The 2008 financial crisis cost the American people 8.5 million jobs, $19 trillion in lost household wealth, and 10 million homes. The echoes are still felt today as average middle class family wealth remains nearly 40 percent off 2001 levels. Reckless risk-taking, consumer and investor abuses, and an absence of strong and necessary regulation brought us the crisis. Unfortunately, the Trump administration, with its executive orders and appointments, appears ready to send us down that pathway once again.
As the cop on the Wall Street beat, the U.S. Securities and Exchange Commission (SEC) plays a crucial role protecting the American people from another financial crisis and financial abuses. Yet the SEC is a troubled agency. Despite outstanding professional staff, its track record during the last number of years leaves much to be desired. Unfortunately, but perhaps unsurprisingly, President Trump has nominated as chair of the SEC a longtime corporate attorney who has represented many of Wall Street’s largest financial institutions.
{mosads}Appointing an SEC chair so clearly aligned with the Wall Street establishment should alarm not only every worker who cares about her retirement funds, but should also alarm every taxpayer who cares about whether the SEC will roll back its all-too-modest progress in preventing another financial crisis and in holding financial wrongdoers accountable. Expertise on how things really happen on Wall Street is valuable, and occasionally individuals can surprise. But in this day and age, it is up to the nominee to prove, via one’s track record and public statements, that he or she is committed to the public interest and not the corporate interest.
There is nothing in Clayton’s record that tells he is so committed. Far from it. He has zero track record enforcing the securities law — or, for that matter, in any public service. His most notable engagement with public policy resulted in a report that called for making it acceptable for American companies to start bribing foreign governments — undoing laws that the SEC enforces.
What’s more, new questions are emerging about potential conflicts of interest in his family’s ownership interest in a company that provides corporate formation services. In an environment where unresolved conflicts of interest and foreign government involvement in our politics remain topline concerns, all of this is, to say the least, troubling.
It is not unreasonable to simply conclude now that Clayton is unfit for the job. Yet every nominee is given a chance to make his or her views clear at a hearing. This week, before the Senate Banking Committee, Clayton has a lot of explaining to do.
That explaining should start with an evaluation of the SEC’s recent track record and financial regulatory reform more broadly. Where does Clayton stand on the many financial reform mandates from the Dodd-Frank Act that remain unfinished at the SEC, including oversight of a $10 trillion securities-based swaps market, the ban on underwriters of asset-backed securities from betting against the securities they package, and the executive and incentive compensation mandates to prevent head-I-win, tails-you-lose bets?
Where does he stand on the Volcker Rule, whose success will depend upon tough enforcement going forward as well as greater transparency? Critical elements in modernizing the oversight of asset management, such as new rules governing derivatives in mutual funds, remain unfinished: will he complete them with strong investor protections, will he weaken them, or will he just let them die?
Other core SEC work remains sorely unaddressed. Little progress has been made to reform equity market structure. The SEC’s “disclosure effectiveness” initiative remains torn between its original intent to cut disclosure to investors and the desire of investors to obtain the information they need to make smarter long-term decisions for our economy and the public interest. The problems of share buybacks, excessive corporate short-termism, and the relationship between high levels of mergers and the health of our public markets barely register.
And perhaps worst of all, given the SEC’s mission, its efforts to hold individuals and corporations accountable for wrongdoing, including disqualifying bad actors going forward, has had few teeth. Where does Clayton stand, specifically, on all of these issues?
Senators should listen carefully and dig below what are likely to be polished answers. With the seriousness of the threats to agency independence, investor protection, and financial stability, half-hearted commitments should not be enough. Perhaps Clayton will surprise us. But the burden of proof is on him, and he starts with large strikes against him. His career representing the leading Wall Street investment banks must lead us, absent other evidence, to presume that his thinking is aligned with their views on financial markets, rather than the public’s. That is not something that the SEC needs more of.
Andy Green is the managing director of economic policy at the Center for American Progress. He previously served as counsel to Commissioner Kara Stein at the U.S. Securities and Exchange Commission.
The views expressed by contributors are their own and are not the views of The Hill.