Regular readers know that we are generally more sympathetic to government actors than the investment punditry. We think this stems from more direct experience with those in government and our disciplined effort to look at a problem from all perspectives.
Despite this perspective, there is one institution that gets a consistently low grade: The SEC. A few days ago we suggested that investors monitor potential changes at the SEC. We continue to believe that this would be important to the long-term health of the market. If the new leadership were to suspend mark-to-market accounting rules pending clarification, it could even have a short-term effect.
Likely Changes at the SEC
Here is what we wrote yesterday on RealMoney:
The Madoff scandal is yet another black mark for the SEC and Chairman Christopher Cox. In past comments I have noted that his official term of office extends until June of 2010, although Obama could appoint a new chairperson. In fact, several top SEC staff members announced their resignations right after the election. Cox himself has indicated plans to step down at the end of the Bush term, although he is willing to serve longer until a replacement is found. Gary Gensler (Treasury and Goldman Sachs (GS)) is the transition official in charge of the search. Some think that he might also be a candidate. Others mentioned include former SEC Commisioner Roel Campos, also on the transition team. Some speculate that Robert Pozen (former Fidelity vice-chair and now Chairman of MFS Investment Management) is a leading candidate.
The issues facing the SEC are deeper than just the personnel. There will be some effort at comprehensive reorganization to get rid of the gaps among the SEC, the Fed and the CFTC.
Charlie Gasparino just reported that the SEC is saying that they get many tips like the one received on Madoff. One of the critcisms of Cox is that he did not go after the budget authority needed to fulfill the enforcement responsibility.
Conclusion
This upcoming change is a market positive that is not yet on most radar screens. A good dissertation topic for someone in political science and public policy would be the study of Presidential transitions and why timing created over 200 years ago no longer works.
We give President Bush high marks for his attempts at handling the crisis and turning over the reins. Despite the "country first" attitude, the delay in implementing new programs is contributing to the economic distress.
