Has the SEC and U.S. Treasury Been Privatized by Wall Street

By Pam Martens: March 12, 2013   

President Obama Nominates Mary Jo White for Chair of the Securities and Exchange Commission

At a time when restoring trust in our financial system is critical to the Nation’s ability to grow, create jobs and restore consumer and investor confidence, President Obama has nominated two deeply conflicted individuals to head the U.S. Treasury Department and the Securities and Exchange Commission. Jack Lew has already been confirmed and sworn in as the new Treasury Secretary; Mary Jo White’s confirmation hearing will occur this morning before the Senate Banking Committee. 

The process surrounding Jack Lew’s confirmation hearing appeared to have been stage-managed by an invisible hand to deny the public the right to learn of his mountains of questionable dealings in the private sector. Senator Orrin Hatch, speaking during debate by the full Senate on the confirmation of Lew, had this to say about the process: 

“For well over a decade, the Finance Committee has followed a specified procedure when considering Executive Branch nominations. Sadly that procedure was not followed in the case of Mr. Lew. After publicly announcing Mr. Lew’s nomination, the White House waited 26 days before submitting any of his paper work. That was an atypically long delay and in addition slowed the vetting process. It ensured Mr. Lew would not be confirmed in time to prevent a vacancy at the Treasury Department. 

“A nomination hearing was scheduled to be held only 12 calendar days after the paperwork was received, even though the nominee had not yet answered all of the questions that were submitted to him. That is simply not the way our process has worked in the past and the undue haste seriously hampered our ability to thoroughly examine Mr. Lew’s background and his qualifications. Once the hearing was completed, as is customary, members of the Finance Committee submitted written time. Anonymous administration sources have decried the very notion that members of the Finance Committee had the audacity to ask hundreds of questions of Mr. Lew as part of their constitutional advice and consent responsibilities.” 

Allow me to expand on this description by Senator Hatch. Were it not for reporting by the New York Post, the august United States Senate with legions of attorneys and researchers would not have learned that Jack Lew had been given over $1 million in mortgage loans by the nonprofit New York University. Only through repeated rounds of questioning did the Senate learn that much of these loans were forgiven and the interest reimbursed by NYU.  

Despite the Senate’s request for details of Lew’s compensation while working at NYU, an institution loaded with Wall Street executives on its Board during Lew’s tenure, the Senate had to learn from the New York Times that Lew received a $685,000 “severance” payment when he left NYU to work as an executive at Citigroup. 

Wall Street on Parade filled in many more of the details on Lew, from his head-spinning mortgage transactions, to the men behind the curtain. When the Senate learned that Lew had accepted a $940,000 bonus from Citigroup, paid out of taxpayer bailout funds in early 2009 by an insolvent bank which had just lost 90 percent of its shareholders’ equity, Lew should have been sent packing by both the President and the Senate. 

There are only two possible explanations for Lew now sitting atop one of the most important cabinet posts that require the utmost trust by the American people, the U.S. Treasury; either the President of the United States did not vet this nominee and relied on an outside recommendation (likely from Wall Street); or Wall Street has privatized anything to do with the U.S. financial system and dictates who will run the monetary and regulatory agencies. 

With that scenario in mind, let’s review the President’s nominee for heading the key body to root out corruption on Wall Street – Mary Jo White for Chair of the Securities and Exchange Commission.   

Between White and her husband, John W. White, the power couple has legally represented the largest Wall Street firms and/or a key executive of those firms. The nominee is a partner at the corporate law firm Debevoise and Plimpton; her husband is a partner and equity owner at Cravath, Swaine & Moore.

Under 18 U.S.C. § 208, the basic criminal conflict of interest statute, an executive branch employee is prohibited from participating personally and substantially in a particular Government matter that will affect his own financial interests, as well as the financial interests of his spouse. Let me make that even clearer; under the law, John White’s conflicts are Mary Jo White’s conflicts.

Mary Jo White has said she will recuse herself from matters affecting her former clients for a period of one year. Her husband has said he will sell his equity stake in his law firm but continue working there. That leaves enough remaining conflicts to fill the Grand Canyon.

According to the legal research firm, Martindale, there are 12,124 lawyers in America specializing in securities law. Let’s say that 10 percent of these could possibly have the kinds of conflicts of interest presented by Mary Jo White and her husband. That leaves the President with more than 10,000 remaining securities lawyers from which to select a non conflicted nominee to head the Securities and Exchange Commission. Why, at a time of historic distrust in our financial system, select Mary Jo White and her insurmountable conflicts.

Under 18 U.S.C. § 208, there is no de minimis level under which financial conflicts are exempt. It applies where any financial interest exists, no matter how small. Moreover, if a matter is likely to have a direct and predictable effect on the financial interests of a member of the employee’s household, “the employee must consider whether a reasonable person would question the employee’s impartiality in the matter.”

How would the public know if John White becomes one of the most sought after lawyers on Wall Street because of his wife’s position. How would the public know if he receives increased compensation or a deferred bonus because of this increase in business at his law firm. Even if he is not directly representing a client that has a matter before the SEC, what’s to prevent another lawyer in his firm from seeking his advice on a conflicted matter.

In July of last year, the Chicago Booth/Kellogg School released a survey showing that fewer than one in four Americans trust the financial system – the lowest level since their March 2009 survey. The percentage of people who trust national banks fell to 23 percent from 25 percent for the same period with only 15 percent of respondents having trust in the stock market. 

To any rational person, this is a national crisis of loss of trust. And yet, the President nominates individuals who can only accelerate this crisis. Would President Obama, the former President of the Harvard Law Review, make such a mistake – or is the selection process out of his hands and controlled by Wall Street. If that is the case, shouldn’t the public be told that our Treasury and SEC have been privatized?

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