for the second month in a row. Nothing in our economy matters more to President Bush than keeping Americans working. Last month’s improvement is welcome, but we believe we can do much better.

You know I’m a self-identified optimist about our economy. My optimism comes from direct observation and from being a value-creating participant in the private sector for 24 years. During that period I had the opportunity to travel the world and to see economic activity – or the lack of it – everywhere.

It is easy to conclude in 2002 that no other economy in the world matches the delivery of income and wealth produced by the US system. But even in our lifetime – say in the 1970s and early 80s – that conclusion would not have been so easily agreed as, for example, we witnessed Japan powering its way from the devastation of World War II to the position of second largest economy in the world and gaining rapidly on the US.

Reflecting on the period since the Second World War, it is possible to identify events and episodes that contributed to the status of the US economy that we enjoy today, but as I think about the prime general cause of our success the name I give it is Flexibility.

By flexibility I mean this: We know our system is not perfect but, as fitful as it may seem or be at times, we keep adjusting and adapting at the level of individual companies as they strive to meet the best of national and international competition and at the governmental level we take action when the need arises.

In a nutshell, we know our system is not perfect, but we keep changing and reacting to make it better. If you look at other economies, this is their missing ingredient. A case in point is the changes that are being made to counter the actions taken by some so-called business leaders who abused their position of trust by deceiving their employees, shareholders and the general public. The Enron case began to unfold last October, and other cases have followed.

On March 7^th, the President urged the implementation of a ten-part plan to improve corporate governance and disclosure, and today a large part of that plan is being put in place.

I would note first that business leaders – CEOS and Boards of Directors – have responded by re-examining their practices to ensure that they can attest to the accuracy, transparency and completeness of their financial statements. This is critical, because our system depends on millions of business leaders operating to high standards of truthfulness.

I believe almost all business leaders strive to meet this responsibility, but from recent cases it is clear we need to adjust our system and that is what the President’s plan seeks to do.

The President’s plan has three planks: holding corporate officers accountable, ensuring better information for investors, and bolstering our auditing and accounting system.

Beginning at the top, the President’s plan would require that chief executive officers and chief financial officers personally certify the veracity, timeliness and completeness of their companies’ public disclosures including their financial statements. This new requirement will eliminate the ambiguities of the current certifications while creating a clear pathway to punish those who abuse the trust that is placed in them. The premise must be very clear: with the highest position in a company comes the highest responsibility, to know what’s going on and to inform investors of everything that’s important to know. A companion provision will require outside auditors to make essentially the same independent certification.

The SEC, under Harvey Pitt’s leadership, is putting these provisions in place along with the other steps that can be implemented under their existing enforcement powers. For example, the SEC has the power to force those who mislead to give up any earnings gained from misleading investors. We are working with the Congress to expand that authority, so that the SEC can bar corrupt officers and directors from serving again in any corporate leadership positions.

The SEC also has issued new proposed rules to improve information available to investors. Companies would have to illustrate the impact of their critical accounting choices on their financial statements, and to tell investors in near real-time of a much more comprehensive list of significant events. And, perhaps most central, in its enforcement action against Edison Schools the SEC has put teeth behind its policy that technical GAAP compliance does not equal sufficient disclosure.

In a country that prizes individual freedom and initiative-taking, issuers, financial analysts, and investors also have a role in setting best practices. Both the NASD and the NYSE have heeded that call, showing again the merits of our hybrid public/private regulatory model. The NASD has proposed a first set of stricter listing standards.

And the NYSE has published a forceful, thoughtful paper as a prelude to far-reaching reforms. Similarly the Business Roundtable has recommended actions that all responsible corporations should take to improve their disclosure practices and better assure the independence of auditors.

Finally, in the area of strengthening the audit system. On Thursday, the SEC will propose rules to create an independent private-sector body with the power to review audit firms’ professional conduct and competence, and to discipline those that fall short. Congress is also considering bills along these lines. We will work with the SEC and Congress to build a regulatory body consistent with those principles.

Realistically, we cannot devise rules that will stop every aspiring crook. Not without crushing economic freedom. And some businesses will fail for good reason, even with the best of accounting and disclosure practices. The President has made the goal crystal-clear: we must hold corporate leaders and professionals "to the highest standards of conduct." To do that, we must ensure that the regulators maintain the authority to constantly adapt the rules to address changes in rapidly evolving financial markets.

As I said earlier, the flexibility of individuals, companies and governments in the US is the key to our continued prosperity. We’ve shown resilience in responding to the devastating attacks of September 11 and rebounded faster than anyone thought possible. We are integrating the need for increased security and alertness without dampening productivity growth. And in the area of corporate governance, the changes occurring today in corporate board rooms, on Wall Street, in SEC rules and in the law will ensure that we overcome today’s uncertainties about corporate financial information, so that investors can have the confidence they need to allocate capital where it can best contribute to US economic growth and prosperity.