“It takes one to catch one.” This was how Franklin Roosevelt responded when he was asked why he decided to appoint Joe Kennedy as the head of the U.S Securities and Exchange Commission (SEC). Today, the newly appointed head of the SEC, Mary Joe White, spent a decade at a blue-chip law firm where she represented many big names from Wall Street. Because of her time as a Wall Street lawyer, White must know where the proverbial skeletons are buried. With a distinguished career as a prosecutor coupled with her experience in Wall Street, White is well-positioned to make the SEC a more effective watchdog of the financial sector.
The financial crisis that plunged the country into the Great Recession was largely the result of the handiwork of Wall Street. As Matt Taibbi pointed out, Wall Street created the housing bubble that eventually led to the near collapse of the financial system. During those bubble years, the SEC was mostly a bystander.
Because of his belief in laissez-faire capitalism, the SEC was a shadow of its former self while George W. Bush was president. Nowhere was this more evident than in the case of Bernie Madoff, who conducted the biggest Ponzi scheme ever. Ten years before his arrest, Harry Markopolos contacted the SEC in order to provide the agency incriminating evidence that Madoff was running a fraudulent operation. Even with all this damning evidence, SEC investigators somehow failed to uncover any fraud during their investigation. Madoff was, therefore, allowed to perpetrate his fraud for many more years.
During the first four years of Barack Obama’s presidency, the SEC has been more aggressive in investigating and bringing suits against companies that had engaged in wrongdoing. Under the leadership of Mary Shapiro, Obama’s first appointment, the SEC has been revamped. The agency has filed more than a hundred of civil cases against many of those who were involved in causing the financial crisis. The settlement in those cases added up to more than $2 billion.
Despite this success, there is no question that the record of the administration on holding Wall Street accountable still left much to be desired. Although Wall Street almost plunged the country into a second Great Depression, none of the major financial players have faced criminal prosecution or even been indicted for any wrongdoing. While Wall Street was forced to pay huge fines by the SEC, those penalties are still a pittance when compares to the enormous profits that these firms have made.
The financial crisis revealed the economic devastation that Wall Street could wreak when it is not well regulated. It is incumbent upon the Obama administration not only to hold Wall Street accountable for past misconduct but to ensure that it is regulated in a more effective manner moving forward. To that end, the appointment of Mary Jo White, a highly experienced prosecutor, could be the start of a much tougher approach on the part of the administration vis-à-vis Wall Street.