Obama’s Engagement With Wall Street

President Obama has often advocated “engagement,” rather than confrontation, with America’s adversaries. It’s one of the big reasons his nomination of like-minded former Sen. Chuck Hagel for defense secretary has run into a buzz saw of opposition.

In contrast, Obama’s selection of Mary Jo White to head the Securities and Exchange Commission has been viewed as the president sending a message to Wall Street that there will be no more Mr. (or Ms.) Nice Guy in Washington, D.C. White, a former federal prosecutor, is widely seen as someone who is prepared to be tougher on financial wrongdoing than was former SEC head Mary Schapiro, who stepped down last year. (A Schapiro deputy, Elisse Walter, has filled in since Schapiro’s departure.)

In large part thanks to this perception of toughness, White’s nomination is likely to sail through the Senate confirmation process.

Perception and reality are often very different, however, and this strikes me as one of those instances. While there is no reason to believe White would be soft on financial wrongdoing, or shy about asserting the SEC’s regulatory authority over securities and markets, she does not seem to be the sort of regulator who would aim enforcement at whoever happens to be the latest scapegoat targeted by politicians or the public. Business executives, including those on Wall Street, have no problem working with a regulator who enforces the law but respects its limits – which is the sort of regulator White seems likely to be.

White served as U.S. attorney in Manhattan, which is where most federal financial crime prosecutions take place. White herself, however, is not known personally for having been a sheriff on Wall Street, which experienced the inflation and then the bursting of the tech bubble during her nine-year tenure. Her work was instead marked by notable cases involving terrorism and organized crime. Since she left that position in 2002, she has worked as a partner at the private firm Debevoise and Plimpton, often defending the sort of corporate clients the SEC itself targeted in recent years.

The general perception, however, still seems to be that White will be aggressive in holding individuals accountable for alleged financial misconduct, and that she will seek harsher penalties against institutions than Schapiro did. Advocacy groups for market accountability largely support her nomination. Dennis Kelleher, the president of Better Markets, said of White: “She knew who the bad guys were, went after them and put them in prison when they broke the law. That’s what must happen if integrity and investor confidence is to be restored in our securities markets.” Her reputation for toughness seems to have heartened those who advocate harsher measures from the SEC.

Yet the available record indicates that, if she is confirmed, White will be more focused on pursuing deliberate misconduct, rather than seeking scapegoats for decisions that may have been mistakes but were not ill-intentioned or criminal. Last February, she said at a New York University School of Law event that prosecutors must not “fail to distinguish what is actually criminal and what is just mistaken behavior, what is even reckless risk-taking, and not bow to the frenzy.” The SEC has had some trouble with that distinction in the past.

Certainly the SEC has not failed to successfully bring aggressive prosecution against individuals or institutions involved in the financial crisis because of any lack of interest on the agency’s part. Nor has it failed because of ineffective investigation techniques. The agency failed because, for the most part, the things that went wrong in the 2007-2009 crisis were not crimes.

Bill Singer, a former attorney for the American Stock Exchange and the National Association of Securities Dealers, said in comparing her to Schapiro, “Mary Jo White needs to come into the SEC with a sledgehammer, not a with a putty knife.” I suspect White will use whatever implement she feels is appropriate for the job at hand. That’s not a bad quality in someone poised to run an agency in danger of becoming overly politicized.

It is also not a bad quality at a time when, despite the get-tough-on-Wall-Street posturing that the White House still can’t resist, the financial community needs to know that it can conduct ordinary business without fear of meritless prosecution. Regulators need to be bound by rules just as much as the parties they regulate. Having an SEC chief who understands that is a healthy way for the administration to engage with the private sector.

About Larry M. Elkin 553 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

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