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THUS SPAKE BILL DONALDSON

Nominated last month by President Bush to succeed the erudite but politically bumbling Harvey Pitt as chairman of the Securities and Exchange Commission, the 71-year-old Donaldson has refused all press requests for interviews.

Nominated last month by President Bush to succeed the erudite but politically bumbling Harvey Pitt as chairman of the Securities and Exchange Commission, the 71-year-old Donaldson has refused all press requests for interviews.

That doesn't mean reporters aren't combing through the published record. And as it turns out, comments made by Donaldson to this magazine, which were published in October 2001 as part of our coverage to commemorate the 30th anniversary of our All-America Research Team, have so far drawn the most attention.

Donaldson had little reason not to speak his mind. He had been off Wall Street for years and was retired from a stint as chairman of health insurer Aetna. He, Dan Lufkin and Richard Jenrette joined II for lunch to discuss the changes they had seen on Wall Street since founding Donaldson, Lufkin & Jenrette in 1959. The trio spoke at length about the deterioration in the quality of Wall Street research. The uproar over securities analysts and their conflicts had begun, though many of the most unsettling revelations had yet to surface.

Donaldson took issue with Regulation FD, the SEC rule promulgated by former chairman Arthur Levitt that requires companies to disclose material information to the entire market at once, rather than to select recipients. "It's crazy in terms of what it does to the free flow of information," said Donaldson. "It is paralyzing communications between analysts and companies. It's a terrible rule."

Some publications, including the New York Times in a December 13 editorial, have pointed to Donaldson's remarks as evidence that he's not sufficiently reform-minded. In their former colleague's defense, Lufkin and Jenrette wrote a letter to the Times, arguing that the excerpt was taken out of context.

Although Donaldson's words were published verbatim, it's worth noting that in his interview with II, the former research analyst -- who went on to become undersecretary of State and New York Stock Exchange chairman -- stressed that he believed that quarter-by-quarter analysis of companies is pointless and dangerous. Such short-term forecasts in good part prompted the creation of Reg FD.

Beyond Reg FD, Donaldson gave few hints about how he would handle the issues he may face if he is confirmed as SEC chairman. The founder of one of Wall Street's most successful medium-size firms, Donaldson did seem to have some concerns and skepticism about the trend toward a few giant firms dominating both commercial and investment banking. But it's impossible to tell from these remarks how he might act toward these firms as the government's top securities regulator.

"They're going to be so big and so conflicted," he said, "that there's going to be a whole middle market of little growth companies that can't get to them. So what will happen, I suspect, is that you'll see a lot of spin-offs from big investment banking firms, and people who will reinvent the wheel and get into the financing of companies who don't need the bank loan or can't get it."

As the ex-Marine awaits confirmation hearings, one thing he won't have to worry about is the support of his old partners. "Bill is a man of great character and integrity -- enormous moral values," says Lufkin, a Yale classmate of Donaldson's. "And that umbrella over all of his actions will be very significant."

Says Jenrette, a Democrat: "I truly think he's doing it for the good of the nation. His feeling that the nation comes first -- what is that saying, 'For God, for country, for Yale'? It's been very painful to see what we thought was the best marketplace in the world called into question. It's one of those moments where you probably can get a lot done now because there's agreement that there needs to be a lot of change."