So you’re a conservative, temperamentally and intellectually
skeptical of government officials who exceed their authority, throw
their weight around, hog glory, and run to the microphones. In a
situation that looks an awful lot like a crisis, one in which the
nation’s entire financial system seems to be on the verge of a
panic-driven collapse, how do you want a top regulator to act?
Should he rush in, guns blazing — or should he keep his cool, keep
on top of things, remember both the scope and the limits of his
authority, and work well as part of a team effort to defuse the
crisis?
It sure would seem as if the latter type, the cool-under-fire
type, would be exactly the right person for that situation — or,
for that matter, for even greater responsibilities.
‘Twas surpassingly odd, then, to see a June 23 Wall Street
Journal news story report in its headline that Securities and
Exchange Commission Chairman Chris Cox “Draws Criticism for Low-Key
Leadership During Bear Crisis.” In what actually was the second
such story in recent months by reporter Kara Scannell — just about
the only reporter who seems to have found this particular angle
amidst copious reports to the contrary — paragraph after paragraph
goes to great, albeit context-free, lengths to push what sounds
like a reporter’s agenda rather than a straight news report. The
gist of the story: Supposedly, during the week that the Bear
Stearns investment bank collapsed, “critics say America’s top
securities regulator didn’t act boldly enough to restore confidence
when the financial world shuddered.”
Skillfully crafted to push the idea of Cox’s over-passivity —
with apparent prompting by Clinton-era SEC Chief Arthur Levitt with
an axe to grind — the story buries one short passage explaining
Cox’s own point of view:
In a two-hour interview in his office overlooking the
Capitol building, the 55-year-old Mr. Cox said he was deeply
involved the week of the Bear Stearns meltdown. He has since asked
Congress to mandate the SEC’s oversight of investment banks and
says SEC staff immediately began working with the Fed to strengthen
investment banks’ risk-assessment models. He said he supported
moves by the Treasury and Fed to find a buyer for Bear Stearns but
then stepped back, saying his agency should oversee the industry,
not orchestrate its deals. “We are the regulator,” he said. “It
would have been difficult to regulate one’s own
transaction.”
Well. Uh…exactly. In truth, the whole story could have begun and
ended right there. Cox knew his role and performed it precisely.
Talk to Treasury Department or Federal Reserve officials on “deep
background” (departmental practices keep them from officially
discussing the performance of other agencies), and they’ll tell you
repeatedly that the SEC and Cox were Johnny-on-the-spot, but
without getting in the way.
BUT PERHAPS THE MOST pointed response to the Journal
article came the day the article was published, at the prestigious
“Director’s College” hosted by Stanford Law School for executives
of publicly traded corporations. Event host and College founder
Joseph Grundfest, a distinguished professor of law and business and
himself a former SEC commissioner, began his remarks with a
lengthy, impromptu excoriation of the entire WSJ piece,
calling the article “quite an easy elephant to shoot.”
With regard to the article’s main focus, namely the SEC’s
supposed under-involvement with the buy-out of Bear Stearns by J.P
Morgan, arranged and backed financially by the Federal Reserve
Board and the U.S. Treasury, Grundfest’s remarks were
withering.
“I submit to you very humbly,” he said, ” that the only thing
worse than having the chairman of the SEC not deeply involved with
that is having him involved with it at all…. It would be viewed
as a major conflict of interest, something that would probably have
his butt in hearings until the next millennium.” It was precisely
the job, he said, of Treasury and the Fed, but not the SEC, to
conduct the negotiations. “The rational thing for the chairman to
do,” Grundfest said approvingly of Cox’s performance, “is to stay
away from it and let other people drive that bus.”
The WSJ article, though, also faulted Cox for not
working ahead of time to “have exerted more pressure on Bear
Stearns or its board.” Specifically,
“The SEC could have told them to go out and raise
capital,” says Lynn Turner, a former chief accountant at the SEC
and a frequent critic of the agency. “If Bear Stearns had had
enough capital there never would have been a run on the bank —
because there would have been confidence in the
system.”
The article did mention “daily” official SEC contact with Bear
Stearns all the way back to last summer, but made it sound as if
all the agency did was “privately urged Bear Stearns to raise
cash.” Not mentioned was that those contacts and urgings were
phenomenally successful: Bear’s reserves, its “liquidity pool,”
grew from $8.4 billion on Jan. 31 (and from $5.5 billion the year
before) to $21 billion in the first week of March. By all accounts,
including that of Fed Chairman Ben Bernanke, Bear’s holdings were
substantially above the required minimums for the safety of its
customers. And, as Cox himself has noted repeatedly, customer cash
remained safe throughout — and, for that matter, the collateral
held by Bear for its investors was, to a particularly large degree,
of “high-quality” types such as “agency securities.” Moving
forward, Bernanke and other Fed officials in April 3 congressional
testimony credited the SEC for its careful oversight after the Bear
buyout, and Bernanke noted that the collateral offered is good,
“investment grade.”
In his testimony, New York Federal Reserve Bank President
Timothy Geithner included Cox in his short list of people
specifically named as having provided “really exceptional
leadership in a difficult time.” And one can search in vain for
criticism of Cox even by liberal Senate Banking Committee Chairman
Chris Dodd (D-CT), or by liberal committee member Chuck Schumer
(D-NY). Indeed, reading between the lines of their comments at the
April 3 hearing, one can see Dodd and Schumer no less than the
Republicans showing respect for Cox’s performance throughout.
ALL OF WHICH leads…well, where? Why should we care?
We should care because conservatives too often search in vain
for leaders of principle who know their roles, do their jobs well,
maintain a calm control, and enhance teamwork rather than trying to
feed their own egos or reputations.
In the case of the Bear Stearns buyout, conservatives will long
question the various risks and rewards, the wisdom of recklessness,
of the actions taken by the Federal Reserve and the Treasury. For
now, the energy and industry of Fed and Treasury officials looks
very good in short-term retrospect, as does the steadiness of the
SEC. There is no question whatsoever that not only was a broader
crisis averted in the short term, but that the SEC has moved
strongly to do its part to stabilize the system for the long haul.
This performance by Cox is the stuff of competent and quiet
heroism. As he has been on many other occasions in public life, Cox
was the right man at the right time for the job.
National Review’s Jay Nordlinger once called Cox
“omnicompetent.” Such competence, combined with principled action,
deserves not sniping but instead a promotion.
