The most recent major SEC appointment is worrying. In general, Obama's appointments in finance have disappointed. Geithner was touted as the only choice for Treasury -- causing many to conjecture that Congress looked the other way regarding his obvious tax dodge. Indeed, necks had to do a one-eighty in light of the fact that the IRS would report to him. Moreover when he testified that Lehman had not been kept out of bankruptcy due to legal impediments, a revisionist and dishonest rationale, none in Congress asked questions. The congressional approval process was a mere formality in the extreme. It seemed desperate economic times required our elected officials to overlook dishonesty in testimony. Of course there was little to be gained by grandstanding in these circumstances, unlike that which we witnessed when wrongdoers from Wall Street were skewered by incensed congressional interigators. This selective disparagement should leave us all incensed.
And so it was initially refreshing to see Mary Schapiro appointed to head the Securities and Exchange Commission (SEC). Unlike her two Bush era predecessors, Donaldson and Cox, she had neither ties to Wall Street, nor a history as a "business friendly" legislator. Indeed, she has spent most her career at the SEC, a technocrat free of direct ties to Wall Street or its influential lobbyists. On the other hand, in a 1993, then a senior SEC official, she delivered a worrying speech in Davos Switzerland advocating a flexible regulatory regime. This she asserted would permit innovation. Schapiro also questioned whether consolidated regulatory structure for securities firms was worth considering. Of course, all of this was in keeping with the hands-off SEC protocol of the period. Since her appointment to head the SEC, Schapiro has shaken it up. She quickly dismissed Chief enforcement official, Linda Thomsen, who was correctly criticized by David Kotz, SEC independent Inspector General during her tenure for lax enforcement. Indeed Kotz recommended sanctions against Thomsen, though during the Bush years his sensible and consciencious outcry against lax oversight were routinely ignored. She also reinstated enforcement powers to the enforcement rank and file that had been taken from them during Cox' tenure. The changing tenor of her pronouncements and decisions under two administrations do require one to question whether she changes direction like a weather vane aligning itself with the prevailing White house wind. Still, whatever her motivation, she appeared working hard to rebuild a broken regulator.
However, a couple of enforcement appointments lead one to question whether true change will come or whether what we see is little more than window dressing. In certain respects, Thomsen's replacment as head of enforcement, Robert Khuzami, is credentialed. With eleven years spent as a prosecutor in the Manhattan U.S. attorney's office white collar crimes division he appears a sound choice -- that is if one ignores the roughly six years he spent on Wall Street, beginning in 2002 as Deutsche Bank's New York general counsel. Hve we learned nothing? Does, at minimum, the appearance of conflict not warrant concern?
This potential conflict in an enforcement division now entirely discredited -- the final nail in its reputational coffin, Kotz' report on the Maddoff affair -- has been compounded by the selection of Adam Storch, a Goldman Sachs Vice President, for the newly created slot of Enforcement chief Operating Officer in mid-October. He is a certified fraud examiner, but does this provide sufficient comfort that he too will not be conflicted in his new job.
A career on Wall Street is not synanonymous with corruption and conflict when appointed to a government regulatory oversight position. It is popular folly to assume that everyone on Wall Street is corrupt. To that point, while there are rampant alligations that Former Treasury Secretary Paulson, a former Goldman Sachs CEO, was conflicted, there is certainly no hard evidence whatsoever that his actions, as imperfect as they were, reflected the alleged conflict. Still, the dismantling of regulation during both the Clinton and Bush presidencies, along with the appearance of conflict among senior government finance and regulatory officials has alarmed many Americans. Would it not be wise to appoint SEC enforcment executives who are both squeeky clean and not hampered by any possible appearance of conflict? It doesn't always follow that where there is smoke there is fire. Still, confronted as we are with a Wall Street financial crisis that resulted from both faulty judgment and very bad behavior, it seems fundamentally unwise to assemble an SEC regime that is not unquestionably above reproach. Have we not learned that it is dangerous to appoint regulatory chiefs that lead many to grow wary that the cat is watching the canary. At a time when true reform is so crucial, appointements such as those in enforcment at the SEC at best create unnecessary noise.
Joseph Tibman Author, "The Murder of Lehman Brothers, An Insider's Guide to the Global Meltdown"
Joseph Tibman is a pseudonym for a former Lehman Brothers senior investment banker. He spent twenty years at Lehman. In September Tibman published, "The Murder of Lehman Brothers, An Insider's look at the Global Meltdown."
If one were to assume that bureaucrats and politicians are not corrupt by nature we would be naive. The only people drawn to these jobs are the ones who should never have them.
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