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From self regulation to government regulation: Mary Shapiro move to the SEC as a metaphor?
By Kaufmann | January 27, 2009 1 Comment »
Mary Shapiro, unquestionably a highly qualified choice, was confirmed by the US Senate and is expected to be sworn in the next days as the new chairman of the Securities Exchange Commission (SEC). She would literally be moving from a chief self-regulator to a chief government regulator.
Her previous position was as CEO of the Financial Industry Regulatory Authority, FINRA, the largest independent and non-governmental regulator for securities firms in the US. In her Senate hearings, Shapiro indicated that she would give priority to the regulatory problem in the country, stating that she will reinvigorate the SEC enforcement divisions. But according to a Wall Street Journal article, Shapiro showed a light regulatory touch at FINRA…
Ideological leaders mold the job description to their world view. Pragmatic ones mold themselves to the job description. In theory, therefore, it may be an open question whether self-regulation ideology migrates from FINRA to SEC, or efficient leadership to enforce government regulations takes hold at SEC.
But this is largely academic, since an injection of ideological self-regulation is not only politically impossible in the aftermath of the financial debacle and with the Obama administration, but also because in practice years ago the SEC largely abdicated already many of their oversight and regulatory functions. The regulatory and oversight laxity over the largest investment banks, as well as the failure to unmask Madoff’s Ponzi schemes in spite of an abundance of incriminating information they had, do illustrate.
Some of the evidence appears to point to conflict of interests (Madoff sitting on their advisory board and also providing advise to the SEC on how to regulate…) and undue influence by the largest investment banks. Not only whistleblowers who may have denounced Madoff were put in a weaker position, but more generally the agency’s ability to perform its role may have been compromised. For instance, already in 2006 the SEC knew that Madoff had misled them about how he managed customer’s money.
Further, the SEC also has some serious structural and operational challenges. And there will have to be better safeguard against ‘capture’ (whether soft or hard, legal or illegal) by the regulated institutions and individuals. Mary Shapiro has her work cut out. She has vowed to be a tough enforcer. An era of de jure and de facto self-regulation may be over. All the best to her on a major new challenge, where she will need to quickly adapt to the realities of the new job description.
Topics: capture, Corruption, financial crisis, Public-Private Linkages, Regulation & Security, Rule of Law, Transparency | | 1 Comment
January 31st, 2009 at 6:01 pm
Interesting article. The laxity of transparency, oversite and regulation is something Republicans rue; much of their campaign money comes from the corporate world. True, this is also the case for Democrats; however, Democrats know that their real base is the people who will hold them accountable at election time- and this is their whole base, not just a far right group of religious fanatics.
Obama is well aware of this and it is heartning that he is not closing himself off from his base of the average citizen that elected him. Time will tell. My only hope is that he will infuse those he has selected with the same determination to change the way business is done both politically and corporately and this will engage Shapiro to do a thorough and effective job. Without it, the USA is done for and our dollar will be worthless.
I also read your OpEd peice on Corruption and the Global Financial Crisis. Excelent and informative. It so happens, I had just finished reading a fiction by John Grisham “The Appeal” that speaks of corruption and how it influences the elections of judges, especiall the state supreme court judges. My state, Missour, those judges are appointed after a review by the lawyers in the state, while local ones are elected. Obviously, how judges interpret the law in their rulings has a great deal with what scams the corporate world can pull.
I would like to ask you, in your work with the World Bank, just how transparent is the World Bank? I have read several books that display actions of the World Bank as often less than admirable. They are well documented it seems. The IMF has also come under fire in some of these books. Loaning money, knowing the loan cannot be repaid, and then taking the natural resources of that country in repayment seems hardly fair or just. According to what I have read in more than a dozen books, this left some countries in such a state that the average citizen could no longer afford the electricity and even water they had access to before the World Bank interveined. Do you feel free to comment on this?