Mary Jo White took the helm of the Securities and Exchange Commission amid high hopes that she could turn around the once-proud agency. More than a year into her tenure, she has disappointed a wide swath of would-be allies.
Over the last several weeks, I've been talking to fellow regulators, administration officials, current and former S.E.C. staff members, financial reform advocates and people on Capitol Hill whose opinions of Ms. White's performance range from dissatisfied to infuriated.
Traditionally, the S.E.C. has been seen as something of a regulatory jewel.
"The commission's reputation as tough, independent and public spirited is its lifeblood," said Damon Silvers, the A.F.L.-C.I.O.'s policy director and a specialist in financial regulation. In Mr. Silver's view, George W. Bush's last chairman, Christopher Cox, damaged the morale and effectiveness of the agency, issues that remain unaddressed. If the S.E.C. is seen as no better, or even less effective than the Treasury and the Fed, he said that "means grave trouble for both the commission and the investing public."
Look, this is not an easy job. Ms. White has struggled with a House of Representatives that is hostile to financial overhaul and is perennially wielding budget cuts. She has also had to deal with a divided and contentious commission, an enormous workload to put into effect Dodd-Frank and other rules and the constant threat of lawsuits challenging any rule that encroaches on Wall Street's prerogatives.
Even so, the chairwoman has made some unnecessary foes while her agency has bungled several significant rules.
An Obama appointee, Ms. White seems most at odds not with her Republican commissioners, but with Kara M. Stein. Ms. Stein came from the office of Senator Jack Reed, Democrat of Rhode Island, and was an important architect of the Dodd-Frank rules. She should be Ms. White's firmest ally, the in-house expert on policy, which isn't the chairwoman's forte. In recent months, Ms. Stein has been increasingly vocal in criticizing the S.E.C.'s ineffectual rules and weak enforcement and has cast dissenting votes. The unmistakable conclusion is that Ms. Stein believes the commission is taking a wrong turn.
She is not alone. Ms. White's S.E.C. irritated the White House, the Treasury and the Financial Stability Oversight Council when it undermined the council's authority on the question of whether to designate large asset managers as posing a potential risk to the financial system. The S.E.C.'s view — that the way to reduce systemic risks is through regulating products and practices, not the companies themselves — has some merit. But the regulators need to work together and not allow industries to exploit regulatory turf battles.
On yet another front, the S.E.C. is embroiled in a quiet battle with the Public Company Accounting Oversight Board, the accounting industry regulator created after the Enron-era scandals. The accounting board has hardly been a regulatory terror, but it's been getting pushback from the S.E.C. for even modest initiatives.
For years, the board has pushed for the lead audit partner to have to sign company audits. Wow. Big Step. Put your name to your work. Sadly and predictably, the industry has fought it in what can only be interpreted as cowardly refuge in anonymity. And the S.E.C. leans toward the industry.
"The profession feels that I am a proactive regulator," James R. Doty, the chairman of the accounting oversight board, told me.
Of the S.E.C. and the topic of agency rivalry, Mr. Doty said, "Robust and vigorous debates are important in this area." He praised Ms. White as constructive and a pleasure to work with. But his organization lost the fight. Audit partners will not be required to sign the statements, but can if they want to. I can imagine how many auditors will voluntarily put their heads on the block.
Obama's S.E.C. has even alienated Democrats in Congress. Carl Levin, the outgoing Democratic senator from Michigan, met with Ms. White a few weeks ago to express his concerns about the pace and strength of Dodd-Frank rules. And in late July, 11 liberal Senators sent a letter to express their annoyance about the agency's new regulations for credit rating agencies and structured securities, the complex bundles of investments that blew up the financial world in 2008. One gripe: Dodd-Frank bars financial firms from betting against the securities they created, as Goldman Sachs and Magnetar did. Four years later, the rules that would turn this law into reality remain stalled in the S.E.C.'s bureaucracy.
There have been several weak Dodd-Frank rules from the agency. Take money market fund overhauls. Corporations use money market funds for their cash as needed. Individuals use them like checking accounts. This is a Big Lie, however. The funds are supposed to be as accessible as a passbook savings account, yet pay higher interest. What that means is there is hidden risk embedded in the product, a fact that became painfully clear in the fall of 2008 when one leading fund announced that a dollar in savings was worth less than a dollar. After years of rule-making negotiations and after the S.E.C. dragged its feet under Mary L. Schapiro, the agency finally came up with a rule.
But it's a bad one. Part of its solution is to have the value of the funds for institutional investors float, but not retail investor funds. The institutions will know if their dollar is worth a dollar or a little bit less in times of trouble. A second change reform is that funds, in those times of trouble, will have extra fees and gates, preventing withdrawals. What this means in the real world is that the smart money will get out at the first sign of trouble, trapping retail investors in their funds when the gates come down and the fees kick in.
This is upside down. The gates and fees take care of industry's problem, not the retail investor's. The S.E.C. contends its rules are rightly focused on institutional investors because they have run on money market funds in the past, not retail investors.
Consumer and investor advocates have also been disappointed. Critics see an ideological link between the staff hired by Mr. Cox and today's agency.
"When the chair doesn't have a strong policy background, she is extremely dependent on her staff," said Barbara Roper, the director of investor protection at the Consumer Federation of America. "Is there anyone on the staff in a high position in leadership, a single person to point to who has reform credentials, who isn't someone from the industry?"
The S.E.C. says that its rule-making pace is up from the previous administration's and that it is making rules that will survive court challenges and that are both strong and enduring. It says Ms. White has surrounded herself not with ideologues but the most qualified people and that she expects the staff to provide her with the full range of views.
Over in enforcement, things are brighter, but still a mixed bag. Ms. White started off promisingly. She demanded and got guilty pleas, getting rid of the default settlement without any admission of wrongdoing. And the pace of enforcement is up.
But Ms. White and the S.E.C.'s actions on high-frequency trading have been lacking. Michael Lewis's book, "Flash Boys," was excellent, but merely a popularization of a well-known problem in the markets. For years, the S.E.C. has stood idly by, and Ms. White's recent comments on the issue don't suggest she will tackle the issue aggressively.
The deep problem with the capital markets is that the public has lost faith. People believe the system is rigged. It has always been thus, but after two major bubbles, the feeling is more pervasive. It's not an easy job to clean the markets up and restore confidence, but it's the one Ms. White signed up for.
So far, she hasn't delivered.