The Obama administration is missing the forest for the trees as it focuses on regulatory overhaul of the SEC. While giving the Federal Reserve the power to supervise large financial firms is a step in the right direction, the real problem is Mary Schapiro, the newly appointed Chairman of the SEC.
Ms. Schapiro has spent her career protecting brokerage firms from investors, and thwarting efforts to reform a thoroughly corrupt securities industry.
Ms. Schapiro joined the NASD in 1996 as President of NASD Regulation. She was named its Chairman and CEO in 2006, and remained in that position until her appointment to her present position. In 2007, she led the effort to consolidate the NASD and the NYSE into FINRA. FINRA, like its predecessors, purports to "self regulate" brokerage firms.
During her tenure as the NASD, Ms. Schapiro was a strong advocate of the industry's mandatory arbitration system which routinely re-victimizes investors by denying them redress for broker misconduct.
"Self-regulation" overseen by Ms. Schapiro resulted in the greatest abuses by brokerage firms in history, bringing the world's economies to the brink of total collapse.
Ms. Schapiro's shaky start at the SEC confirms the view that she will do nothing to reign in the insatiable greed of brokers, who continue to plunder the savings of hapless investors.
The irony is that it would be so simple to demonstrate a real commitment to investor rights. Here are some suggestions:
1. Abolish the mandatory arbitration system and give investors back their constitutional rights;
2. Abolish "self regulation" by FINRA, which is a sham. The brokerage industry should be regulated by a governmental authority with the power to do so effectively. The SEC would be the likely agency to do so, with the right leadership;
3. Require brokerage statements to:
(a) Disclose the risk of every portfolio, as measured by standard deviation;
(b) Compare the returns of every portfolio to a portfolio indexed to benchmarks of comparable risk; and
(c) Disclose the "cost equity" of the portfolio, which is the amount the investor must make to break even, after payment of commissions, fees and margin interest.
There is nothing complex or controversial about these proposals. If Ms. Schapiro genuinely had the best interest of investors on her agenda, she could easily implement them.
But that is precisely the problem.
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