The Senate Banking Committee is holding a confirmation hearing on Tuesday, March 12 on the nomination of Mary Jo White to be the next Chairman of the Securities and Exchange Commission (SEC).
“There are many questions that Mary Jo White must be asked about her past statements about the financial crisis, about financial reform, and her activities as a defense lawyer representing Wall Street. However, the following questions are the top five that Ms. White must specifically and concretely address. Her answers will make it clear whether or not she understands that protecting the public, investors, taxpayers, the markets, the financial system and our economy are her highest priorities,” said Dennis Kelleher, President of Better Markets, Inc., an independent nonprofit organization that promotes the public interest in the financial markets.
“Protecting Main Street first and always is not only good for Main Street, it is also good for our entire economy and that is good for Wall Street. The reverse is not true. Many things can be good for Wall Street and devastating for Main Street, as the recent financial crisis painfully demonstrated. Reordering those priorities is job one for the next Chairman of the SEC,” said Mr. Kelleher.
The top five questions Better Markets suggests are:
1. How will you change SEC enforcement from its meaningless slap-on the-wrist puny cost-of-doing-business settlements that let Wall Street banks, executives and supervisors off the hook, to prosecutions, fines and penalties that are actually so meaningful that they will not only punish banks and bankers, but also deter the ongoing Wall Street crime wave that arises from the current culture of anything goes because no there’s no real chance of getting caught or being punished even if caught?
Put another way, will you end the double standard of bringing the hammer down on Main Street minnows while letting the rich, powerful, well-connected Wall Street whales get off mostly scot-free?
2. How will you prevent the abuse and breach of public trust that arises from the revolving door where former SEC staff work in the private sector, but use their prior public service and inside SEC connections to get information, access and influence to serve their private clients, often the most powerful on Wall Street and often to the detriment of the public? Shouldn’t every such contact be prohibited and require immediate full detailed public disclosure? Shouldn’t everyone, no matter how connected or powerful, including but not limited to former SEC staff, be required to participate in the established processes that minimize opportunities for favoritism and conflicts, real or apparent?
Put another way, what will you direct the SEC staff to do if they ever get a call like the call you placed privately to SEC Enforcement Director Linda Thomsen about Morgan Stanley’s prospective CEO John Mack? Shouldn’t the SEC policy be to immediately hang up the phone and report the call to the SEC Ethics office?
3. When passing rules, the law requires the SEC to conduct very limited economic analysis of a few specifically identified factors, which do not include cost benefit analysis. However, the industry, some politicians and some courts have been pushing the SEC to do what they call “cost benefit analysis,” which when scrutinized is really “industry cost only analysis.” Given that requiring this analysis is not the law, would bias rulemaking to protect Wall Street profits not taxpayers, and that so many of the benefits of SEC rules and actions, like protecting investors, the markets and financial system as well as our economy, are incalculable and unquantifiable, how will you ensure that onerous one-sided analysis not required by law is not undertaken by the agency?
Put another way, two recent studies have shown that the cost of the recent financial and economic crises will cost this country $13 trillion or more and another report showed how the industry is using what they call “cost benefit analysis” to undermine financial reform. How will you prevent that and how will you incorporate the facts and findings regarding the costs of the crisis into the SEC’s economic analysis?
4. The post-Great Depression combination of laws and rules protected the country for almost 70 years before deregulation took down the multiple layers of protection between Main Street from Wall Street, which included: (a) limiting banking activities, (b) forcing the separation of different types of banking and (c) policing by regulators. Do you agree that such layers of protection are needed?
Also, do you understand the Volcker Rule, which limits certain high risk activities, as one of the layers of protection for the American people?
5. Given that the SEC is supposed to regulate and police all of the U.S. capital markets, which are vast and vital to our economy and standard of living, isn’t the SEC grossly underfunded? Doesn’t the SEC need a significantly greater budget, including tens of millions of dollars a year more just to upgrade its technology to keep up with the ever-changing markets? Doesn’t the SEC need to hire hundreds of programmers, analysts, specialists and inspection, risk and enforcement staff to use that technology so that the SEC can be a 21st century agency?
Also, isn’t the SEC entirely funded by fees paid by industry and does not cost the taxpayer one dime? Isn’t cutting the SEC’s budget or not increasing it really just giving money back to Wall Street and preventing the SEC from policing Wall Street?