There are currently only three SEC Commissioners, rather than the normal five. A recent New York Times article discussed what appears to be a logjam in the approval of two apparently highly qualified nominees for the open seats. According to the article, a group of senators are holding up confirmation of Hester Peirce, a Republican, and Lisa M. Fairfax, a Democrat, even though each was previously cleared after an earlier nominee, a partner at a major law firm, was firmly opposed by many because he had represented clients from “corporate America.” (He also had several years’ experience at the SEC, including as counsel to a Commissioner.) Apparently, the current thinking is that what is needed is “independent-minded” Commissioners.
It is, however, a bit difficult to characterize the current nominees as beholden to corporate interests. Ms. Peirce served on Senator Richard Shelby’s staff at the Senate Banking, Housing and Urban Affairs Committee, which oversees the SEC, and more recently she has been a fellow at George Mason University’s Mercatus Center. Ms. Fairfax is a professor at George Washington University School of Law and previously held a similar position at the University of Maryland School of Law.
Whether one agrees or disagrees that recent professional ties to regulated companies should be a disqualifying factor in the selection of SEC Commissioners, it is difficult to suggest that nominees should be completely divorced from the corporate world and the entities that the SEC regulates, especially to the extent that simply teaching about such matters or otherwise being involved with them in an academic setting is a disqualifying factor. In this case, there appears to be an issue about the particular nominees’ views on whether the SEC should adopt rules requiring disclosure of political donations by public companies - a hot button issue for some senators and some “shareholder advocates.” But the primary consideration should be whether a nominee has the requisite level of knowledge and understanding of our incredibly complex maze of federal and state securities regulations, and its impact on companies, investors, and every other participant in the financial markets, and the ability to use that knowledge in a manner that will have a positive impact on the markets and our overall economy. Trying to get nominees to commit to positions on specific matters before they have the benefit of fully immersing themselves in the issues, as well as access to the full spectrum of information and advice they will receive from a panoply of sources, including the counsel of fellow Commissioners, could result in highly qualified nominees getting lost in the process.
The risk of waiting until a nominee ticks every box with respect to every possible issue is that we go for an extended period without a full complement of Commissioners. It would seem that what we need more than anything is five Commissioners who, irrespective of party or political leaning, are knowledgeable, circumspect, and willing to provide the kind of guidance and oversight that is needed—perhaps more than ever—to help all market participants navigate the increasingly complex regulatory environment in which we operate.
When politics interfere with the process of selecting persons to head the country’s top securities regulatory authority, is it any surprise that recent exit polls reveal that voters in both parties “distrust” Wall Street? In the wake of Tuesday’s New York Democratic and Republican primaries, a number of media sources reported on the results of surveys of voters exiting their polling places. According to The Wall Street Journal, approximately “63% of Democrats and 49% of Republican voters said Wall Street hurts the economy more than it helps.” The article continues by reporting that 45% of Republican voters surveyed said that Wall Street helps the economy, but only 30% of Democratic voters surveyed viewed Wall Street as helpful.
Please excuse us if we believe that these sorts of non-scientific surveys provide little benefit other than fodder for late-night talk shows. Is it reasonable, however, to try to glean any conclusions from this apparent broad distrust of Wall Street? And, how might this distrust of Wall Street impact the general election in November? The fact that voters in both parties seem to distrust Wall Street would seem to provide little guidance regarding how to restore confidence in the economy. For example, would more regulation, oversight and enforcement increase trust, as Democratic presidential candidate Bernie Sanders has advocated? Or do these polls suggest that the Dodd-Frank Act is an abysmal failure which must be rescinded, as Republican presidential candidates Donald Trump and Ted Cruz have suggested?
More importantly, is Wall Street really the culprit here, or is it just a convenient target (and a great sound bite) on which politicians and the media can focus people’s discontent with the state of the economy? After all, is the average person’s principal concern, as she or he steps into the voting booth, what happens on Wall Street? Mr. Sanders has made a central part of his campaign an argument that Wall Street and wealthy interests have somehow rigged the economy in ways that hurt the middle class. Still, this wasn’t enough to keep Hillary Clinton from handily defeating Mr. Sanders in the New York primary.
We must be very wary about drawing incorrect conclusions from these sorts of “straw polls” and informal surveys. They may only serve to reveal how little we understand, rather than provide any meaningful understanding. In other words, these statistics may be a result of false positives, suggesting that people are more distrustful of the lawmakers and the regulatory process than they are of those actually subject to regulation. In any event, such sentiments are hardly the basis on which regulatory policy should be set.