Daily Times

Massachusetts Sen. Elizabeth Warren has consistently taken the side of the investing public on a range of regulatory and legislative issues. When it comes to standing as a friend of investors, an advocate for fair markets and a persistent critic of lax regulatory standards, she has few equals.

But now, by her own actions, she risks undermining the Securities and Exchange Commission, the agency charged with protecting the investing public. She recently called for the dismissal of SEC Chairman Mary Jo White because Ms. White has chosen not to devise and enforce a rule that Sen. Warren favors-a rule that would require companies to disclose their political donations.

Since Ms. White will depart the agency at the end of President Obama’s term in a few months, a call for her dismissal is entirely moot. Rather, Sen. Warren may be trying to influence the next SEC chairman to enact her preferred rule.

But when a sitting senator blasts the current chairman over her chosen regulatory agenda, it diminishes public confidence in the agency and demoralizes the commission. This is counterproductive to the SEC’s work.

No rule-no matter how merited-is worth the damage that would be caused if the SEC were compelled by political intimidation to write it. That’s not how good regulations emerge, and what’s worse, it would poison the regulatory process for all time. The moment the SEC loses its ability to set its own agenda is the moment it loses its ability to protect the investing public.

The SEC does not operate as a pass-through entity for Congress, merely following congressional direction. Rather, it’s an independent agency, and its chairman is empowered to set the agenda for the agency’s work. This agenda takes shape in many forms-rule makings, speeches and enforcement actions-and must be set by the chairman, not Congress. This is by design.

Mary Jo White has been a firm, thoughtful SEC chairman who, through speeches and a carefully chosen agenda, has made herself a capable steward of an essential agency. An SEC led by a chairman with no fixed agenda is doomed to distraction and failure.

That’s not to say the agency should be free from congressional oversight. Throughout its history, politicians from both parties have sought to influence its work. That’s to be expected, and a good regulator welcomes outside views, especially those coming from elected leaders who write the laws the SEC implements. Ultimately, Congress holds the power to pass laws requiring agency action; and that option is available to Sen. Warren.

But Congress must respect the SEC’s independence, and thus freedom, to focus on a fixed agenda. Once confirmed to lead the SEC, its chairman has a singular goal: To meet the agency’s mandate to protect investors, facilitate capital formation, and ensure fair and orderly markets.

It is up to the SEC chairman to determine the best approach to meeting that mission. If the chairman were to allow that agenda to be set by others, it would mean the work of the entire agency would be subject to micromanagement and the winds of political fortune. That is no way to run an agency with such a sensitive and critical purpose.

History is a good guide for us on this matter. Whenever financial regulation is determined by rank politics, the investing public suffers.

For instance, in the late 1990s, as I was finishing my term of office as chairman, I attempted to put into place rules that would prevent major accounting and audit firms from conducting audits at firms to which they also sold business-consulting services. The likelihood that an audit could be softened to account for the audit firm’s other revenue from the client was too great.

The major audit firms fought the rule, their friends in Congress took their side and we didn’t get the rule implemented the way I had sought. But within a year, we saw the first major scandals of audit firms going easy on some of their consulting clients. Investors suffered terrible losses and the audit industry required even more fundamental reforms, which my successor implemented.

Had we enjoyed greater independence, we might have avoided some of those losses, which helped contribute to an economic recession. Which is all the more reason we should affirm the value of the independence of the SEC. If you want to be an advocate for strong, effective regulation of financial markets on behalf of the investing public, and Sen. Warren often says she is such an advocate, the first and most important step is this: Let the SEC set its agenda,
and then let it do its work.
courtesy the wall street journal