By Amit R. Paley and Howard Schneider
Washington Post Staff Writer
Thursday, December 18, 2008 11:33 AM
President-elect Barack Obama today made a trio of appointments to his economic team, including new stock and commodity market regulators he says will be charged with cracking down on "the culture of greed and scheming" that has undermined public trust in the financial industry.
In a Chicago news conference, Obama named securities industry veteran Mary L. Schapiro to head the Securities and Exchange Commission, and announced former Treasury official Gary Gensler as his choice to head the Commodities Futures Trading Commission.
He also named Georgetown University law professor Daniel K. Tarullo to one of two open seats on the Federal Reserve Board. Tarullo is a top economic policy adviser to Obama, and held several jobs in the Clinton administration related to international trade and regulatory policy.
Announcing the appointments of Schapiro and Gensler, Obama said the two will be central to what he called one of his "top legislative priorities" coming into office -- an overhaul of the system for regulating markets. In the context of a broad recession, a global crisis in financial markets, and an emerging Wall Street scandal that regulators failed to catch, Obama said that the country is "frustrated that there is not a lot of adult supervision." His new team, he said, would create "a 21st century regulatory framework."
The SEC's failure to detect Bernard L. Madoff's alleged $50 billion Ponzi scheme before it was revealed last week has prompted even current chairman Christophr Cox to question the agency's performance.
Schapiro, who would be the first woman to chair the SEC on more than an interim basis, will help spearhead "a crackdown on the culture of greed and scheming that has led us to this day of reckoning . . . We are going to ensure openness, accountability and transparency in our markets so people can trust the value of the financial products they are buying," Obama said.
Schapiro, a Wall Street regulator for 20 years with a reputation for tenacity, is likely to push the SEC to become more aggressive in policing the financial industry and advocating the agency's interests as lawmakers push for an overhaul of the financial regulatory structure, according to former officials and colleagues.
"If there is anybody who is going to reinvigorate the SEC, it is Mary," said David M. Becker, a former general counsel at the agency. "I have no doubt that with her leading the SEC, it will show its teeth whenever necessary."
Schapiro, 53, has a history of attracting support from Republicans and Democrats. President Ronald Reagan appointed her as a commissioner at the SEC, where she served for six years and eventually was named acting chair by President Bill Clinton. He later made her the chief of the Commodity Futures Trading Commission.
The fact that she has led both agencies could make it easier for the Obama administration to merge the functions of the two agencies as part of a broad regulatory overhaul expected next year. Key regulators and lawmakers have advocated such a move, arguing that the bifurcation of duties created a gap in oversight that contributed to the financial crisis.
Schapiroheads the Financial Industry Regulatory Authority, Wall Street's self-regulator known as FINRA. She has worked for the non-governmental group since 1996.
She is likely to face questions during her confirmation hearing about why her organization did not catch the alleged Ponzi scheme run by Madoff. She oversees firms like his.
Rep. Spencer Bachus (Ala.), the top Republican on the House Financial Services Committee, issued a letter yesterday calling for separate hearings "to specifically examine the adequacy of the SEC's and FINRA's examination programs." Such a hearing could put Schapiro on public display among the current cast of regulators even as the incoming administration is presenting her as an agent for change at the SEC.
Several critics of the SEC said yesterday that Schapiro would be an ideal choice who could reverse what they see as the agency's failure to adequately prevent abuses on Wall Street.
"She believes in a vigorous enforcement program and is just the right person to revitalize the Commission," Joel Seligman, an SEC historian, wrote in an e-mail.
In a speech in October, Schapiro said she has pushed for nearly 15 years for more oversight of credit default swaps, a complex and virtually unregulated financial instrument that played a role in the financial collapse.
"Clearly, our regulatory system failed to compensate for the failures of market discipline and failed to appreciate the interdependencies of financial institutions and the risks they shared," she said. "The system did not allow regulators to stay ahead of this crisis and prevent it from ever occurring."
Staff writers Binyamin Appelbaum, Philip Rucker and Anne E. Kornblut and staff researcher Madonna Lebling contributed to this report.