Posts filed under “Regulation”

Structural Changes at S.E.C.

Arthur Levitt is incensed. That doesn’t happen all that often. It takes a lot to make the level-headed, even serene, former Securities and Exchange Commission chairman angry. (Full disclosure: Levitt is a director of Bloomberg LP).

What has Levitt riled up these days is the deepening politicization of the agency he ran for eight years. I spoke with several other former SEC chairs from both parties, and each expressed similar concerns. (Listen to Levitt’s comments on the nomination process at the 41-50 minute mark.)

Here’s the problem: How do you get qualified nominees with expertise in areas relevant to regulating capital markets and publicly traded corporate entities to fill the five seats on the commission? (Rules designate three of the five seats to the party controlling the White House.) This process has been made that much more problematic because of the objections — many of them justified — raised by people like Democratic Senator Elizabeth Warren, who opposes the revolving door between regulators and the regulated.

In the past, the White House would directly nominate a candidate, perhaps an academic with expertise in market structure, or an accountant or a lawyer with a background in doing work for clients in the securities industries. Such nominees obviously understood the regulatory issues in a way that few others could. But these candidates often came with a whiff of a conflict of interest: How was someone supposed to approve rules that potentially governed their former clients — clients whom they might work for again after leaving the SEC?

But what seems to be evolving as an alternative may be no better, and is perhaps even worse. The White House, as Levitt sees it, has ceded the nomination process to the Senate, instead of finding and nominating qualified people itself.

How has this manifested itself? Three of the last four SEC nomineeshave been Senate staffers, the latest being Hester Peirce, a former Banking Committee lawyer. Current commissioners Kara Stein and Michael Piwowar also worked for the Banking Committee. A fourth nominee, Lisa Fairfax, is a law professor at George Washington University. She was picked after Warren objected to another nominee – a corporate lawyer with ties to Wall Street — due to those aforementioned revolving door concerns.

So here’s how this looks. The people most likely to get confirmed by the Senate in the current partisan environment are current or former Senate staffers. Leave aside for a moment whether these candidate are the most qualified (Levitt, the longest-serving chairman in the agency’s history, has his doubts). Perhaps an even bigger issue is whether this will lead to a further intensification of the kind of partisan divide that has hobbled the basic functions of our government the past decade or so.

By all accounts, it probably will. Here’s why. Consider nominee Peirce, who is being named to fill the seat of departing Republican commissioner Daniel Gallagher. After leaving the Banking Committee she joined the Financial Markets Working Group at the Mercatus Center at George Mason University, where she wrote articles opposing regulations drafted after the financial crisis designed to prevent another meltdown. The Mercatus Center houses commentators and opinion writers who generally oppose regulation and advocate for free markets. Among its major backers are the Koch brothers, whose interests include not just natural resources but financial products.

So instead of having a commissioner whose independence might be open to question because of an interest in returning to the private sector, we probably will have a regulator who’s opposed to reasonable regulation. And why was she picked? Maybe it’s because her nomination is almost guaranteed to be confirmed by the Senate.

In a recent interview, Levitt said it’s probably a mistake to nominate any candidate for a regulatory position who can’t work across the aisle, compromise and get things done. He noted during his tenure as SEC chairman that almost all of the commission votes were 5-0; during the past 15 years, many votes have been split 3-2, with the wins going to the party holding the White House.

It isn’t quite the paralyzing gridlock Congress is known for, but it’s far from optimal, he said.

It’s hard to get people interested in the dry, unsexy issue of securities regulation and market structure. It is, however, an important issue that deserves more public — and investor — attention.




Continues here: What’s Worse Than the SEC’s Revolving Door?

Category: Investing, Politics, Regulation

No Spoofing, Quote Stuffing or Flash Orders Allowed

Stock exchanges once were operated as not-for-profit public utilities, managing the listing and trading of companies in the public marketplace. Today, they have morphed into rent-seeking, publicly traded companies in the zero-sum game of executing orders. Where once there were many winners, now there are distinct winners and losers. High-frequency, algo-driven traders — and the…Read More

Category: Really, really bad calls, Regulation, Trading

The Trouble With Monopolies

Source: Business Insider     I missed the Democratic debate Tuesday evening, occupied as I was with listening to classic rock from the 1970s. What would have interested me in that debate was the discussion of the proper role of regulation in modern capitalism. The U.S. doesn’t seem to engage in the topic like one might…Read More

Category: Legal, Politics, Really, really bad calls, Regulation

  Dodd-Frank has burdened small banks — and the businesses that rely on them — much more than large businesses that have access to capital markets. Is this why we’re experiencing the slowest recovery in two generations? So asks Peter Wallison, a scholar at the American Enterprise Institute, a conservative think tank that advocates for free markets…Read More

Category: Analysts, Bailouts, Credit, Really, really bad calls, Regulation

Bankers Launch Hostile Takeover of CFPB

Last week, we discussed several developments that have the banking industry up in arms. Each of these trace back to Democratic Senator Elizabeth Warren. The first was the new mortgage disclosure rules from the Consumer Financial Protection Bureau. The regulations consolidate several documents, mandate greater transparency in simpler language and require a three-day disclosure before a real-estate…Read More

Category: Credit, Politics, Really, really bad calls, Regulation

Firing a Researcher on Fiduciaries for Breaching A Fiduciary Duty

Over the years, I have written and spoken positively about the fiduciary standard (see e.g., this or this or this). Simply stated, a fiduciary is obligated to put the client’s interest first. Period. It is higher duty of care owed to clients than the traditional broker “suitability standard.” I’ll say more another time about why the new Department of Labor…Read More

Category: 401(k), Investing, Regulation

Regulation and Liquidity Provision

Regulation and Liquidity Provision September 30, 2015 William C. Dudley, President and Chief Executive Officer Remarks at the SIFMA Liquidity Forum, New York City As prepared for delivery       The financial crisis and the ensuing recession exacted a high cost on the country.  Real gross domestic product (GDP) declined by over a half…Read More

Category: Regulation, Think Tank

Changes in the Home Loan Process

A reader who happens to be a mortgage loan originator send along this awesome graphic. To me, it calls bullshit on the WSJ article I referenced this morning by sending along the following flow chart along detailing the “massive changes about to be unleashed upon real estate industry. Or not . . .   click for…Read More

Category: Credit, Real Estate, Really, really bad calls, Regulation

Oh, No! Disclosure is Going to Mess Up Housing Sales!

Starting Saturday, the real-estate industry will be subject to new disclosure rules, courtesy of the Dodd-Frank law and the Consumer Financial Protection Bureau. Lenders will be required to make transparent and complete disclosure of the terms of mortgages — including all costs and fees. This information was sorely lacking during the boom in the 2000s. Residential…Read More

Category: Credit, Real Estate, Regulation

Worst. Idea. Ever.

Every now and then a remarkably bad idea springs to life. It gets debated, ridiculed and eventually discarded. In the marketplace of ideas, free and open debate help to determine which ideas are useful and which wind up in the rubbish heap. (John Stuart Mill was onto something). We tolerate reprehensible ideas because, ultimately, free…Read More

Category: Analysts, Corporate Management, Earnings, Really, really bad calls, Regulation