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Is the Fox in the Hen House?

By Andrew Marder - Apr 9, 2013 at 12:00PM

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Mary Jo White's appointment to the SEC looks like bad news from almost every angle.

If we've learned nothing over the past decade, we've learned that on Capitol Hill, Democrats and Republicans hate each other. So I suppose we should all be applauding the unanimous approval of Mary Jo White as the new head of the Securities and Exchange Commission. Apparently not one single U.S. Senator was concerned that, for the last decade, she worked to defend banks like JPMorgan Chase (JPM 0.70%), Morgan Stanley (MS 0.33%), and UBS (UBS -1.28%).

Maybe that doesn't matter, and White will be completely unbiased. Even so, the number of cases she'll have to recuse herself from seems likely to exceed the number she'll be allowed to hear in her first year, because of the number of personal connections she still holds in the banking world.

The warm embrace of familiarity
Wall Street's love of American politics has never been in question, and in the 2012 election, the financial sector gave over $88 million to presidential campaigns, according to the Center for Responsive Politics. The close connection the industry feels with politicians has led to what many have deemed a revolving door between Wall Street and Capitol Hill.

During the financial crisis, then Treasury Secretary Hank Paulson was reported to have held closed-door meetings with his former employer, JPMorgan. Those close ties may lead to weakness in policy and in litigation. Unfortunately, White's nomination isn't a breath of fresh air, but just more of the same.

Commenting on the appointment, the Investment Company Institute -- a trade group for money markets, which recently tried to sue the Commodity Futures Trading Commission -- applauded the appointment. Without making it a black and white issue, shouldn't we want the people who are working on behalf of the companies that are suing the government to be more upset with these appointments? While they might have to work together, I'd be happier if the Institute had been furious.

What comes next
To paraphrase Senator Sherrod Brown, who initially voted against White's appointment, I'm not worried that White is a bad person, and I'm not worried she's going to be manipulated -- I'm worried that we've made the system of oversight too chummy with those that it's supposed to oversee.

White will have to recuse herself for a year in cases that involve former clients, but after that, things don't get much clearer. With a net worth well over $15 million and a decade spent in the financial industry, White is probably going to have to sit out of at least a few cases in which she has a financial interest in the outcome.

While it's probably not fair to say that there's a fox in the hen house, it's not all that far off. I'm reminded of a Far Side cartoon that depicts a dingo farm built right next door to a nursery, with a caption that just reads "Trouble brewing." That's what we've got now -- trouble brewing. 

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JPMorgan Chase & Co. Stock Quote
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Morgan Stanley
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UBS Group AG
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