One of our readers emailed in a link to this Bloomberg story about the new “chief operating officer” of the enforcement division of the SEC: Adam Storch, “a 29-year-old from Goldman Sachs Group Inc.’s business intelligence unit” who “had worked since 2004 in a unit at that reviewed contracts and transactions for signs of fraud.”
I went back and forth about posting this because, as far as I can tell, it’s not that important a job; according to the WSJ, “Mr. Storch will oversee division operations that include budget, information technology and administrative services. He will also supervise the workflow associated with the collection and distribution of fair funds to harmed investors.” It’s back-office administration, not deciding whom the SEC is going to pursue. I don’t think this is in the same league as, say, Goldman’s chief lobbyist becoming the Treasury secretary’s chief of staff. (Note, however, that Zero Hedge says it is “arguably the most critical post at the SEC.”)
But still, even if it is a routine back-office job, why someone from Goldman who makes Neel Kashkari look like an elder statesman? As our reader pointed out, there are some relevant themes here. One is the revolving door. Another is cognitive capture: why does the SEC think it needs a Goldmanite to handle its budget, IT, and administrative services? There are other good companies out there, really, somewhere, or we have a much bigger problem on its hands.
Maybe he’s independently wealthy and immune to job offers from Wall Street. Maybe he’s a genius and aced his job interview. You’d think there must be something special about him that convinced the SEC to give him the job despite all the additional “Government Sachs” fodder it creates. I hope he does a wonderful job.
By James Kwak
What Did the SEC Really Do in 2004?
By James Kwak
Andrew Lo’s review of twenty-one financial crisis books has been getting a fair amount of attention, including a recent mention in The Economist. Simply reading twenty-one books about the financial crisis is a demonstration of stamina that exceeds mine. I should also say at this point that I have no arguments with Lo’s description of 13 Bankers.
Lo’s main point, which he makes near the end of his article, is that it is important to get the facts straight. Too often people accept and repeat other people’s assertions—especially when they are published in reputable sources, and especially especially when those assertions back up their preexisting beliefs. This is a sentiment with which I could not agree more. One of the things I was struck by when writing 13 Bankers was learning that nonfiction books are not routinely fact-checked (Simon and I hire and pay for fact-checkers ourselves). As technology and the Internet produce a vast increase in the amount of writing on any particular subject, the base of actual facts on which all that writing rests remains the same (or even diminishes, as newspapers cut back on their staffs of journalists).
I’m not entirely convinced by Lo’s example, however. He focuses on a 2004 rule change by the SEC. According to Lo, in 2008, Lee Pickard claimed that “a rule change by the SEC in 2004 allowed broker-dealers to greatly increase their leverage, contributing to the financial crisis” (p. 33). That is Lo’s summary, not Pickard’s original. This claim was picked up by other outlets, notably The New York Times, and combined with the observation that investment bank leverage ratios increased from 2004 to 2007, leading to the belief that the SEC’s rule change was a crucial factor behind the fragility of the financial system and hence the crisis.
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Posted in Commentary
Tagged economics, financial crisis, SEC