THE PLANK JANUARY 14, 2009
The strikes against Financial Industry Regulatory Authority head Mary Schapiro, Obama's nominee to run the Securities and Exchange Commission, are piling up. She faces a tough confirmation hearing today, with questions expected, among other things, to cover FINRA's failure to catch Bernie Madoff, Schapiro's reputation for being close to the financial industry, and a pair of lawsuits over her compensation package after merging the NASD and the regulatory functions at the New York Stock Exchange into FINRA.
All of these are fair questions (well, not the Madoff thing; her organization only covered brokerages, which was the only legal part of Madoff's operation and wholly separate from his Ponzi scheme). But it's important to keep in mind why Obama probably picked her. The SEC doesn't just need reforming; the entire federal and state financial regulatory structure needs to be revamped, an imperative recognized on both sides of the aisle. Above all, that means breaking apart and moving different regulatory functions among agencies, closing some while expanding others. Most people expect the Commodity Futures Trading Commission to be rolled into the SEC, for instance.
And this is where Schapiro's experience will be vital. For one, she has served on both the SEC and the CFTC, sitting in the chairman's seat at the latter. She draws respect equally from Democrats and Republicans, and yet she is seen primarily as nonpartisan. And she has had the invaluable experience of merging two separate regulatory bodies into one, and then making it run smoothly.
Ultimately, Schapiro will be a sort of transition manager, at least in the short term, taking whatever new structure Congress devises and putting it into action. I wish she had a better record for using such structures to bring the hammer to the financial industry, but first things first.