The SEC's new chief-to-be
In a presidency that will begin with many firsts, Ms. Schapiro, if
confirmed, will be the first full-time female chairman of the agency
created to be the watchdog of Wall Street. Although the SEC has
previously had women serving as acting chairmen between vacancies -
Laura Unger early in George W. Bush's administration and Ms. Schapiro
herself early in Bill Clinton's administration - this would be the
first actual nomination and Senate confirmation of a woman to lead the
The other reasons Ms. Schapiro's tenure is guaranteed to be historic
are, of course, the issues of the news headlines. From failing
investment banks to Bernard Madoff's alleged $50 billion Ponzi scheme,
the SEC has been under fire for ineffective regulation of the areas it
is supposed to police.
In this political environment, the temptation for any
president-elect would be to appoint a populist crusader promising the
magic elixir of more regulation. Indeed, during the campaign, GOP
presidential candidate John McCain shamelessly pandered by telling "60
Minutes" he would appoint Andrew Cuomo, New York's camera-friendly
Democratic attorney general, to the job. Compared to Mr. Cuomo as well
as many of the choices bandied about in Democratic circles for the SEC
chairman, Mr. Obama's selection of Ms. Schapiro is reasoned and
thoughtful. No doubt her policies at the agency will be influenced by
the priorities of the Obama administration and liberal leaders in
Congress. But Ms. Schapiro has shown in her tenure as an independent
SEC commissioner during the presidencies of Ronald Reagan and George
H.W. Bush, as well as in her current leadership of the
quasi-governmental regulatory arm of Nasdaq and the New York Stock
Exchange, that she recognizes that some regulations have costs that
outweigh their benefits.
In her current post, for instance, Ms. Schapiro has spearheaded
initiatives to fight fraud and increase disclosure in the marketing of
investment products for seniors. Yet she also cautioned, in a speech in
June, against limiting choices of products that "can have legitimate
value for some investors" through overly strict rules.
And she has recognized that costly regulation can harm the
competitiveness of the U.S. economy. "It is imperative to the health of
markets, and therefore in the interests of investors, that we do not
regulate to a point of unnecessary competitive disadvantage in this
country," Ms. Schapiro said in a 2006 speech.
Notably, at the press conference in which Mr. Obama announced her
selection, Ms. Schapiro promised better - but not necessarily more -
financial regulation. "The only way to restore the trust that has been
lost is through effective, thoughtful reform of our regulatory
structure and the consistent and robust enforcement of our financial
regulations," she said from the podium.
The distinction between more and better regulation is an important
one because contrary to press accounts, the past few years have hardly
been an era of SEC deregulation. Rather, it has been a time when the
agency and the nation's lawmakers have gone after flies with
sledgehammers - and elephants, like Mr. Madoff, with fly swatters.
While Mr. Madoff had free reign to allegedly scam his investors of
billions, the Sarbanes-Oxley Act of 2002, enacted after the Enron and
WorldCom bankruptcies, showered public companies with billions in costs
and thousands of manhours in documenting so-called "internal controls"
that are often just accounting minutiae. Due to the Sarbox mandates,
accountants have been probing trivial matters that have little to do
with accurate financial statements such as, in some reported cases, who
has the office keys and how many letters are in employee passwords.
Sarbox's costs have been prohibitive to smaller companies and have
kept many firms from going public. Home Depot co-founder Bernie Marcus
told Investor's Business Daily that his firm could not have become a
public company in the early '80s had Sarbox been in effect. And going
public in the equity markets, especially when credit markets are so
tight, is essential for today's honest entrepreneurs to have the growth
capital to build the next Home Depot or Microsoft Corp.
The SEC that Ms. Schapiro was a part of in the late '80s and early
'90s, under the chairmanship of Richard Breeden, offers a model of
regulation that she would do well to emulate. It cracked down on fraud
in areas such as penny stocks and pushed through better disclosure of
But the Breeden SEC also streamlined rules in policies such as
Regulation S-B that reduced the paperwork for smaller firms in going
public. As a result, initial public offerings of stock actually
increased during the early '90s recession, helping the economy to
recover more quickly.
If Ms. Schapiro and her bosses in the Obama administration recognize
that the interests of honest entrepreneurs and investors are not in
conflict, and that burdensome rules on public companies deprive
investors of opportunities as well, the recovery from our current
economic doldrums could be much quicker as well.
John Berlau is director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute.
Originally published here: http://insider.washingtontimes.com/news/2008/dec/30/the-secs-new-chief-t...