Until recently, one of the key aspects of the financial wrongdoing that led to the Great Recession, one bemoaned by mid-level investigators/regulators, has been that virtually no one has been prosecuted. This contrasts sharply with what occurred during the savings and loan collapse of the early 1980s and the junk bond debacle later in that decade.
One obvious difference between the latter and today is that the perpetrators in the former instances were tiny fish in the financial pond–either owners of small S&Ls or the rogue financier Michael Milken, who worked for the US subsidiary of a Belgian bank. No one systematically important. No big sources of political patronage.
Just what any cynic would have thought.
But what appears to be proving most important, in my view, is who is serving as head of the SEC.
President Obama’s appointment in 2008 to chair the regulatory agency was Mary Shapiro. Her previous job? …head of the National Association of Securities Dealers, now known as FINRA (Financial Industry Regulatory Authority), the trade group representing the investment banking industry. In other words, Ms. Shapiro was the chief publicist/lobbyist for the big commercial/investment banks. According to Wikipedia, FINRA paid her $9 million in her final year in that post. Talk about the fox guarding the henhouse.
Now that Ms. Shapiro has been replaced by a tough veteran prosecutor, Mary Jo White, investigations are suddenly far more extensive. And the SEC efforts now have teeth. No more consent decrees without admission of criminal behavior. And it’s finally ok to investigate the systematically important banks.
I think this new effort to clean up Wall Street is a huge plus for all portfolio investors, and particularly for individuals like us.
A perverse part of me just can’t accept a gift horse, though. I keep wondering what led to Mr. Obama’s change of heart. I’m thinking that the contrast between Shapiro and White (Elisse Walter, another FINRA alumna, served as SEC chairperson for a few months between the two) is so great that there must have been a reason. Could Mr. Obama just have been that clueless? Does he no longer need political donations? I can’t imagine what. Any thoughts?