Counterparties: Struggling with Enormous Conflicts

February 11, 2013

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Sometimes it takes a 59-page, 274-footnote study to confirm the obvious. The endless revolving door between the SEC and Wall Street makes it harder for the SEC to police companies, according to a new report from the Project on Government Oversight, which details just how many former SEC employees go on to get jobs defending clients against the agency:

From 2001 through 2010, 419 former SEC employees filed at least 1,949 disclosure statements saying they planned to represent clients or new employers in matters pending at the SEC. One former official filed 46.

The report points to the failure of money market regulation as a case study of how industry influences the SEC. Much of the blame has been put on SEC Commissioner Luis Aguilar, who is a former executive at the money manager Invesco. For what it’s worth, Aguilar appeared to soften his stance a week prior to Mary Schapiro’s departure. While the report highlights his role, it also notes that former SEC officials, including Karrie McMillan, who ran the agency’s investment management division, are now working for money market fund managers.

The SEC’s conflict problem, as the WSJ reported last week, is baked-in: commissioners must recuse themselves from cases related to previous employers or clients. Not only must a majority of the agency’s five commissioners approve enforcement cases, but a quorum of three commissioners (right now there are only four) is required for any case to move forward. Commissioners are restricted from voting on cases involving past employers or clients.

The nominee to be the new head of the SEC, Mary Jo White, in many ways personifies these criticisms. Matt Taibbi finds what he believes is evidence of White’s conflicts in a 2007 deposition, where she said that a regulator’s desire to bring cases is a “positive thing… to a point”.

And Andrew Ross Sorkin examined White’s previous legal defending JP Morgan, Bank of America, former Senator Bill Frist (then accused of insider trading), and former-Morgan Stanley CEO John Mack. And that’s just the financial clients. There’s also a whole suite of international corporations on White’s client roster, as the FT’s Shahien Nasiripour writes. Given her list of former clients, White may limit the number of cases she greenlights simply by following her agency’s own rules; Sorkin concludes that “White’s previous engagements create not only an ‘optics’ problem, but a practical, on-the-job problem”.  — Ben Walsh

On to today’s links:

Big Brother Inc.
Raytheon is building a “Google for spies” that can track your social media behavior – Guardian

“Can anyone honestly risk manage $2 trillion in complex investments?” – Scientific American

New Normal
The near-impossibility of working and paying your own way through college – James Stewart

Popular Myths
So-called “big data” brings “cherry-picking to an industrial level” – Nassim Taleb

Sayonara Stagnation
Japan’s economic minister targets a seven-week, 17% stock market surge – Business Insider
“Amari’s announcement is a canny way of anchoring expectations” – Felix

Apple is experimenting with “wristwatch-like devices made of curved glass” – Nick Bilton
The only analyst to come close to calling Apple’s peak owns his own firm and gets paid for accuracy – NYT

Where are the customers’ yachts? Private equity edition – Matt Yglesias
Dell’s largest shareholder may oppose plan to take the company private – NYT
Art Cashin on the economic and geopolitical implications of the Chinese zodiac – Business Insider

The man who killed Osama Bin Laden isn’t sure how he’s “going to feed his wife and kids or pay for their medical care” – Esquire

Possibly Useless Data
60% of surveyed vegetarians have consumed meat in the past 24 hours – Psychology Today

Terse Rebuttals
“Today’s young people will be tomorrow’s old people” – Matt Yglesias

The new Barclays is less Barclays – FT

Risk Management
Excel is no way “to run a bank—let alone a global financial system” – James Kwak

An inane mini-spat between Taleb and TED – Epicurean Dealmaker

If oil production is booming, why aren’t gas prices coming down? – Econobrowser

The latest fan of breaking up big banks: George Will – WaPo

Krugman swats away an economic straw man – NYT

Cognitive Dissonance
“It is startling to realize some of our most cherished memories may never have happened” – Oliver Sacks

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