The FDIC Acts as the SEC Sleeps

When it comes to Federal agencies designed to protect individual investors, which is the one most investors think of?

The SEC?

Wrong. It should be the Federal Deposit Insurance Corporation.

If that’s a surprise, you are not alone.

But as noted here in earlier posts, the SEC is headed by a politically-sponsored professional bureaucrat, Mary Schapiro. Schapiro has been a commissioner at the Commodity Futures Trading Commission, NASD, and now serves in the most sensitive post and the most sensitive time since the Great Depression. And true to form, she has continued to act the same way as she did in previous posts.

As the ultimate bureaucrat, Schapiro has embodied the slogan which I once heard from another bureaucrat at the New York Stock Exchange who told me: “The in-box is for things that time will take care of, and the out-box is for things which time has already taken care of.” That is the reward for doing nothing. The message is that if you are politically connected and have the resulting job security, you have nothing to fear. Your job is secure no matter what happens in the real world.

That partially explains why Schapiro and the SEC have done nothing to address investor protection actions which are clearly in their jurisdiction. The SEC can undertake many actions which do not require any legislation. What they do need is guts, or what they call “political will” in Washington.

Shapiro’s other problem is that she is part of U.S. Treasury Secretary's Tim Geithner’s team, which puts her squarely in the camp which weighs political power against the needs of individual investors. In earlier testimony when the Obama administration was considering who to name to top regulatory posts, Sheila Bair’s name was offered to head the SEC. Geither criticized Bair (pictured above) because she was not a “team player.” He recommended Schapiro who had already proven herself to be a team player in other sensitive regulatory posts, which had to balance financial services industry requirements against those of individual investors.

Bair's Big Move
Hence, it is no surprise that is was Sheila Bair who publicly advocated for an individual investor consumer agency which would exists apart from the SEC. Most investors would think the SEC would advocate for this new agency given the terrible record of the investment and securities industry in the recent financial meltdown. But Schapiro would not take that initiative. She did not in past positions, and now that her career is almost over, there is no need to alienate anyone who could give her a few more top-paying jobs when she enters the private sector.

It’s clear that American investors are on their own when it comes to securing their own financial futures. In an interview with financial investigator Harry Markopolos, who broke the Madoff story, tells how he repeatedly went to the SEC’s Mary Schapiro and her top market enforcer to alert them about the Bernie Madoff Ponzi scheme. The SEC did nothing. Not surprisingly, Madoff said in a prison interview that he considered Mary Schapiro “a dear friend,” according to Markopolos. It’s no wonder that Schapiro would not want that fact widely discussed.

Investors should thank Bair, a political independent, for acting on their behalf. However, it’s just another hard lesson that presidential administrations, regardless of their party, continue to victimize average Americans.