Mary Schapiro is Barack Obama’s nominated candidate for the post of SEC Chair. Today she faced a grilling from the Senate, which by all appearances, should have been a tough one.
Why? Primarily because of the Obama camp’s pointed recent criticism of SEC incumbent Chris Cox. As Felix Salmon notes:
Mary Schapiro is going to face some very tough confirmation hearings on her way to taking over the SEC, and in the wake of a big WSJ article today, her confirmation is by no means a foregone conclusion.
Indeed, the WSJ pulls up a host of complaints against Schapiro, who – to be frank – hasn’t exactly gilded her teapot during her tenure as head of Finra – the financial industry regulatory authority. Reports the Journal:
Among other things, Finra monitors brokerage firms’ sales practices to determine that investors are being sold products suitable for their needs. It reviews brokerage firms’ capital positions and makes sure customer funds are handled properly. It seeks to ensure that firms have adequate procedures to price hard-to-trade securities and monitors customer complaints firms receive concerning both sales practice and operational issues.
Auction rate securities? CDOs? There’s two biggies that Finra rather missed. Excuse?
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.”
Ah, bien sur.
Then of course, there’s Madoff. The Journal doesn’t really touch on the detail of Mary’s Madoff miss. So we shall.
This paragraph caught our eye from the Boston Globe:
FINRA and its predecessor, the National Association of Securities Dealers, has been examining the records of Madoff’s broker-dealer operation, Bernard L. Madoff Investment Securities, every two years since the firm started in 1960. The last exam was in 2007, Perone said.
And?
“There was no evidence of the Madoff broker-dealer executing trades for the [Madoff] investment adviser,” said Herb Perone, spokesman for the regulatory group, the Financial Industry Regulatory Authority. A broker-dealer is any firm that buys and sells securities.
Finra has known since at least 2007 – presumably much earlier – that Bernard Madoff’s huge $50bn investment fund did not make a single trade through its own personal brokerage, Bernard L. Madoff Securities Dealers.
Did they not think this was odd? Why would Madoff’s huge fund be placing all its orders with rival brokers? Why, when Bernard L. Madoff Securities Dealers could have been taking all the handsome fees that went with said orders, as presumably, it was set up to do.
Why indeed, unless, Madoff wasn’t making any trades at all. That’s the Globe’s conclusion anyway.
The crux of the matter is that while Schapiro probably won’t be a good SEC chair, she won’t be a bad one either. The worm has already turned. Regulation and oversight is going to get tougher for the banks irregardless of the SEC chair’s quiescence.
Through her tenure at Finra, Schapiro went with the flow: she didn’t rock the boat. And if she goes with the flow now, that’ll be fine too. The SEC’s power isn’t, in the coming months, going to be set by its chairperson, but proscribed by the political mood at large. The influence of the SEC has already been lost.
The Treasury calls the shots now. It’s Geithner who’ll regulate Wall Street. Assuming, that is, there’s any Wall Street left – and that Geithner gets confirmed.
All that in mind, it’s disappointing that Schapiro confirmation hearing was, in fact, a total snore. The Senate Banking Committee missed a trick on this one.