SEC Chief Won't Offer Any False Hopes

Mary Schapiro had this to say after running the Securities and Exchange for more than two years: "I'd like to move beyond the question of whether regulation is necessary."

This is the woman who President Obama hired to clean up rampant financial fraud.

This is the regulator who was to inspire confidence following the worst economic crisis since the Great Depression.

This is the pit bull who was to build shattered trust after the SEC blatantly ignored warnings about Ponzi schemer Bernie Madoff and missed so many other white-collar schemes.

But Schapiro went to Dallas last week to tell a bunch of business editors and writers that she wishes she wouldn't have to argue about whether regulation is even necessary.

"The idea that regulation is per se counterproductive, the idea that it is always a net negative, stands reality on its head," she said at an annual conference of the Society of American Business Editors and Writers, or Sabew.

"We have seen over the years what happens when financial markets are poorly regulated--they are prone to crashes, runs, manipulation and fraud. Investors are left unprotected, market structures become unstable and businesses are poorly served."

"This happens over and over again. And yet, despite these lessons, even basic, common-sense regulations are too often bitterly contested affairs."

This reminded me of the time Officer Friendly came to my kindergarten class to explain why we need traffic lights and crossing guards.

Imagine an Attorney General having to defend the existence of drug laws. Or an Army General having to justify guns?

Schapiro is supposed to be the nation's top cop on white-collar crimes, and this is how far she has come?

"Too often, in our discussion about financial reform, advocates have taken extreme positions--that all regulation is intrinsically bad, or inherently good."

Yes, just turn on the TV. Free market, good. Regulation, bad. But when regulators chime into this very simplistic discussion, they allow their opponents to frame all the arguments.

This is especially disappointing following Shapiro's remarks before Sabew in April 2009 in Denver, Colo., where she took questions targeting her agency's absentee-landlord approach to regulation.

"In the short time I've been chairman, I have begun efforts to revitalize the agency," she said then. "I have let it be known far and wide that things must change."

But what has changed? Executives still pay the SEC millions for the privilege of stealing billions, typically without admitting guilt.

And now Schapiro is crying poverty. The SEC could be self-funded through the fees it raises, yet it must go to Congress each year to plead for an annual appropriation.

Last year, it collected nearly $1.5 billion in fees, but received a $1.1 billion appropriation. Schapiro wants to up that to $1.4 billion to hire 780 more people to boost the agency's enforcement efforts and carry out new Dodd-Frank financial reforms. Without the increase, it'll be the same sad story.

"We can get the rules written," Schapiro said. "What we are not going to be able to do is operationalize them."

Republicans in Congress have had an easy time smacking down Schapiro for the SEC's missteps leading up to the financial crisis. Gut the agency. Then complain about its incompetence. It's the American way.

But Schapiro has given her opponents plenty of new ammunition. One example, she's had to explain David Becker, her agency's former top legal counsel. Becker worked on compensation issues for Madoff victims, even though he inherited a Madoff account from his late mother.

Schapiro also leased a million square feet of office space last July for the expanded agency she envisioned. But she did this without first securing the funds from Congress. Now, she's subleasing the space as fast as she can, and much of her new digs remain vacant.

This gives Republicans another chance to bring up one of their favorite topics: government waste.

The worst of it, though, is that instead of being a hard-bitten regulator, Schapiro has apparently become an apologist for regulations.

"Admittedly, individual regulations can be ill- or well-conceived, effective or ineffective," she said. "They impact market participants in different ways; costs and benefits can be hard to measure; and balancing competing interests is a delicate task. And, naturally, those who fear their profits will suffer may decide to fight even the most meaningful reform."

What does Schapiro hope to achieve in parroting the most cliche" sound bytes of her critics, besides her next inside-the-beltway job?

"Where we see the greatest risk to the investing public, that's where we will put our resources," Schapiro said. "We also need to be transparent about what we are not doing so there's not a false sense of comfort that the SEC isn't everywhere, when clearly we won't be."