Thursday, January 15, 2009

Sleep-Blogging Mary Schapiro's Confirmation Hearing

Having survived my live-blogging of the TARP Congressional Oversight Panel hearing yesterday, I thought I'd head over (virtually) to today's Senate Banking Committee confirmation hearing for Mary Schapiro. I will skip the Senators' opening statements and drop in when it's Ms. Schapiro's turn to talk. If she's still conscious at that point, she'll have passed her first test.

While we're waiting for the committee members to complete their oratory, let me say that I hate to be mean, but I'm not a big fan of this nomination. Since 1996, Ms Schapiro has spent most of her time running Wall Street's main "self-regulatory" organization, which in its latest permutation is called FINRA. Year after year, folks from this organization have swarmed through Wall Street firms, performing examinations, making rules and writing reports. Dunno why, but I just have a feeling they may have missed something here and there. If I were writing Ms. Schapiro's performance reviews, I don't think I'd recommend her for a big promotion.

10:38: OK, she's making her opening statement. She has a nice feminine voice, verging on breathy. I imagine this comes in handy when speaking to male Senators. Her statement, to me, is bland and boring.

Ah, Chris Dodd is asking why FINRA examiners didn't catch Madoff.

Schapiro responds: There's currently a "stovepipe" approach to regulation. Her excuse, in other words, is that FINRA had jurisdiction over Madoff's broker-dealer activities, but not his dealings as an investment adviser. (Stovepipe? A new one on me; the usual buzzword for this concept is "silo.")

Responding to a question about how everything got so screwed up, she says she warned Chairman Cox last August about an increasing "migration" of activities out of regulated entities. (Wait, is she saying it took her till August of 2008 to figure this out? Or did she mean 2007? Rather late, either way.)

10:48 am: Schapiro says credit rating agencies shouldn't be compensated by the firms whose products they rate. Not much of a shocker there.

10:51: Richard Shelby: Thinks the federal government may have to take over insurance regulation. In passing, he disses the NY State insurance department, which regulated AIG. He asks her how she'd restructure the regulatory system, saying he's not sure the Fed should be given a bigger role than it has now.

Schapiro's response: She seems to like the Fed as a systemic risk watchdog. She says it's the SEC's job to protect investors. (She's not taking the bait to bash the Fed and reach for more SEC authority. In fact, she mentions the possibility of the SEC being merged with other regulators.) On insurance, she thinks federal regulators should be involved if an institution poses systemic risk.

I don't hear any vision or novelty in her answer.

10:58: Credit rating agencies again. She suggests there should be some kind of oversight board for these guys. Or at least that's what I think she's suggesting, as she's making an analogy to FASB and PCAOB.

11:02: She wants to "take the handcuffs" off the SEC's enforcement division. She also wants to build a stronger Office of Risk Assessment. But we'll never be able to catch everything, she says.

11:07: Question about proxy access.

Schapiro responds: It's time for the U.S. to join the 40 foreign jurisdictions that already have proxy access. The devil is in the details, she says, but she's clearly signaling a change from the Cox approach. I believe the folks at union pension funds just ran out to get doughnuts. Time to celebrate!

Sorry, forgot to "time stamp" from here on in. I can't imagine you really care.

Another question (not sure which Senator is talking) about regulatory reform. Schapiro seems to say the federal government should have authority over anything that poses systemic risk. No one asks her who is going to figure out which products, activities and firms are creating systemic risk, or how we're going to get it right next time. (Judging from her earlier answer, it looks like she'd be willing to rely on the Fed for that.)

She's asked about the uptick rule and short selling. Says she'll look at all that and see if the rule should be re-instituted.

Question about "revolving door" at the SEC. Schapiro responds that she worries about people leaving the SEC to work in the industry, but she also worries about restricting this so much that no one will want to work for the agency in the first place. An eternal dilemma for federal agencies, and she doesn't suggest any specific solutions. The panel seems satisfied, though.

Ah, finally someone (Menendez?) asks her to respond to criticisms of her past performance and the idea that she is a "predictable and safe" choice but not a "robust" one. (Sorry, can't see the members' nametags, and I'm not enough of a Senate geek to recognize all the faces.)

Schapiro responds: She started her career as an enforcement attorney, and she intends to "ignite passion" in the Commission's enforcement lawyers. She calls today's WSJ's article unfair. She has been and will be aggressive, there'll be no sacred cows, etc.

Very nice, but this all misses the point. It's not just about her commitment to enforcement after the fact, but her ability to catch potential disasters before the fact. And her track record isn't so good on the latter.

Question about investor education/literacy: She wants the SEC to develop plain English explanations of stuff for investors and distribute them all over the place. (Yes! Plain English rocks.)

Dodd asks her to comment on the lawsuits over the FINRA merger. They're frivolous, she says.

OK, Mary's done. Dodd is acting charming to her kids. A lovefest.

In fact, the whole hearing has been a perfunctory lovefest. Eric Holder, eat your heart out.

1 comment:

Anonymous said...

GOOD NEWS!!! There is finally a new movie out about stock market manipulation, the SEC, and short selling called: "Stock Shock." Amazon has it or has a trailer.