The Journal is excellent today covering Mary Schapiro, Obama’s pick to head the SEC.

The pick never engendered much enthusiasm, but however much it did is vanishing quickly, at least outside Wall Street C-suites. That’s in large part because Obama has picked the head of the industry’s “self-policing” arm Finra to tackle the biggest cleanup job on Wall Street in nearly eighty years. Let’s look at what the Journal has to say about her.

First of all, I like the headline, which calls it like it is:

Obama’s Pick to Head SEC Has Record Of Being a Regulator With a Light Touch

Second, the story backs it up—it’s just as tough, showing she didn’t do much policing of the industry:

Finra levied fines against financial firms totaling $40 million in 2008, according to a Wall Street Journal analysis. That was the third straight annual decline in fines levied by Finra or one of its predecessor agencies, the NASD. The total was 73% below the $148.5 million in fines collected in 2005, the year before Ms. Schapiro took the helm of the NASD.

That in the midst of the biggest bubble in history.

We hear from one of the few heroes this crisis has produced, Harry Markopolos:

Harry Markopolos — a money manager who provided information on Mr. Madoff to the SEC and repeatedly urged it to investigate Mr. Madoff — says he avoided taking the same information to the NASD. Mr. Markopolos says he and his brother, then a trader, had taken other issues to regulators at the NASD but it had never responded. He says he also assumed his concerns wouldn’t be pursued because both Mr. Madoff and his brother, Peter, had served as officials of NASD and its trading arm, the Nasdaq Stock Market.

Yeesh.

And it gets worse. The paper says Schapiro and Finra were laggards on the auction-rate securities mess (remember that one?):

Finra also appears to have lagged behind in a Wall Street mess that affected thousands of individual investors in early 2008 — a freeze-up in the market for what are known as auction-rate securities. These are long-term debt securities whose interest rates are supposed to be reset at weekly or monthly auctions. When the auctions failed, investors were stuck and couldn’t sell the securities.

Finra and other regulators launched probes of the matter. But Finra, along with the SEC, was beaten to the punch by state regulators and Finra was largely left on the sidelines.

The WSJ calls Schapiro out for trying to wash her hands of the Lehman collapse:

But Lehman’s problems ran far deeper: not having enough capital and apparently carrying its huge holdings of complex mortgage securities on its books at too high a value.

People close to Ms. Schapiro say the Lehman mess and the broader mortgage meltdown occurred outside of what Finra inspects: brokerage accounts. But firms were selling the mortgage securities in brokerage accounts, to investors large and small. Finra is also responsible for seeing to it that the valuations of securities sold in brokerage accounts are accurate.

Joseph Mays Jr., a consultant to small broker-dealers and a former NASD examiner, says Finra should have scrutinized the mortgage-backed securities at the root of the crisis. “If I had to assign blame, I’d blame Finra and the SEC, but I’d blame Finra first because it’s the first line of defense,” he said.

And as recently as May, Schapiro was touting the ratings agencies, which most people think need to be put out of their misery or radically altered, as a good enough line of defense for investors in the complex securities that led to the crisis.

The Financial Services Institute, a trade group, was meeting, and Ms. Schapiro addressed the crowd about Finra’s efforts to fight frauds aimed at senior citizens. Frank Congemi, a financial adviser, asked what Finra was doing to regulate “packaged products” such as complex mortgage securities. Mr. Congemi says that Ms. Schapiro replied: “We have rating agencies that rate them.” The credit-rating agencies, by this time, were being heavily criticized for having given triple-A ratings to mortgage bonds that became unsalable as foreclosures rose.

Fantastic piece of reporting by the Journal.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.