ALEX COHEN, host:
This is Day to Day. I'm Alex Cohen.
MADELEINE BRAND, host:
And I'm Madeleine Brand. In a few minutes, an elderly mother with dementia tells her son something he's wanted to hear his whole life.
COHEN: But first, President-elect Barack Obama has chosen Mary Schapiro to head the Securities and Exchange Commission, or SEC. When making the announcement, Mr. Obama mentioned recent Wall Street scandals, including the Ponzi scheme run by Bernard Madoff.
(Soundbite of press conference, December 18, 2008)
President-elect BARACK OBAMA (Democratic Senator, Illinois): We have been asleep at the switch, not just some of the regulatory agencies, but some of the congressional committees that might have been taking a look at this stuff. We have not been as aggressive, and we've had a White House that started with the premise that deregulation was always good.
COHEN: The president-elect also said he'll put in place new rules to help crack down on the culture of greed and scheming. Joining us now to tell us a bit more about the woman in charge of this crackdown is NPR's economics correspondent Chris Arnold. Hi, Chris.
CHRIS ARNOLD: Hi, Alex.
COHEN: So, what do we know about Mary Schapiro?
ARNOLD: Well, we know that, politically, she's registered as an Independent, and she would be the first woman to head the SEC. She's worked at a bunch of different regulatory commissions in recent years. There are a ton of these things, and that's part of the problem, a lot of people say. But proponents say that she has toughened up enforcement when she's been in charge. And in 2005, she ran an investigation into lavish gift-giving and entertaining on Wall Street, and sort of, you know, inappropriate gifts given to people to create influence. And that shook up Wall Street and resulted in some charges being filed. But critics say, you know, look, she's part of the current broken system. She's been running some of these agencies in these oversight entities that have just totally, as Barack Obama was saying, been asleep at the switch, you know? And there's just been this colossal breakdown and oversight of the entire financial industry on 100 different levels, and you know, where were the regulators? And she was one of the regulators.
COHEN: You know, you talk about this current broken system. This is all coming at a time when the SEC is under serious fire for what happened with Bernard Madoff and this alleged Ponzi scheme. What happened? Why didn't they catch it?
ARNOLD: Ha. Well, this has just been a complete screw up. You know, for more than a decade, there were warnings from people who thought that Madoff was a fraud. And you know, oversight hasn't been tremendously great in recent years. I don't think anybody could argue that, you know? But here was a case where this was almost handed to the SEC on a silver platter. I mean, there were people from inside the industry; there are emails that are just coming to light from another money manager who worked inside the industry who wrote to the SEC saying, point blank, that, quote, you know, "Madoff Investment Securities is like a Ponzi scheme." You know, these were direct allegations. The SEC investigated. They looked into it. They found that some rules were being violated, but they didn't uncover the broader fraud, and they closed the lid on the thing and said, OK, you know, everything looks fine, and they moved on. And in retrospect, that's just looks terrible. I mean, here's this - what could be a $50 billion Ponzi scheme, and the agency just missed it.
COHEN: So, Chris, let's talk about the SEC in general. As this - you mentioned there are critics who were saying maybe this body shouldn't even exist; maybe it should be merged with another regulatory body.
ARNOLD: Yeah. Well, there's talk of merging different parts of the regulatory system, because, you know, there are 10 or 12 or, you know, it's hard even to keep track of how many different regulators there are and what exactly each one of them is supposed to be doing. So, there are - there's some thinking that, look, we roll some of these things into one agency. One thing Obama has supported is creating a new risk regulator, and the idea there is that, OK, we've got all these different lines between this regulator's doing this, and this one's doing that. Let's have a regulator where they can go to any company they want anywhere in the country - you know, forget state and federal and all the differences - and just, you know, open up the books and say, OK, what kind of risks are these companies taking? Because we found out in recent years a lot of these big banks and investment houses were playing roulette with the entire economy, basically, and we just can't allow that to happen.
COHEN: Chris, if we could finally just ask you about one more name; that's Daniel Tarullo. He's been picked for a Federal Reserve seat. What do we know about him?
ARNOLD: Well, we know that he's a Georgetown law professor. He's also worked for President Clinton, and he's leading Obama's transition team at the Treasury Department. And you know, this is basically Obama putting his stamp on the Federal Reserve, and the Fed is crucial here. I mean, it's been the most active - along with the Treasury - the most active force in trying to get the economy working again and injecting, you know, hundreds of billions of dollars into banks or try to bring interest rates down now for people buying houses and refinancing their loans. So, that'll be a very key position.
COHEN: NPR's Chris Arnold, thanks so much.
ARNOLD: Thanks, Alex.
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COHEN: More coming up on Day to Day from NPR News.
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