Mary L. Schapiro is the new head of the Security and Exchange Commission (SEC). She is not new to the agency, having worked there under Ronald Reagan in the 1980s. If her first days on the job are any indication, however, the SEC will be a new place under her leadership.
In a story repeated in hundreds of federal agencies, George W. Bush used the “Ronald Reagan method” of doing away with the SEC. He simply appointed officials who refused to carry out the agency’s mission because they disagreed with it. Key positions stayed vacant for months. There is no need to hire enforcers when there is no enforcing being done. Like so many other federal agencies intended to protect the public interest, the SEC stopped doing its job. The professional staff there found it difficult to pursue cases of fraud, despite the more than 700,000 complaints it receives each year.
The SEC had received many complaints and warnings about both Bernard Madoff and Robert Allen Stanford but took a lackadaisical approach to the investigations. Madoff is charged with bilking investors of $50 billion. The SEC “investigated” Madoff eight times in 16 years, each time finding minor infractions, but never forcing an audit of his books, which would have immediately revealed the nature of his business, which, in a word was investor fraud.
The free-market ideologues decided that Bernie Madoff was probably not doing anything troublesome, even when brokers and investors complained that Madoff would not allow anyone to see his balance sheets. He also converted all his holdings to cash each quarter to avoid the inconvenience of SEC filings, but this odd practice also failed to arouse SEC suspicions.
Investigators estimate that Stanford has managed to make $8 billion dollars of investors’ money disappear into his personal kingdom on the island of Antigua. This time, the SEC and the Internal Revenue Service had reason to believe that Stanford was engaged in some questionable activities, but did nothing. As for the IRS, Stanford owes them (and you, the American taxpayer) over $212 million dollars. At this writing, he has not been indicted.
It goes without saying that Mary Schapiro has her work cut out for her. She takes over an agency that has been reluctant to enforce the law. She has stated publicly that the SEC will take responsibility for times when it failed to do its job. Sadly, this seems unlikely to be of much help to the people who trusted Madoff and Stanford and others like them. Where Schapiro can make a difference, however, is in stepping up enforcement. She has stated that she intends to give the lion back its teeth.
As long as there are two cookies in the world, there will be one child conniving to get them both. The free market championed by conservatives has led to a culture of robber-baronry and greed. Since the free-marketers cannot be convinced that greed is a bad thing, perhaps those in government should depart immediately, to make their own way in the free market. Their departure will once again allow the laws to be enforced and scoundrels to be imprisoned for their crimes. It seems a shame that government officials cannot be prosecuted for failing to enforce laws.
One could argue that better SEC oversight might have stemmed the mortgage-backed securities problem that has all but paralyzed Wall Street. Those securities created a demand for mortgages, which became the sub-prime mortgage meltdown that began this recession.
No one knows how many other valid warnings and complaints are lost in the bowels of the SEC. The faster the agency can work through its backlog of investigations and discover the merit of its complaints, the safer investors will feel.
New York Times (2/23/09): SEC Chief Pursues Tougher Enforcement
Bernard Madoff (Wikipedia)
Robert Allen Stanford (Wikipedia)