After acrimonious debates over Barack Obama’s appointments to head the Treasury, the Department of State, and the Department of Defense, there was little energy left in the Senate this week for a fight over who should head the Securities and Exchange Commission (SEC), the agency that oversees U.S. securities markets. A confirmation hearing on March 12 for Mary Jo White, the appointee, was perfunctory. It still revealed the scale of the task in front of her.
Ms. White ticks many of the obvious boxes for a highly visible job that is now often framed in terms of law enforcement above all else. As a federal prosecutor in New York, she secured the convictions of John Gotti, a famed mobster, and Omar Abdel Rahman, a Muslim cleric involved in plotting terrorist attacks. Before and after these government stints she was a successful attorney at Debovoise & Plimpton, a New York law firm.
But even some of her strengths are not unequivocal assets. A history of rising upwards by alternating between public and private jobs makes her a striking example of the “revolving door” between government and the private sector (an area where the Dodd-Frank act has required further scrutiny). Her experience in government was heavily marketed when she joined Debovoise; in rejoining government, she will need to be recused from cases concerning many prominent recent clients including Bank of America, UBS, Morgan Stanley, and JPMorgan Chase. More conflicts exist because of her husband’s partnership at another law firm, Cravath Swaine & Moore.
In response to a gentle question on the subject during her hearing, Ms White replied: “I’m very scrupulous about these issues.” SEC ethics officials have opined that her conflicts of interest are not unusual in scope or kind compared with those of past SEC chairmen. Given another nudge, she added that as a lawyer she prioritized clients and that “the American public will be my client.” Whatever that means.
The focus on Ms White’s prosecutorial abilities should not obscure the role of the SEC chair in setting policy. If appointed, Ms White will take office at a time when no aspect of the American capital markets is free of controversy. This is an area where potential conflicts of interest matter less than an understanding of markets, and where her views and capabilities are least clear. In concise responses to senators, Ms White said she would address a panoply of complex issues, from how capital is raised (for example, the use of crowdfunding to finance start-up firms) to how it is handled (the impact of high-speed trading on equity markets) and how it is stored (the regulation of money-market funds).
Beyond her commitment to find answers to these questions, however, the responses were fuzzy. Asked whether some banks were “too big to jail,” she said that the size of an institution was no bar to prosecution, but she acknowledged it can have an impact on the punishments imposed on errant firms. Challenged by a thoughtful question about how to retain the liquidity benefits of money-market funds without having government subsidize, or obscure, their risk, Ms White gave an indecipherable reply.
She was at her clearest when stating that the SEC needed to improve its response to the rule-writing requirements of the Dodd-Frank act. It has missed the deadline on 49 rules and finalized only 33, according to a tally from Davis Polk, a New York law firm. “The SEC needs to get the rules right, but it also needs to get them done,” she wrote in her prepared testimony and repeated in public comments.
Matching words and deeds will not be easy. Many of the rule-writing jobs dumped in the lap of agencies are on issues that were too complex for Congress to resolve, from the operations of credit-rating agencies to the definition of proprietary trading. Ms. White’s SEC career will only get tougher from here.
© The Economist Newspaper Limited, London (March 16, 2013)