Mary Jo White and the Effectiveness of the Securities and Exchange Commission

I know it’s Monday and it may be too early in the day for you to read 10,000 words about the Securities and Exchange Commission and its chair, Mary Jo White, but if you do find some time today, I’d highly recommend reading Nicholas Lemann’s profile of White in the New Yorker:

As the country sank into a severe recession, many wondered why the major figures in the financial world, whose firms had received billions of taxpayer dollars at the height of the crisis, weren’t being punished for their misdeeds. Because the S.E.C.—unlike the Treasury or the Federal Reserve—is an enforcement agency, it became the focus of the frustration. It was publicly humiliated when, in 2009, and again in 2011, a federal judge in New York, Jed Rakoff, tartly rejected its proposed settlements in fraud investigations of Bank of America and Citigroup. The Bank of America settlement, Rakoff wrote, “does not comport with the most elementary notions of justice and morality.” Rakoff’s Citigroup opinion concluded with a flourish: “In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.” As one person who worked in the S.E.C.’s enforcement division put it when I spoke to him, “Judge Rakoff was wagging a finger at the S.E.C.” He raised his middle finger.

The S.E.C. has the difficult job of being both a regulatory agency (i.e. the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law three years ago, but much of the law, including the Volcker Rules, which are supposed to place limits on the freewheeling trading and risks taken by banks, have yet to be implemented because the S.E.C. still hasn’t finalized rules), and an enforcement agency (i.e. see the fines JPMorgan Chase paid for the “London Whale” incident. The banks usually pay these fines without admitting to any wrongdoing—White has been a little better at getting these admissions of wrongdoing than her predecessors, but in limited ways).

As Lemann writes: “Enforcement is onstage, regulation is backstage. But little-noticed changes in laws and regulations were far more important in causing the 2008 crash than was law-breaking by the heads of the financial industry.” Meaning if the regulators fail to regulate, the big banks can get away with a lot more things. When Lemann spoke with Barney Frank, a leading reformer in the House who is now retired, Frank replied: “A lot of that shit was legal!”

Photo: Wikimedia Commons



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