How did the American banking industry escape the crash of 2008 with so few scrapes and bruises, let alone so little jail time? It's easy to blame a general lack of regulation—but smarter to point the finger at the regulatory Securities and Exchange Commission itself. Last week one retiring SEC attorney, 66-year-old James Kidney, went out on a limb and agreed:
The SEC has become "an agency that polices the broken windows on the street level and rarely goes to the penthouse floors," Kidney said, according to a copy of his remarks obtained by Bloomberg News. "On the rare occasions when enforcement does go to the penthouse, good manners are paramount. Tough enforcement, risky enforcement, is subject to extensive negotiation and weakening."
Kidney said his superiors were more focused on getting high-paying jobs after their government service than on bringing difficult cases. The agency's penalties, Kidney said, have become "at most a tollbooth on the bankster turnpike."
I cannot decide if it is uplifting or depressing that someone has stood up and pointed this out directly to the SEC's face. Kidney's remarks cannot have come as a surprise to his colleagues, not least because, as Bloomberg notes, he was known for agitating internally for greater sanctions against Goldman Sachs. His goodbye speech is not so much an outburst, I suspect, as the tail-end of a rant that no one has been listening to there, and they weren't likely to start at the man's retirement party.
"People point to him as being very frank and not one to just say what people want to hear," said Crimmins, now a partner at the K&L Gates law firm in Washington. Speakers at the party even ribbed Kidney about it, Crimmins said.
"There were some high-ranking people in the room, and everyone took it in stride," Crimmins said. "Everyone there respected that."
They all had a little laugh, you see.
It would be nice if life was just as your conspiracy-theory-believing relatives told you, and the SEC's reluctance to fight was the result of some direct payoff.
Instead what we hear from people like Kidney is that it's more like an internal culture problem, one that's more diffuse, systemic, and difficult to fix. It's about wanting to be nice to bankers. That impulse is puzzling, because it's at best a wasted effort give that they still complain that regulators aren't being nice enough.
Or else, chuckle about how "very frank" you are, and get themselves another drink.
[Photo via AP.]