What Mary Schapiro considered her most important task had just run aground, a symbol of the aspirations and missed opportunities of her tenure as head of the U.S. Securities and Exchange Commission.
Schapiro worked for two years on a plan to head off what she calls the “terrifying” prospect of a run on money-market mutual funds like one that forced a U.S. rescue in 2008. After fellow commissioners refused to follow her lead, she teared up as she worked on a statement accusing opponents of having their heads “in the sand,” two people involved in the process said.
Still, SEC lawyers failed to take action against anyone at Lehman Brothers Holdings Inc. or American International Group Inc., two companies at the epicenter of the credit crisis. The agency was attacked by lawmakers, judges and consumer groups for making few claims against individual Wall Street bankers.
Cox, a former Republican congressman from California, was at a birthday party the night the government pushed the sale of Bear Stearns Cos. on JPMorgan Chase & Co. Later, when Paulson proposed a new regulatory blueprint that called for eliminating the SEC, Cox didn’t express strong objections.
“I give her enormous credit for -- virtually single-handedly -- preventing the commission’s demise,” former SEC chairman Harvey Pitt said, adding that her greatest contribution was “restoring the agency’s credibility and importance.”
Aside from legal action against Wall Street, the most visible part of the SEC’s work under Schapiro involves Dodd-Frank, the biggest rewrite of finance regulation since the Great Depression. Two years after Congress handed the SEC the challenge of crafting almost 100 rules, the agency is behind schedule on about half of them, according to a tally by Davis Polk & Wardwell LLP.
She disagreed with Gallagher’s assessment, noting that although the agency isn’t finished it has already removed references to credit-rating firms from 18 rules, in some cases before Dodd-Frank was even passed. She said she has balanced deadlines set by lawmakers with the need to respond to real-time challenges.
Arthur Levitt, a former SEC chairman who said he applauds Schapiro for pulling the agency back from the brink in 2009, was disappointed by her response to the bill. He said the agency’s failure to aggressively oppose the JOBS Act “was the lowest point” of her tenure.
Her plan, developed in conjunction with the Treasury and the Fed, called for funds either to hold extra capital to prepare for stress or get rid of their stable $1 share price, which lulls investors to think they can’t lose money. While many investors treat the funds as though they were savings accounts, they aren’t protected by the Federal Deposit Insurance Corp.
Some dissenting commissioners took her comments personally, further straining relations. Gallagher, for instance, read the statement in a news story while taking a train home. He called Schapiro from his mobile phone, blasting her for not warning him, according to a person familiar with the matter who spoke on condition of anonymity because the talk was private.