Public confidence in our regulatory agencies was shaken once again when a recently released report revealed that our vaunted SEC might be nothing more than a “revolving door” for opportunistic executives. The allure of high-paying jobs from the very firms it is supposed to keep in line is resulting in what is called “regulatory capture.”
Yes, you read that correctly – the Securities and Exchange Committee already may be bought and paid for, corrupted by promises of big bucks from corporate titans for its employees once they depart government service. Bill Moyers, one of our most esteemed and respected journalists, has focused on this very area in what he calls another episode of “As the Door Revolves,” a Washington soap opera of long standing.
The latest update on the SEC from Moyers finds that ”(a)ccording to a major new report from the nonpartisan watchdog POGO – the Project on Government Oversight -- hundreds of the agency’s former employees have done or are doing business with the SEC on behalf of the corporations the agency is supposed to regulate.”
For those of us with white hair or at least a remembrance of it, we can still may recall the immortal words of Pogo, a comic strip character created by Walt Kelly many years back, when he opined, “We have met the enemy and he is us” It seems quite ironic that a group of investigative reporters would choose such an acronym for its name. It makes a valid statement by itself on what is wrong with our governmental processes. Just one little tidbit from their recent report reveals that the SEC granted 350 special waivers for businesses that “softened the blow of enforcement actions.”
The SEC has been in the news lately for several reasons, for it, like many other agencies, is going through the typical transition that follows the first term of a seated president that has won re-election – leaders depart and new ones arrive through the proverbial revolving door. According to the report, Mary Schapiro, President Barack Obama’s last chosen chair for the SEC post, arrived with high hopes of reforming our financial markets, only to encounter a wall of resistance from politicians on both sides of the aisle.
Hefty political contributions from Wall Street do have a way of influencing outcomes, but, unfortunately, the general public is rarely privy to the damage that is being done by private power interests behind closed doors in quiet rooms. Our banking industry was responsible for the greatest financial debacle in modern times, yet not a single prosecution of a high level Wall Street executive has transpired as a result. Officials across all sectors of our government designed to be vicious watchdogs appear to have lost the will to fight or had tooth extractions brought on by years of decay.
Who will replace Schapiro? Obama has offered up Mary Jo White to run the SEC going forward. Per Moyers, she was a “former federal prosecutor … who left government to become a hot shot Wall Street lawyer defending such big firms as JP Morgan. The New York Times reports that she and her husband, who’s also a corporate litigator, have a net worth of at least $16 million and investments that might be valued as high as $35 million.”
Suddenly the phrase about a wolf guarding the hen house has new meaning for us all. In addition to his individual essay, a member of Moyers’ staff, John Light, also interviewed Michael Smallberg, the POGO investigative reporter who authored “Dangerous Liaisons – Revolving Door at SEC creates risk of Regulatory Capture." (Click here for a free download of this report).
The latter term, “Regulatory Capture”, is Smallberg’s creation. “The revolving door creates a risk of what we call 'regulatory capture' — when companies are able to sway the policies of the agency in their favor. Many of these agencies are supposed to be independent regulatory agencies — independent not only from political pressure that might be applied by Congress, but also from large industry groups.”
He gets very specific about the SEC in the second sentence of his report, “Former employees of the Securities and Exchange Commission (SEC) routinely help corporations try to influence SEC rulemaking, counter the agency’s investigations of suspected wrongdoing, soften the blow of SEC enforcement actions, block shareholder proposals, and win exemptions from federal law.”
Smallberg adds during his interview that “(w)hen you have so many people going back and forth from a regulatory agency to the regulated industry, it can shape the mindset of people throughout the agency and make them more sympathetic to the viewpoints of industry groups, sometimes at the expense of people with a stake in the agency’s mission, like consumers, investors or shareholders.”
This accepted process of “cozying up to the companies” with an expectation of future payoffs in the form of lucrative post-government job assignments undermines public confidence and makes the agency in question ineffective in the long run. Make no mistake about it, some of our most prestigious firms are engaged in this “capture” process, as one more way to hedge their bets and keep federal as well as state regulators at bay. This process has been ongoing for decades and is not some new phenomenon, but transparency will out over time, as will justice.
The SEC has always been revered as our “No. 1” regulatory watchdog. It is supposed to clash with power at high places, where moneyed interests are prone to bend the rules for their own benefit at the expense of others. Many pundits have also hoped that the SEC would lead the charge for campaign finance reform, but the jury is still out on that expectation. Smallberg calls for more transparency, restrictions on how quickly employees leaving the SEC can represent a client before the agency, and, of course, more funding, a common plea these days as Republicans push for cuts.
Is anyone really amazed at the findings of this report? At the very least, it is a lengthy disclosure of the revolving door and its impacts on the SEC, but as the author points out, Congress has a revolving door, as do most all agencies in government. There are benefits, but the battle rages on in the shadows to defeat the very purpose of their existence. Good investigative reporting may be our last defense. Lean Forward!
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References: Embedded links provided, but points made are primarily the opinion of the author.