Tags: SEC | White | action | Crenshaw

SEC's White Spars Gently With House Subcommittee

By    |   Friday, 25 Apr 2014 08:01 AM

Securities and Exchange Commission (SEC) Chairman Mary Jo White testified before the House Appropriations Committee's Subcommittee on Financial Services, chaired by Rep. Ander Crenshaw, R-Kans., earlier this month on the Commission's request for $1.7 billion for fiscal year 2015, an increase from fiscal year 2014 of $350 million, or 26 percent.

All parties understand that nothing is really at stake in this exercise, because the SEC's budget is funded by fees paid by the securities industry and has no effect whatsoever on the budget or the national debt.

After years of hefty budget increases, Crenshaw asserted that the budget cannot continue to grow exponentially, but White countered that this growth has not kept pace with the growth of the securities markets, and Rep. Nita Lowey, D-N.Y., called Republican-sponsored cuts to the SEC's budget "nonsense" and "cynical."

This hearing was strictly an exercise in political theater, as the politicians go through the motions of doing due diligence on behalf of the American People with respect to the activities of the SEC, and White takes the opportunity to make her arguments that the agency is on the job on behalf of investors, despite considerable evidence to the contrary.

For example, Crenshaw seems to have forgotten, if he ever knew, that the SEC played a key role is stoking the 2008 episode of the ongoing financial crisis when it established a program called Consolidated Supervised Entity (CSE) for the purpose of reassuring everyone, especially the European Union, that the largest securities firms had a regime of prudential supervision that would justify allowing them to operate in the European Union.

At the time, I said privately that the program was a sham, and this proved to be the case when Goldman Sachs and Morgan Stanley were instantly converted into bank holding companies in order to facilitate a bailout by the Federal Reserve. At the time, the Treasury Secretary and principal advocate of the bailouts was a former Goldman CEO, and Federal Reserve Bank of New York President William Dudley, a key regulator of "too big to fail" banks, is an alumnus of Goldman. Crenshaw did mention the SEC's failure to catch the perpetrators of the Madoff and Stanford Ponzi schemes.

So why pay attention to a hearing that is nothing but political theater with nothing at stake? The answer is that it provides a rare window on the activities of industry lobbyists as they seek, with considerable success, to vitiate what I call the "limplementation" of the provisions of the Dodd-Frank Act that fall, at least in part, under the jurisdiction of the SEC.

For example, Crenshaw asked White about the status of no-action letters for the independent rating agency Egan-Jones, and White responded that the SEC is waiting for a recommendation from the staff. It is relatively rare for a legislator to ask about a specific case, but this one illustrates the extent to which the staff runs regulatory agencies. The SEC, in particular, governs largely through no-action letters drafted by industry lawyers. These letters provide assurance to clients that while a given practice may not be strictly legal, the SEC will take no action if the firm continues the practice and complies with conditions in the letters.

In other questions, members jawboned White not to upset relationships between municipal bond advisors and purveyors of money market mutual funds and their clients.

(Archived video can be found here. A copy of White's statement can be found here.)

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Robert-Feinberg
Securities and Exchange Commission (SEC) Chairman Mary Jo White testified before the House Appropriations Committee's Subcommittee on Financial Services earlier this month on the Commission's request for $1.7 billion for fiscal year 2015, an increase from fiscal year 2014 of $350 million.
SEC, White, action, Crenshaw
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2014-01-25
Friday, 25 Apr 2014 08:01 AM
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