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The way to change institutions is to change the people in positions of influence within them. Even with an obviously pro-corporate Mary Jo White at the head of the SEC, Democratic commissioners Kara Stein and the outgoing Luis Aguilar have been able to curtail some of the agency’s particularly dubious established policies, like giving financial services industry recidivists waivers from sanctions that were mandated by law when they settled for violations of securities laws. The worst of this demand for relief wasn’t as if there was any justification for it beyond the banks’s perception of their God-given right to profit. The mandatory sanctions hit non-core but nevertheless attractive operations, such as fundraising for hedge funds and private equity funds, so it’s not as if the banks could argue that the business losses would put their overall survival at risk or represented a loss of essential services to the public (there are plenty of competitors to pick up the slack).
So it was an important precedent early this year when pro-bank reform Senators, led by Elizabeth Warren, made so much of a stink over Obama’s nomination of Lazard international mergers & acquisitions banker Antonio Weiss to a senior Treasury post for which he was not qualified that he withdrew. This victory was more important than it might appear. Warren, Sherrod Brown, and other pro-bank-reform Senators took on the Wall Street wing of the Democratic party and won, even when it pulled out all stops and got pro-Weiss articles placed repeatedly in the Washington Post, New York Times, and Wall Street Journal.
A less-high-profile fight has been underway for the replacement to Luis Aguilar at the SEC. Normally, an SEC commissioner is not a great position for influencing policy, but Kara Stein has made very effective use of her position to call out weak SEC policies, putting her in the unusual position of opposing a commissioner from her own party. And by virtue of Mary Jo White having to recuse herself often due to her extensive conflicts of interest, Stein and Aguilar were able to block questionable SEC actions by voting against them, which had the effect of calling attention to the problems with the pending measures, as well as force a compromise more to their liking.
Thus Obama planned to end Kara Stein’s effectiveness as a reformer by getting a pro-bank replacement for Aguilar in place (Aguilar’s term ended earlier this year, but he can continue to serve until the end of 2015 if his replacement has not been approved by the Senate). The trial balloon floated was for Kier Gumbs, a Covington & Burling corporate attorney. Yes, the very same Covington & Burling that gave us Lanny Breuer, who famously lay awake at night worrying if prosecuting banks might hurt them, and Gene Ludwig, the former Comptroller of the Currency who founded and leads Promontory Group, which among other things was behind the whitewashes of MF Global’s risk controls, Bank of America’s foreclosure reviews, and Standard Chartered’s claim that it had only $14 million (yes, with an “m”) bank wires that were out of compliance (as in used for money laundering) when it later admitted to $250 billion (yes, with a “b”).
And in case you think we are being unfair in tarring Gumbs with being at Covington, the particulars of his record put him firmly in the “defend the cronyistic status quo” camp. From David Dayen at the Intercept:
Gumbs, a former SEC staffer, allegedly gave CEOs tutorials on how to avoid disclosing their corporate political spending while at Covington. He also represented the American Petroleum Institute before the SEC. He was seen as a corporate-friendly ally for Chair Mary Jo White, who would help marginalize the more reform-minded Democrat on the panel, Kara Stein. That’s why White lobbied to replace Aguilar with a moderate.
One has to assume that “moderate” in this context means that he’s a pro-corporate Democrat, and thus is willing to support policies that make minor concessions to the interests of the 99%.
But Rootstrikers, Public Citizen, and other progressives immediately raised a hue and cry about Gumbs, and that took place in concert with ongoing, and well-deserved criticism of Mary Jo White’s dereliction of duty by Credo and other activists. That forced Obama to table a nomination for Aguilar’s slot considerably to the left of where he wanted to go in nominating Lisa Fairfax. Again from Dayen:
Fairfax is an expert on shareholder activism: the efforts by investors to force changes in corporate behavior after acquiring large blocks of shares. Warren included Fairfax on a list of potential candidates for the SEC vacancy, though Brown ultimately made the recommendation. If she proves a strong advocate for reform and an ally to Kara Stein, it puts White on the hot seat and will make her plans to weaken the commission more untenable…
Financial reformers see blocking Gumbs and getting Fairfax onto the board as a triumph…
Denying Gumbs the SEC appointment, against the preferences of the White House is the latest in a concerted campaign to increase the diversity of perspectives at financial regulators – and in particular to end the “revolving door” between Washington and Wall Street. The philosophy can be summed up with one phrase: “Personnel is policy.” Who gets to implement and enforce laws, or exercise independent judgment, has an enormous bearing on the ultimate outcomes.
By using an inside/outside strategy, with politicians and activist groups forming a united front, it makes it more difficult for current and future Democratic administrations to populate their staffs by picking from the Wall Street talent pool. Regardless of individual views or the desires of Wall Street-aligned donors, if presidents can’t get their picks through the Senate, they’ll take the path of least resistance, and open up their personnel to a less corporate-friendly point of view.
And Dayen stresses that this nomination is likely to go through because Obama has paired it with the nomination of a former staffer oF Richard Shelby, the chairman of the Committee on Banking, Housing, and Urban Affairs. So while it’s never over until the fat lady sings, this looks like a real win for financial services reformers, and a sign the tide is indeed turning.
And before cynics try to pooh-pooh the significance of this victory, let us not forget how feeble the pro-reform camp has seemed until recently, with the Vichy Left doing an effective job of passing off mere gestures as real action. The various groups fighting for the interests of the non-monied classes have been in the wilderness for a very long time and are building up their numbers and refining their strategies. So as someone who has been immobilized for a long time needs to regain strength and stamina, so to the true left is in the midst of a rebuilding campaign. As Lao Tsu said, “The journey of a thousand miles begins with one step.”