Wall Street’s top cop?
Any manager remotely associated with the demise of the nation’s largest bank might seem an unlikely choice to head one of Wall Street’s chief policing agencies. Yet Sally Krawcheck, the woman who served as CFO of Citigroup in the run-up to the 2008 financial crash is now on a short list of candidates named in respected media outlets such as The New York Times to head the Securities and Exchange Commission (SEC), the agency charged with protecting investors.
Compounding the irony, the SEC has claimed that Citigroup committed fraud under the CFO’s watch.
From 2004 to 2007, during the time she served as Citigroup’s CFO, the bank larded its books with toxic assets, allegedly defrauded investors when it sold some of them and precipitated the biggest taxpayer bailout in world history.
After four years of leadership at the SEC, during which time not one senior Wall Street executive was forced to adjust to life behind bars, it defies understanding that the re-elected president of the United States would consider such a resume appropriate.
Of late, Krawcheck has tweeted and blogged about needed reforms. Bank executives should be paid with bond, not equity incentives. Good idea. She promotes reform of the money market mutual fund arena. Brave. Banks should use far more shareholder equity in their business. Bravo. It is good to see Ms. Krawcheck speaking out for these important reforms, but we remain skeptical.
Beyond her employment record, Krawcheck lacks regulatory credentials. She has never prosecuted a securities case, never investigated a fraud. She never worked as a staffer in Congress, the elected body that will determine the SEC’s budget. She has never translated congressional law into a rule, one of the most important tasks of the SEC. (The 2010 Dodd-Frank Wall Street reform law remains largely unimplemented.)
Krawcheck may turn out to be a Gary Gensler, the Goldman Sachs veteran who has proven surprisingly aggressive in promoting reform as chair of the Commodity Futures Trading Commission. But with so much at stake, is it safe to experiment?
Many other candidates have the resumes to demonstrate they are better prepared to serve America as chair of the SEC. The New York Times also mentions Columbia University professor Harvey Goldschmidt. Times columnist Simon Johnson supports Better Markets’ Dennis Kelleher. Kelleher’s resume includes Capitol Hill and securities law experience. And he brings intelligence, wisdom and independence to the effort to implement Wall Street reform. Generally, the president should name an SEC leader with such proven skills, ideally a record of zealous defense of everyday investors (those of us counting on pension funds or 401Ks to retire, for example), dedication to Wall Street reform and an understanding that increasing Wall Street profits does not necessarily lead to increasing Main Street prosperity.
The CFO during Citigroup’s dark days, responsible for overseeing the company’s books, should not be our top candidate for regulating other companies and her own former employer. There are better choices.
Bartlett Naylor is Public Citizen’s financial policy reform advocate. You can follow him at @BartNaylor.
To learn more about Public Citizen’s financial reform work, visit citizen.org/financial-reform.