A Tame Regulator for the SEC
Dec 18, 2008 | 01:36 PM
President-elect Obama's appointment of Mary Schapiro to chair the Securities and Exchange Commission does not augur well for Obama's commitment to get at the roots of the financial crisis. Schapiro, who heads one of our broken financial system's main institutions of self-regulation, the Financial Industry Regulatory Authority, is known as a technically competent and politically moderate regulator who does not make waves. She served on the SEC beginning in 1988, having first been appointed by President Reagan.
The agency she heads is not a public agency at all. It is an industry trade association with quasi-regulatory functions delegated by the SEC. Under our ineffective system, a lot of regulatory authority is delegated to private institutions, such as the New York Stock Exchange, which is supposed to police the conduct of its members. We can see how well that worked out. When the exchange turned itself from a nonprofit into a for-profit company in 2006, its pseudo-regulatory functions had to be split off into a second private institution, the one that Schapiro heads, which was created in 2007 out of a merger with the National Association of Securities Dealers.
But the "Financial Services Regulatory Authority" is not a public body; it has little transparency, and if you have not heard of Mary Schapiro, it is because she has not been much of a player, much less a crusader, in the struggle for reform. She is the kind of Democratic appointment that allows Wall Street to breathe a huge sigh of relief.
And of course, her appointment is no accident. There were much tougher, more public minded appointees for SEC chair on the short list, but they were blocked by fierce industry lobbying warning that tough regulators would be divisive or controversial -- which they indeed would, if they did their jobs. Wall Street fundraisers for Obama used their ample access to resist a tough appointee. People in other power centers, like the Treasury and the White House, did not want a tough and independent SEC. If you think the appointment process exists in some kind of platonic post-ideological vacuum, get real.
The rejected finalists include Harvey Goldschmid, the brilliant and public-minded former SEC commissioner, now a professor at Columbia Law School. During a brief golden moment for reform after the Enron mess, Goldschmid as the senior Democrat on the commission worked closely with the then-chairman, Bill Donaldson, an old-school Republican patrician who was disgusted by the corruption. Until lobbying by the U.S. Chamber of Commerce forced Donaldson out, actual reforms ensued.
Another person on the short list, James Cox, a distinguished expert on securities law at Duke University (and no relation to the present chairman), has long been the choice of reformers for an SEC seat. He was up for one of the Democratic seats earlier in this decade (the custom is that the opposition party in Congress designates the minority seats and the president goes along), but his appointment was blocked by Sen. Chuck Schumer in favor of a tamer Democrat.
This is the same Schumer whom the New York Times recently revealed to have blocked innumerable pieces of regulation that might have prevented much of the crisis. Schumer, an omnivore when it comes to defending Wall Street, was taking no chances with the SEC, either. Schumer, incidentally, praised the Schapiro appointment as ""the kind of strong and experienced regulator that we very much need in these times." In a just world, that endorsement would be the kiss of death.
Irony of ironies, it could well be that the SEC under Bush, during the brief Donaldson-Goldschmid period, will be remembered as a more public-spirited SEC than under Mary Schapiro. People, this is the SEC -- the regulatory agency now disgraced once again by its failure to notice the Madoff Swindle, an agency in need of radical rehabilitation if investors and the entire economy are to be protected from future meltdowns.
There have been a lot of words exchanged lately about what it means that President Obama considers himself "post ideological." Steve Hildebrand, writing on Huffington Post, warned progressive critics of Obama's economic appointments to quit carping and to get with the program: "Some believe the appointments generally aren't progressive enough. Having worked with former Senator Obama for the last two years, I can tell you, that isn't the way he thinks and it's not likely the way he will lead." Obama, he declared, will "surround himself with the most qualified people to address these challenges. After all, he was elected to be the president of all the people -- not just those on the left."
The fallacy, of course, is that some highly qualified people are defenders of the status quo while others are true reformers.
Paul Waldman, writing on TAP Online, dismissed much of the debate about ideology and concluded, "Some on the left aren't sure they can trust Barack Obama, worrying that his inclusive rhetoric might lead to compromise on fundamental principles. But the proof of his progressivism will be in the policies -- no matter what we call them."
Quite so. And appointing a safe, Wall Street favorite like Mary Schapiro to chair the SEC at a moment like this is precisely a compromise on fundamental principles. Underneath the entirely misleading debate about Obama's style of governing and whether it's possible to be "post ideological," there is a real debate about whether the new president will be a tough-minded radical reformer in areas that cry out for radical reform and whether he will take on very powerful entrenched interests such as the Wall Street gang that created this mess.
There is no way that this isn't an ideological battle. Obama might have appointed Goldschmid or Cox. He might have characterized a tough appointment, in his way, as aw-shucks pragmatism, given the new needs of the times. But he didn't. On this round, the very week that the Madoff scandal is dominating the headlines, Wall Street won again.