Historians looking for an early sign that the worst financial crisis since the Great Depression might be deeper than expected could do worse than listen in on a predawn teleconference one Friday last spring. Top Treasury and Federal Reserve Bank officials hunched over their phones in a last-ditch bid to bail out the giant investment bank Bear Stearns Cos. But a crucial voice was missing from the emergency conference call: Christopher Cox, chairman of the Securities and Exchange Commission.
And it was not the only time the nation's chief securities regulator was absent during that critical weekend. On Saturday, as bailout talks continued, Cox dropped out to give a speech at the birthday party of a securities-industry overseer. On Sunday, Cox was a no-show once again, this time for a key conference call dealing with the multibillion-dollar sale of Bear Stearns' remaining assets to JPMorgan Chase. Less than a week later, the SEC chairman slipped away for a long-planned Caribbean holiday.
The man who should have played a major role in sounding the alarm about--and perhaps preventing--America's financial meltdown now stands accused by critics of being asleep on the job. While Cox did participate in some of that weekend's deliberations, federal officials involved in the process say he was a bit player, and Cox himself notes that he was skeptical about the bailout. Though he left the SEC on Jan. 20, he has emerged as a symbol of much of what went wrong at the small but crucial federal agency, from ignoring evidence of a massive Ponzi scheme set up by investment guru Bernard Madoff to the passive supervision of giant investment banks that went under on his watch. Partly as a result of this lax supervision, the future of the 75-year-old agency is in jeopardy.
Long an evangelist for deregulation, the affable 56-year-old conservative former California Congressman took a custodial approach to a job that called for muscular leadership. The mismatch between Cox and the world he was meant to police became such an embarrassment to the Republican Party that GOP candidate John McCain publicly called for the firing of the SEC boss in the heat of last fall's presidential campaign. Indeed, longtime observers say, Cox allowed complacency and drift at an agency that was created to issue warnings and limit the potential for wider damage from financial malfeasance at publicly traded companies. "The fact that business as usual continued under chairman Cox might have been because he didn't try hard enough to change things, because he didn't really seek reform," says Senator Charles Grassley, the senior Republican on the Senate Finance Committee. "But once the wrong culture takes hold of an agency, it takes a real crusade to change it." Cox was not that crusader. A prominent SEC historian is more pointed: The Cox years represent "one of the most significant periods of dysfunction in the history of the commission," says Joel Seligman, president of the University of Rochester.
An Agency on Autopilot