Change at the top is first step toward redirecting the SEC

Change at the top is first step toward redirecting the SEC

The best thing that can be said about the Securities and Exchange Commission under the leadership of Chairman Christopher Cox is that the agency responsible for protecting U.S. investors will soon be under new management.

Cox had an anti-regulation record as a California congressman that should have disqualified him to lead the SEC. The agency is supposed to enforce regulations that make it difficult if not impossible for con men like Bernard Madoff to enrich themselves at the expense of investors. It makes no more sense to put a laissez faire true believer in charge of the SEC than it would to put a medicine show barker at the head of the Food and Drug Administration.

But Cox was President George W. Bush’s choice for the post, and Democrats did not even raise a credible attempt to block his confirmation.

SEC’s charter

The SEC was established in 1933 as a response to the stock market crash of 1929 and the Great Depression that followed. The SEC’s self-described mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

In short, if Americans don’t see the stock market as a level playing field, they won’t invest. The SEC has broad investigative and enforcement authority, which it is supposed to use to protect and assure investors.

But the SEC has been largely AWOL during the financial meltdowns of 2008. The Treasury Department and the Federal Reserve have played more of a role this year, putting their own examiners inside Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley, all of which were supposed to be overseen by the SEC.

So the Madoff scandal is only the latest and most sensational example of the failure of the SEC under Cox to protect investors.

Somehow Madoff, whose firm should have been regulated and regularly examined, managed to perpetrate the largest Ponzi scheme in history, to the tune of $50 billion. And Madoff would still be robbing from Peter to make Paul’s latest payout if Madoff had not admitted what he was doing to two of his sons. Only after the sons went to the feds did any Cox’s 1,700 stock cops get on the case.

Cox serves at the pleasure of the president and has announced that he will submit his resignation at the end of the Bush administration. Otherwise, President-elect Barack Obama would have surely asked for it.

New direction

Obama has already named his nominee to replace Cox, Mary Schapiro, who was an SEC commissioner from 1988 to 1994, and the chairman of the commission from 1994 to 1996. More recently she has headed the Financial Industry Regulatory Authority, a nongovernmental, industry-supported regulator that oversees the securities industry.

It is inconceivable that the SEC under Schapiro would ignore the warning signs that the SEC received over a period of years about Madoff’s scam. Nor would she allow Treasury to usurp the SEC’s rightful role.

She is expected to rebuild the SEC as an aggressive overseer of Wall Street operations, not an enabler of the worst Wall Street has to offer.

The nation is involved in what is likely to be a $1 trillion bailout of an investment industry that flourished under unwatchful eyes. The confidence of investors who have come to dread opening the envelopes containing their 401(k) statements is not likely to bounce back. But replacing Cox with Schapiro at the head of the SEC is a good start.