Steven Pearlstein in the Washington Post is good to raise serious questions about Mary Schapiro, Obama’s pick for SEC chairwoman. I think he’s right on here to say she’s part of the problem, and that an insider heading the industry’s own regulatory apparatus is not what we need.
Pearlstein makes some noises about how decent, hard-working, yada yada she is. But that’s not enough these days:
The problem is that there is nothing in her record to suggest that she is likely to clean house at the agency and launch a brutal and sustained assault on Wall Street culture.
Remember the good old days when corporations would routinely manipulate earnings so that they came out just as the analysts expected? Or when analysts used to issue buy recommendations for stocks they knew were lousy just because it helped their firms win investment-banking business? Or when brokerage firms would routinely put clueless customers in mutual funds that offered high commissions, not the best results? Or when investment banks would put aside shares in the hottest IPOs for the personal accounts of corporate chief executives who steered underwriting business their way?
These practices weren’t secrets — to anyone even vaguely familiar with the industry, they were hidden in plain view. And yet for years, no regulator, including Schapiro, was willing to risk being demonized by the industry, criticized by Congress and overturned by the courts to do what was necessary to stop these practices. Indeed, in every case, it was only after investors had lost their money and some other regulator had begun a crusade that Schapiro finally showed up to close the proverbial barn door.
And this is why he’s so upset:
What it means is that we will have lost the best opportunity yet to root out the deeply embedded cynicism and corruption that have spawned one scandal after another on Wall Street over the past 20 years.
For the top SEC job, Obama needed to mount a determined search outside the current establishment — someone willing to take no prisoners and question everything about the way the industry does business and the way the government regulates it, someone so capable of channeling the outrage the country now feels that he or she would have industry insiders quaking in their hand-made wingtips. Instead, what we got was someone who not only has been at the very center of a failed regulatory process for the past two decades, but has emerged from it well-liked and acceptable to everyone.
As the Journal reported the other day, Schapiro’s Financial Industry Regulatory Authority just flat out missed the Madoff scandal despite finding he had broken rules.
I’m hoping to see more reporting on Schapiro’s background before the confirmation hearings get underway. This is one appointment that has to be gotten right.
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. Follow him on Twitter at @ryanchittum.