Mary Miller vs. Neil Barofsky For The S.E.C

By Simon Johnson

The Obama administration is floating the idea that Mary J. Miller, under secretary for domestic finance at the Treasury Department, could become its nominee to lead the Securities and Exchange Commission. Ms. Miller, a longtime executive in the mutual funds industry, has served in the Treasury under Timothy Geithner since February 2010.

Ms. Miller represents the financial sector’s preferred approach to financial reform – some rhetoric but very little by way of serious effort. She has no time for people who are serious about making the financial system safer. And there is no willingness to really face down powerful people on Wall Street.

Her potential candidacy faces three major obstacles: Neil Barofsky, money market funds and the new momentum for reform.

Mr. Barofsky is the most important obstacle because, as soon as you think about him, you see an instantly plausible chairman for the S.E.C. The former special inspector general for the troubled assets relief program, or TARP, he is an experienced prosecutor who understands complex financial fraud. For example, he brought Refco Inc. executives and their legal advisers to justice in the mid-2000s (this was a commodities giant where top people engaged in accounting fraud). And he’s tough – taking on Colombian drug traffickers early in his career. Most recently, he confronted Mr. Geithner over the implementation of TARP – pushing for answers on why bailout terms were so favorable for big banks and so unfavorable for everyone else. He also pursued a number of securities fraud cases, including one involving Colonial Bank, which illegally obtained more than half a billion dollars from TARP — before Mr. Barofsky’s office stopped that fraud in its tracks and eventually obtained one of the few high-level convictions resulting from the financial crisis.

Mr. Barofsky’s account is published in his highly readable book, “Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.” Mr. Barofsky understands as much about finance as anyone in the industry, and no one would ever think he was captured by the world view of big banks.

Mr. Barofsky is a lifelong Democrat who has enjoyed bipartisan support in Congress. Since I suggested Mr. Barofsky’s name in a post last week, there has been an outpouring of support. A petition that Credo Action has put online urging President Obama to appoint an S.E.C. chairman who will hold Wall Street accountable, and naming Mr. Barofsky as a worthy choice, had more than 35,000 signatures by Wednesday morning.

The petition also recommends former Senator Ted Kaufman of Delaware and Dennis Kelleher of Better Markets – both of whom I endorsed here last week – and it expresses support for Sheila Bair, who would be terrific for the job (in a separate column last week, I said she was one of five people who deserve serious consideration to be Treasury secretary).

The White House does not like to take public suggestions of names for prominent positions; the Washington way is to do everything behind closed doors. And Mr. Barofsky is not popular with Mr. Geithner, precisely because he has stood up to authority for all the right reasons.

Still, considering Mr. Barofsky as a potential nominee makes the case for Ms. Miller look very weak.

She has no experience as a regulator or as an enforcer of the law. She has never worked on securities fraud. And she has no track record of standing up to powerful vested interests; in fact, she helped push the recent JOBS Act, which greatly undermine the protections available to investors.  In addition, her work experience is entirely within the mutual fund industry – 26 years at T. Rowe Price. And a major agenda item now for the S.E.C. is mutual funds and how to make them less vulnerable to the kind of runs that occurred in September 2008. (For a primer, please see my recent column for Yahoo Finance.)

The mutual-fund industry does not want reform, and it worked long and hard to keep Mary Schapiro, the departing S.E.C. chairwoman, from pushing forward some sensible ideas. After outside pressure was brought to bear, including by Ms. Bair’s systemic risk council (of which I am a member), there are signs that the S.E.C. will finally at least issue some proposed changes for public comment.

I do not know where Ms. Miller stands on money-market reform; indeed, from her public remarks it is very hard to know precisely where she is on any reform issue. It would be most unfortunate to put her in at the S.E.C. precisely when the mutual-fund industry is about to come in for some serious scrutiny. The optics, as they say in Washington, would not be good.

More broadly, there is a new push for financial reform – even from people who are close to Wall Street. In a wave of speeches and other statements (some you have seen and some you will see soon), voices are being raised against the too-big-to-fail approach and related causes of financial fragility. In particular, a speech last month by Daniel Tarullo, a governor of the Federal Reserve, seems to have released a great deal of pent-up creative thinking within the official sector.

Size caps for big banks are definitely on the drawing board, at least along the lines that Mr. Tarullo identified, which would limit nondeposit liabilities at any one institution relative to the size of our economy.

Given this momentum for responsible reform, does President Obama really want to appoint a financial-services executive – with a nonexistent or weak track record on reform – to a prominent public policy and enforcement position?

As Steven Ramirez has pointed out, Big Finance went all in for Mitt Romney and against Senator Sherrod Brown of Ohio and Elizabeth Warren, elected to the Senate in Massachusetts. This was a comprehensive electoral defeat for Wall Street; whenever its behavior was at stake, people voted for change. And their campaign contributions did not seem to produce the outcomes they wanted.

There is a view in Washington that politicians need Wall Street and its money – to start campaigns, to provide a wall of funding at critical moments and to help create a generous endowment for their post-presidential activities. Without a doubt, this has been the pattern in the past.

But in this big country are many diverse business sectors – and lots of people willing to give money without asking for special-interest favors.

Choosing a new chairman of the S.E.C. is the perfect time for President Obama to decide whether, despite everything, to go for the status quo – which brought us to our current economic predicament – and nominate Ms. Miller for the S.E.C. Or does he really want effective change? In that case, he should nominate Mr. Barofsky or someone who can match his stellar qualifications.

An edited version of this post previously appeared on the NYT.com Economix blog; it is used here with permission.  If you would like to reproduce the entire column, please contact the New York Times.

19 responses to “Mary Miller vs. Neil Barofsky For The S.E.C

  1. Treasury Secretary Timothy Geithner has been a yes-man for Wall Street, arrogant, and indifferent to fact. It would be surprising if he had an underling in Mary Miller who was significantly different. We know how Geithner responded — angrily — to Elizabeth Warren and others who stood up for themselves and against Wall Street corruption. That the Obama administration might seriously float Miller as opposed to Barofsky really bodes very ill for the second term. This is when Obama does not need to position himself for reelection. Granted he still needs to position policy for a conservative Congress, but as Mr. Johnson notes, Barofsky already enjoys respect and support even among many conservatives. The suggestion of Miller suggests the real sentiments of Obama — essentially conservative and slavish to Wall Street.

  2. I couldn’t possibly agree more with the words of Hugh Sansom above. Very eloquently put and describes the situation well. If it wasn’t Thanksgiving I would have put it more vulgarly.

    Not only would Mary J. Miller be literally a castration of the SEC, but would show a huge amount of apathy of President Obama towards the vast majority of people who voted for him. He know longer has to position himself, so this choice would finally and definitively show his true colors on this and other Democrat issues.

  3. Obviously should be “no longer” instead of “know longer” above. So much for opining wisdom (or at least good spelling) on Thanksgiving Day.

  4. Ferdinand Pecora

    Mary Miller sounds like the worst person for the job. Why not just keep Mary “Chris Cox” Shapiro? Another industry insider? It’s time for with a pulse at SEC. Obama doesn’t like drama, but maybe this is something more at work here. One suspects she’s being favored for her gender. This will be a good test to see if the Administration is going to appoint the best people for jobs or is more interesting in checking off the boxes of identity politics and political correctness.

  5. Ferdinand Pecora

    Mary Miller sounds like the worst person for the job. Why not just keep Mary “Chris Cox” Shapiro? Why is another fox needed to guard the hen house? It’s time for someone with a pulse at SEC. Obama doesn’t like drama, but maybe there is something more at work here. Is she being favored for her gender. This will be a good test to see if the Administration is going to appoint the best people for jobs or is more interesting in checking off the boxes of identity politics and being political correct.

  6. We heard you the first time.

  7. Ferdinand Pecora

    Please ignore the first one, it was littered with grammatical errors.

  8. Steven Helmling

    We’re all revelling in the fiasco of Rep’n polling pre-Nov 6; but why is no one drawing the parallel w/ the financial industry bubble-think pre-Sept 2008? A bunch of rich white guys, in it only for the money, leverage their power to their own (financial) advantage but to the detriment of the supposed beneficiaries of their expertise.

  9. My topic of interest is double-entry bookkeeping. Whenever I read the news, typical of Simon’s “Mary Miller vs. Neil Barofsky For The S.E.C,” I wonder if there is anyone left on the planet that understands the distinction between the bookkeeper versus the accountant.

    An analogy to mathematics may help. Mathematics demonstrates that a system of axioms forms naturally and is the source Newtonian Mechanics. The integrity of the axioms is demonstrated by a language of logical proofs. Gödel demonstrates, eighty + years ago, that the axiomatic system cannot prove the validity of its own axioms. His proof has the name “The Incompleteness Theorem.” Without the grammatical proof supplied by logic, mathematics would be without a trustworthy basis for its facts.

    Double-entry bookkeeping was created in the identical pattern revealed by the axioms and their proof. That is why it is named “double-entry.” For each statement of value, typical of the axiom, the bookkeeper enters a corresponding balancing of rights, typical of the proof. In hiring a chairperson to lead the S.E.C, why not give each candidate a simple test that would reveal that candidate’s bookkeeping savvy.

    I know from the number of years that I have been reading this blog that both Simon and James would fail the test. They would be in good company because Tim Geithner and Ben Bernanke would also fail the test. I have not, in recent years, met an accountant or an economist who would pass the test. I did, fifty years ago, have the experience of meeting bookkeepers and accountants in an industrial setting who did understand bookkeeping’s role in legitimate commercial trade. But that all disappeared with the proliferation of microprocessor driven recordkeeping.

    The test would ask the accountant to define the four words ‘cash’, ‘capital’, ‘assets’, and ‘liability. Then, with the gift of a hint, to follow up that question with an explanation of how and why these four categories of data use categorically different arithmetics to simultaneously balance the four categories of data.

    I have read enough comments to these blogs to know that a great many serious minded readers are deeply concerned as to how Our Nation will come to terms with the essential fix to the broken professions of accounting and economics. Understanding the centuries old bookkeeping is as essential to accounting as understanding the axiomatic system and its proofs is to mathematics.

    Dan

  10. I believe that bunch would rather have fun than come to grips with explanations. Just juggling the hard and soft landing thing in China, is giving them fits.

  11. Not fit to comment. Really I am not but: Look double entry accounting which I studied in College Accounting not Wall Street BULL does not exist as far as for what is needed to protect America from magic and mirrors making money out of nothing and backing up the loses with actual accounting. It is not math in this case it is control.

    Guiltner no I did not misspell it I believes America will cease to exist if the big banks can not keep making money out of nothing. Obama listen to someone else.

  12. Bruce E. Woych

    This critique has serious substance … timely and entirely on the money.
    Unfortunately it also points to the reality base we can anticipate for the second term of Obama’s presidency. Fool us once sham on you; …fool us twice…well that seems to be par for the course of history these days.

    “…May You Live In Interesting Times…” (…I am told this is a Chinese proverbial curse…)
    http://en.wikipedia.org/wiki/May_you_live_in_interesting_times

  13. We certainly are living in interesting times, no doubt. What is doubtful is whether the SEC, even assuming a competently aggressive chief, has the regulatory muscle to curb the worst abuses, such as derivatives, fraudclosures, and insider trades.

    When monetary fines are involved, the abusive criminals see the penalty involved as another cost of doing business, where $$$ money means virtually nothing. If you scam hundreds of millions or billions, what is a $30 million fine in comparison? The finance criminals will hardly be shaking in their boots, if apprehended.

    So, in dissent, I don’t think there’s too much of a difference there if a Miller or Barofsky assumes the post at SEC.

    What is really needed is aggressive criminal prosecutions, the result of which stems from competent investigation of the crimes involved by civil accountants and forensic investigators.

    Only when these finance criminals (high priests) are being hauled off to state and federal prisons in roughly proportional ratios to their filthy financial crimes will the word go forth that these crimes do not pay.

    You punish these wise guys not with monetary penalties, but with a loss of liberty, and this goes well beyond the SEC mandate as I understand it.

    In any case, even with a view to what I wrote earlier above, the SEC would be better served with someone who isn’t a toady to the financial industry, and one beholden to its’ persuasive methods.

  14. Bruce E. Woych

    http://deanhenderson.wordpress.com/2012/11/23/column-11-hill-n-holler-review/
    My Picks for Obama’s 2nd Term Cabinet
    November 23, 2012 — Dean Henderson
    Lovely idea from Dean Henderson:
    “Now is the time for all citizens to call your representatives to ensure that Obama chooses a people’s cabinet rather than a corporate cabinet. You can reach any one of them by calling the Capitol Switchboard at (202)224-3121. You can contact the Obama transition team directly.”
    http://deanhenderson.wordpress.com/2012/11/23/column-11-hill-n-holler-review/

  15. One of the largest – if not the largest single day uptick in the markets was when Obama nominated the tax dodging spaniel and do nothing former head of the New York Fed (Gietner) as head of the Treasury – 800+points in one session. No doubt the den of vipers and thieves on Wall Street were overjoyed that one of their obedient spaniels was selected to such a critical position.

    Those monsters and sociopaths knew then that no one in the predatorclass would be investigated or accountable and that predatorclass sociopaths and oligarchs would be free to continue marauding poor and middleclass Americans for the otherworldly profits of / , and that there would be NO punishment for groteswue failure and systemic criminslity and NO accountability for the predatorclass. Nothing would change. The superrich would grow superricher, and America’s poor and middleclass would be burdened with the monstrous costs of predatorclass failure and criminal conduct.

    Mary Miller is the perfect choice for continuing this horrorshow and grotesque abuse!!!!

    Fixing this evil will not be done peacefully or bloodlessly. The monsters owning and controlling Amerika will never relinquish their terrible grip on the power and wealth of America peacefully. We must take it from them!!! The people either standup and resist and combat systemic and ruthless abuse, or we go like moths to the flame, like sheep to the slaughter.

    Burn it all down!!! Reset!!! It’s the only option !!!

  16. Love to see Neil B. at the SEC, but I think you’ve got better chances of having monkeys fly out of your butt.

    It’s going to be Obama’s legacy – death of the middle and lower class by Vampire Squid, and Grand Bargain.

    And let’s not kid ourselves – this is the end of America as we’ve known it, and the official DC beginning of third world America.

  17. The second term is when Obama positions himself for a job on Wall Street or for big Directorship positions. Expect little progressive action during his second term. If he throws us some crumbs that will be a pleasant surprise.

  18. Ms. Miller, reportedly, has removed her name for consideration of the SEC post, as set forth below:

    http://dealbook.nytimes.com/2012/11/28/as-miller-drops-out-race-for-s-e-c-chief-shifts/?nl=business&emc=edit_dlbkpm_20121128