02/07/2009 05:12 am ET | Updated May 25, 2011

Mary Schapiro: WaPo 's Pearlstein Takes On Obama SEC Pick

Writing for Commentary, Jennifer Rubin calls President-elect Barack Obama's choice to place Leon Panetta at the top spot at the CIA, "his first completely incomprehensible appointment." This is wrong! Of course, I understand what Rubin is saying. I've heard some good arguments on both side of the Panetta issue, but I'll be the first to admit that my head did a sharp swivel when I heard of his appointment. Nevertheless, the plain truth is that Panetta is neither Obama's "first completely incomprehensible appointment" or his most completely incomprehensible appointment. I would argue that this distinction belongs to Mary Schapiro, Obama's choice to head up the Securities and Exchange Commission.

And, amid all of the news buzz surrounding Panetta's appointment, credit the Washington Post for giving some space to Steven Pearlstein, who does a fine job explicating some concerns over Schapiro's appointment, which he calls "as safe and predictable as it is disappointing." Not without cause:

For the top SEC job, Obama needed to mount a determined search outside the current establishment -- someone willing to take no prisoners and question everything about the way the industry does business and the way the government regulates it, someone so capable of channeling the outrage the country now feels that he or she would have industry insiders quaking in their hand-made wingtips. Instead, what we got was someone who not only has been at the very center of a failed regulatory process for the past two decades, but has emerged from it well-liked and acceptable to everyone.

She's not without her qualities, Pearlstein allows. He credits Schapiro with having the right "temperament" and being reform-minded. He asserts that she "gets the fundamental problem with Wall Street's scummy culture." But, there is a "but."

Remember the good old days when corporations would routinely manipulate earnings so that they came out just as the analysts expected? Or when analysts used to issue buy recommendations for stocks they knew were lousy just because it helped their firms win investment-banking business? Or when brokerage firms would routinely put clueless customers in mutual funds that offered high commissions, not the best results? Or when investment banks would put aside shares in the hottest IPOs for the personal accounts of corporate chief executives who steered underwriting business their way?

These practices weren't secrets -- to anyone even vaguely familiar with the industry, they were hidden in plain view. And yet for years, no regulator, including Schapiro, was willing to risk being demonized by the industry, criticized by Congress and overturned by the courts to do what was necessary to stop these practices. Indeed, in every case, it was only after investors had lost their money and some other regulator had begun a crusade that Schapiro finally showed up to close the proverbial barn door. Now the process is repeating itself as Schapiro and other regulators begin to clean up after underwriters who knowingly peddled securities of questionable value, ratings agencies that were hopelessly compromised, banks that set up giant off-balance-sheet vehicles to circumvent regulatory capital requirements and brokers who peddled auction-rate securities to investors who thought they were something else.

Of course, when one gets to talking about the things "hidden in plain view" on Wall Street, there's a big name lurking between the lines. Consider the eye of Ryan Chittum of the Columbia Journalism Review, who pulled a significant quote from Monday's Wall Street Journal:

The failure to stop Mr. Madoff also is an embarrassment for Mary Schapiro, the Finra chief who has been nominated by President-elect Barack Obama as the next SEC chairman. Finra was involved in several investigations of Mr. Madoff's firm, concluding in 2007 that it violated technical rules and failed to report certain transactions in a timely way.

This is why the comparison between Panetta and Schapiro is so interesting to me. Certainly, in questioning Panetta's qualifications to run the CIA, there's a certain amount of meat. But one cannot escape the fact that so much of the controversy seems to stem from Beltway political culture and its social niceties. My stars! No one consulted Dianne Feinstein! How will the CIA brass cope with an outsider? Eeek! A former Clintonite! By contrast, the concerns raised over Schapiro are all serious, substantive, and directly impact the bottom line for an America looking to crawl out of the economic hole, left to trust in regulators who don't appear to have had much success regulating. And outside of a few sharp pieces from folks like Pearlstein, these concerns get little play, and they certainly haven't percolated upwards to the brainstem of the cable newsers who strut and fret over the Panetta appointment.

Remember: Mary Schapiro is someone who "has been at the very center of a failed regulatory process for the past two decades, but has emerged from it well-liked and acceptable to everyone." Yep! It's almost as if those social niceties all line up her way, and the Beltway press has some sort of skewed sense of priority or something!