MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Mary Schapiro took over as chair of the Securities and Exchange Commission in 2009. The nation was in serious financial crisis. Wall Street seemed to resemble the Wild West in need of a strong sheriff. Many saw Schapiro as that sheriff and credit her with salvaging the agency's role as Wall Street's watchdog. Critics point to unfinished business such as addressing the root causes of the financial crisis and punishing the perpetrators.

MS. DIANE REHMJoining me in the studio to talk about the SEC and its future under new leadership: former SEC enforcement official Tom Gorman, Dina ElBoghdady of The Washington Post and Bartlett Naylor of Public Citizen. Throughout the hour, I'll look forward to hearing your questions and comments. Join us on 800-433-8850. Send us your email to drshow@wamu.org. Follow us on Facebook or Twitter. Good morning, everybody.

MS. DINA ELBOGHDADYGood morning.

MR. TOM GORMANGood morning.

MR. BARTLETT NAYLORGood morning.

REHMAnd first, joining us by phone from Washington, D.C., Mary Schapiro, chair of the Securities and Exchange Commission, good morning to you, and thanks for joining us.

MS. MARY SCHAPIROGood morning, Diane. It's a pleasure to be with you.

REHMThank you. When you took over as head of the SEC in 2009, the nation's financial system was clearly in crisis. In your view, what created that crisis?

SCHAPIROWell, I think it was a confluence of many events: excessive risk-taking, a housing bubble, a lack of regulatory attention and oversight to problems as they were emerging in the financial system, reliance on credit rating agencies that had seriously flawed methodologies or rating, very complex new financial products that were being sold and packaged to investors with a lot of risk that people didn't understand. I think we had so many different contributing factors to the financial crisis.

REHMAnd over the past four years, what do you feel you have done to address the biggest problems?

SCHAPIROWell, you know, Diane, I am so proud of what this agency has accomplished over four years. As you point out and if everyone can just remember back four years ago, Bernie Madoff had just been arrested. We were coming through the financial crisis. The markets were in freefall. Storied investment banks have been crushed and were no longer in business. And some were even calling for the SEC to be abolished. And if you fast forward to today, we have more responsibility at the SEC, not less. We have completely restructured and revitalized how this agency operates.

SCHAPIROWe've had two record years of enforcement actions. We've had one of the busiest rule-making periods in the agency's history. So we've made tremendous progress on our Dodd-Frank assignments but also on other investor-focused rulemaking that I think had gone wanting for quite a few years. So really on some of -- almost every front this agency is hitting on all cylinders. More to do, absolutely, but I feel very, very proud of how much we've been able to do in just four years.

REHMThere are some who would say that politics has held you back, that, in fact, Republican blockades have kept you from going as far as you would like to have gone. How do you respond?

SCHAPIROWell, I think, you know, every regulator operates -- who operates in Washington at least operates in a political environment, and we have to navigate that the best we can. Certainly, the agency's resources have been affected by smaller budget increases and are really necessary for us to do the kind of job that we think we need to do and that, frankly, the American people have a right to expect of us.

SCHAPIROAnd so that's something we fought very hard about. But, you know, we are making -- we have made steady progress. We will continue to do that. The political environment has won and, I think, has made it difficult for all regulators.

REHMWhat about what your critics say that no one has really been held accountable for the mortgage back securities miss and the really root causes of the financial crisis were not actually and fully addressed?

SCHAPIROWell, you know, I understand the public's frustration about that. But I have to say at the SEC, we've brought cases against more than 120 individuals and entities coming right out of the financial crisis. We do about 750 or so cases every year, but about 120 have directly related to the financial crisis. And 57 of those were senior officers, including CEOs and CFOs of financial services firms.

SCHAPIROAnd we've named, you know, the CEO of Freddie Mac and Fannie Mae and of Countrywide. So we have tried to bring cases against individuals. I deeply believe in holding individuals accountable, but we also have to be able to prove our cases. And the cases against individuals are hard to make sometimes. But if the law is there and if the evidence is there, we will bring those cases, and we have brought those cases.

SCHAPIROThe SEC, of course, doesn't have criminal authority, so we have to leave that to our colleagues at the Justice Department and the U.S. Attorney's offices and support their efforts to name individuals criminally. But we have had two record years of enforcement. We have held many individuals accountable. And we wish we could do more, and we will do more.

REHMOf course, Bernie Madoff has gone to jail. Do you expect others to go to jail?

SCHAPIROWell, again, that's not the SEC's bailiwick, unfortunately. We're just a civil enforcement agency. And clearly, some have gone to jail coming out of the financial crisis, but that's something we have to leave to our colleagues at the Justice Department.

REHMAnd what's next for you?

SCHAPIROYou know, I have no idea. This has been an extraordinary four years for me. I've worked with some of the most talented people you could imagine within the SEC and my regulatory colleagues throughout Washington and in the States. And I don't know what I will do next. I'll take a little bit of time to be with my family. I will almost certainly write and speak on some of these issues I care deeply about, but I have not made any plans for the future. This has been just an enormously rewarding undertaking for me.

REHMOne last question: If you had one thing that you would wish, one authority you would wish that the SEC had but doesn't have, what would that be?

SCHAPIROYou know, this might sound a little bit mundane to many of your listeners, but actually, it would be for the SEC to have something called self-funding, which would allow us to adjust our budget to the needs of the regulatory climate. The bank regulators all have that. The FDIC -- and I know Sheila Bair has been on your show many times -- can set their budget to respond to external events. The SEC and the CFTC are the only two financial regulators who can't do that.

SCHAPIROWe have to go to Congress every year for an appropriation. And that makes it very difficult for us to staff up when we need to staff up, bring in expertise when we need to bring in expertise or to do long-term technology projects because we never know from year to year how much funding we'll have. So if there were one thing I could do, that I think would be a genuine game-changer, that would probably be it.

REHMMary Schapiro, she is chair of the Securities and Exchange Commission. Thank you for your service, Mary, and good luck to you.

REHMThank you so much, Diane.

REHMAnd now turning to you, Bart Naylor, what are your reactions to Mary Schapiro's comments?

NAYLORI am -- appreciate the fact that Chairman Schapiro chooses to measure the Securities and Exchange Commission's success by the number of people that they have held to account. But the fact is, in my opinion, that that number is way too low and the number of senior executives that are now in prison essentially is wanting. I -- there are a number of storied people on Wall Street and yet none of them seem to be profiled in the media as adjusting to life in prison right now.

REHMSuch as?

NAYLORWell, there are -- see -- I mean, I hate to say it for libel purposes, but the Justice Department has, every three months, a lawsuit where they are -- have claims against a company. And they do name people in them, but the claims are not against those individuals. The latest is in the case of Countrywide where there is a woman named, for example, Rebecca Mairone, who is named in a lawsuit as somebody who failed to heed serious warnings about the quality of mortgage review oversight, and yet the case is not against her in particular.

REHMSo what you're saying is that the Securities and Exchange Commission did not go far enough?

NAYLORI think that's right. I think as Chairman Schapiro acknowledges, there is frustration that more people are not behind bars, that these numbers that she cites are not to be discounted. But again, I think the job is -- has not taken place, and, unfortunately, we're beyond the statute of limitations on some of these cases.

REHMAnd, of course, Dina ElBoghdady, the fact of the matter is the SEC does not have prosecutorial privilege.

ELBOGHDADYIt doesn't. And also -- it's a criticism that comes up a lot, that they're not going after the individuals, at least not the top-tier individuals. And it's something that they address regularly with the media. And what Robert Khuzami, who heads the enforcement division, has said over and over again is that you have to prove intent when you're going after individuals and that it's a very tough thing to do.

ELBOGHDADYHe says, for instance, that, you know, individuals will often go to the corporate counsel of their company if there is a questionable activity, and they'll say, yeah, go for it. It's fine. And so then it becomes very difficult to go after that individual. It becomes hard to prove, you know, intent.

REHMWhy is it so difficult to prove intent, Tom?

GORMANProving intent is one of the key elements that you have to establish for a criminal case or even for a civil case. And I agree with Rob Khuzami. It's very difficult to prove that particular element. And there's a graphic example of that. The SEC brought a case against Brian Stoker.

REHMAll right. And we'll talk more about that after a short break. Tom Gorman, Dina ElBoghdady, Bartlett Naylor are here to answer your questions. Give us a call.

REHMAnd welcome back. We're talking about the Securities and Exchange Commission, what it can and cannot do. You've just heard from Mary Schapiro, the outgoing chair of the SEC. And just before the break, Tom Gorman, you mentioned the name Brian Stoker.

GORMANYes. Brian Stoker was an employee in the Citigroup case. The Citigroup case was one of the SEC's premier market crisis cases. It involved the sale of esoteric securities under circumstances where there was way less than full disclosure and actually based on misrepresentations. Mr. Stoker was the only individual named in that case, and this case went to trial. And I think it's a telling point here as to what Rob Khuzami's talking about.

GORMANThe jury returned against the SEC and in favor of Mr. Stoker. But what was really extraordinary about the verdict was the jury wrote a note, and they sent it to -- sent it out to the judge and it said, we want the SEC to keep on investigating these cases. But we're not finding for them on Mr. Stoker. The point here is these cases really are just about one individual. You're talking about institutions taking reckless kinds of positions across the board.

GORMANYou're talking about directors that maybe didn't direct, senior executives that weren't in place. You're talking about a whole collective kind of things. So while it's popular on Main Street to say put them in jail, it doesn't answer the question. The real question is: How do you address the kinds of issues at these institutions that caused the market crisis? And putting one or two people in jail won't do that.

REHMDina.

ELBOGHDADYAnother point that Robert Khuzami has made and the SEC has made over and over again is that you have to prove -- disclosure is key here and what you disclose to investors. So you have to prove that the individual knew what the disclosures were, and second, that the individual knew that the disclosures were wrong.

ELBOGHDADYAnd it's very hard to prove both of those things, you know, that kind of knowledge on both fronts because in these very big institutions, there'll be somebody in charge of making the disclosures and another branch in charge of doing the rest, and it becomes very hard to sort of marry the two and show that that person knew all these things and had the intent. And so that seems to be a major stumbling block for the SEC.

REHMHere's an email that, I think, represents the thinking of an awful lot of folks out there. "As a society," this email says, "we throw a kid in jail for years for trying to hold up a corner convenience store. But the more than questionable business practices of our leading financial institutions have resulted in trillions of dollars of wealth assets vanishing into thin air. Still, we haven't seen one of these highly-paid leading bank scoundrels do a perp walk, not one. As citizens and investors, how are we to feel about this?" Bart Naylor.

NAYLORWell, as my colleagues are pointing out, there may be complexities in the law that allow essentially heinous activity to take place that is legal, that one can't hold into account in the courts of law. And for that, we need to change the law. Perhaps, we need to change the standards by which prosecutors must need to test in a court. We also need to get Dodd-Frank implemented, and two-thirds of it has left implemented.

NAYLORBut in addition to that, much as Chairman Schapiro is to be credited for revitalizing an enforcement division, we still hear stories of line attorneys who want to depose upstream at a particular company, and they are told, no, let's just stop it at this particular person. I don't want to reveal names, but it's -- there are still -- it doesn't seem to be the culture of aggression, if you will, I think, within the SEC that really wants to nail the big bear. They want to have a good record. They want to win in court. But I worry there is -- they are overly cautious.

REHMHmm. And, Tom Gorman, you actually give the agency mixed reviews under Mary Schapiro. Tell us why.

GORMANThat's true. I do give them mixed reviews. I think, on the one hand, you have to start where Mary Schapiro started. She took over an agency that at one time had what was revered as the best enforcement program in government. And by the time she took it over, it was being bandied about on Main Street as one of the worst.

REHMWhy?

GORMANBecause they missed Madoff, because they missed a whole series of scandals. And for her first couple of years, the best thing that she could was try to move past the scandals. And she did.

REHMBut why did -- why had it reached that point?

GORMANIt had reached that point over a period of years. It wasn't any one event. But it was a period of years where the agency wasn't funded. The agency didn't have the right authority. It didn't have some of the right leadership, perhaps, in some of the enforcement positions. And over time, it had just refocused, and it had sort of gone down the hill so that they missed Madoff, they missed Stanford. They had these other scandals.

GORMANAnd her first job was just to try to move it past the scandals and save the agency. There were people who just wanted to abolish the SEC despite its storied history. So she did that. She's moved it past that. She's retooled the enforcement division. She's retooled a lot of the other divisions. And I think she deserves to have credit for that. At the same time, there's a lot of unfinished work to do. And this goes back to the question we were talking about earlier.

GORMANPeople want to see Wall Street tycoons in jail. I don't think that's the right answer because when you talk about those cases, you're talking about a big institution doing something to people. It's different. The guy in the corner who robs the store is an individual. He goes in. He shoves a gun in someone's face.

GORMANYou put him in jail. The big institution that hurts a lot of people, you can't put the bank in jail. You can't put the investment house in jail. And you can fine it, which is what a popular thing to do, fine them half a billion dollars. But for an institution that in a quarter can lose two billion, $3 billion and not worry about it, a half-a-billion-dollar fine is nothing.

REHMBut are you saying that it's the institutional mentality that's at work when these perpetrators can bring about the kind of misdeeds and it's not the individual?

GORMANIt's the collective. And it's a little bit of what Dina said. It's this department. It's this department. It's this department. But it's a culture that says -- like in some of the SEC's cases, we can construct this security out of a bunch of derivatives. We will sell it to our clients. And then without telling them, we'll take the other side. That's not a good culture. A culture that allows that across the board from this department to this department to this department needs to be reformed. And fining them $500 million is not going to do it.

REHMDina.

ELBOGHDADYWell, another problem at the SEC before Schapiro came on board and there was a huge issue of frustration for the enforcement division is every time they wanted to act, every time they wanted to go after someone or some institution, they had to go and get permission from the entire commission to move forward, which was incredibly frustrating for them. And when Schapiro came in, that was one of the first internal hurdles that was lowered.

ELBOGHDADYShe brought, you know, the new enforcement chief on board. And now, they don't have to go seek permission from the commission. They can just make a staff decision and start going after whoever it is they want to go after. So that's huge. I mean, it's not firing on all cylinders at this point. I mean, there was so much damage as we've been talking about. It's going to take some time. But I think, you know, removing that hurdle, I think, has been a huge plus over there.

REHMBut the courts also dealt the SEC some major blows as well.

ELBOGHDADYThe courts have dealt them some setbacks, and the biggest ones have to do with the Dodd-Frank bill. This is the huge, sweeping reform measure that's meant to crack down on Wall Street and prevent another breakdown, another meltdown. And Dodd-Frank was enacted in 2010, but it sort of gave broad outlines of what needed to be done, and then punted the work to the agencies.

ELBOGHDADYThe SEC now has to write 100 rules and, I think, about a dozen studies related to the Dodd-Frank act. And now the people that didn't like it, the Dodd-Frank act, when it was in Congress, are taking it to the courts. And the SEC has suffered, you know, one huge setback over there with a proxy access case, which would've allowed people to oust the board members that these -- at these institutions.

ELBOGHDADYAnd the court said, no, you haven't done enough economic analysis. You haven't really analyzed the costs and benefits. And that now is the mantra going forward. Every rule that -- it's really put a chilling effect on the rule-making because now they have to think about this threshold that's been set by the courts.

REHMTom Naylor -- Tom Gorman, explain how the SEC actually does its work. Does it have to have an informant inside of one of these huge corporations who perhaps blows the whistle on what's happening? How does it find the people, the corporations, the individuals who are doing the wrongdoing?

GORMANWell, the SEC certainly would like to find the informant, and they've set up a whistle-blower program to try to facilitate that. They've also set up a cooperation program to encourage individuals to come forward, but -- and they're working, but those are new. They're young. We'll see how they work. Traditionally, that's not what the SEC does.

GORMANTheir traditional investigative mode is a sort of painstaking process whereby they begin and they collect the documents. They go to a large institution, and they'll subpoena documents, oftentimes millions of pages of documents, and then they'll sift through those documents and try to figure out what happened.

REHMAnd how large a staff are we talking about?

GORMANWe're talking about a very small staff. The typical one of these cases only has two or three people on it, maybe four people on it.

REHMGoing through millions of documents.

GORMANThat's right. And they can get help from other parts of the agency, but it's a very small staff. And this goes back to something that Chairman Schapiro talked about with self-funding that I can come back to if you like. But they sift through this, and then they try to pull out what they think is important. They try to assemble those, and then they will issue subpoenas, and they have people come in and testify.

GORMANAnd they'll ask them questions about this, and they'll do this for a long period of time until they've tried to figure out what they've got. The reason that they put in the whistle-blower program, the reason they put in the cooperation program is because they're hoping they can find somebody who will come and short-circuit that process for them and say, this is how this works. This is what you should look at. But absent that, traditionally, this is the way that they've done it.

REHMBart Naylor, I don't know how this system really accomplishes what it needs to.

NAYLORNo, it's absurd. SEC has something like 4,200 employees, and they're supposed to police the financial markets. I think New York City has 35,000 police to keep it safe. It's -- we're not even in the ballpark of what's necessary. The SEC is funded by a point -- 0.0025 percent cut on every securities transaction, which generates about $1.3 billion a year. You know, they need many multiples of that.

NAYLORI don't -- we are so asymmetrically out of the ballpark in what is really necessary. So I'm -- I am somewhat embarrassed at criticizing Schapiro for making what I would call a rational decision not to go after the big guns, perhaps, to test, to maybe have more losses such as the Brian Stoker loss. But there are -- Tom, I just wanted to say that we seem to have clear evidence of human beings lying. Somebody at Bank of America lied about the status of Merrill Lynch when they asked shareholders to vote and take it over.

NAYLORMerrill Lynch is a terrible company for the B of A shareholders to have bought. The Permanent Subcommittee on Investigations led by Sen. Levin showed people were lying to investors of Goldman Sachs' Abacus deal and favoring. Libor scandal has 237 examples of traders saying, I'm going to lie on my rate, and please give me a bottle of values. We know people are lying. These are the equivalent of somebody going into a 7-Eleven and ripping something off, and I don't know why we say this is just an institutional problem.

REHMAnd you're listening to "The Diane Rehm Show." What about that, Tom Gorman?

GORMANThere are certainly instances where people are not telling the truth, and in those cases, you can prosecute them. But the B of A deal is a good example. A lot of people thought that Merrill Lynch didn't tell the truth, and, in fact, they didn't. But they didn't do it by one person standing up and saying, I'm going to lie to you. What they did was, in the proxy statements, they didn't include a schedule, and not including that particular schedule, which showed the bonuses that were the big issue, was standard merger practice at the time.

GORMANAnd that's the problem when prosecuting somebody. If it's standard practice in the marketplace at the time not to include this particular schedule, then it's hard to say that somebody lied. But when you look at it from afar, you would, and everybody recalls that case when the SEC tried to settle without naming an individual. Judge Rakoff, who is not exactly a good friend of the SEC's, took a hard look at that. He made them bring in the evidence. He also -- there was a parallel case in the New York state courts by the New York AG. He made the New York AG bring in his evidence.

GORMANAnd then he signed off on the settlement with no individuals. He was satisfied that they had done their job there, and I think that's a very telling comment about that particular case because that was one of the most graphic. And Bart's right: That's what it looked like. But when you got to the nitty-gritty, that's not the way it really was. And that's why I say a lot of this is really an institutional thing, and you got to look at how does the SEC have remedies for that? And that's a question that's not been addressed by them.

REHMDina.

ELBOGHDADYAnd, again, I think it's going to come down to money if they want to try and address it, and they just don't have the money that they need, and there's a lot of people in Congress who don't want them to get the money.

REHMSo what's the significance, then, of a $550 million fine to a Goldman Sachs or Citibank or other huge financial institution? Where does that money go? Does it go directly into the Treasury? Does the SEC get any portion of it? How does that work, Dina?

ELBOGHDADYThe -- some of the ill-gotten gains go to -- back to the investors, penalties, the penalties that are imposed. And I believe that some of it goes to the Treasury as well, correct?

NAYLORExactly.

REHMAnd simply what kind of effect does it have on that institution?

NAYLORWell, the effect says, do that again. Whatever fine that was, it's a couple of weeks of earnings for a company such as Goldman Sachs, and I think it says, basically, you've got free parking out here. If the meter costs, you know, $5 an hour, but the ticket costs 50 cents, then why plug the meter?

ELBOGHDADYAnd I -- so I think one of the issues, too, is that they're constrained, and a change needs to be made at the congressional level because people say this is chump change. This is such a big institution. They should be made to pay more, but there are limits on how much can be paid. The law doesn't say you pay according to the size of the institution. The law says you pay based on the ill-gotten gains and the penalties, and there are limits on both of those things.

REHMAnd the ill-gotten gains in that situation would have been what?

ELBOGHDADYI'm not -- I mean, it's basically the profits that were made, and then I think -- then -- in addition to the ill-gotten gains, then the SEC can also impose a penalty that's as large as that ill-gotten gain.

REHMAll right. Short break here, and when we come back, we'll hear what our listeners think. Stay with us.

REHMAnd welcome back. It's time to open the phones. First to Missouri City, Texas. Good morning, Gary.

GARYGood morning. Thank you for taking my call.

REHMSurely.

GARYYeah. I'd like to address, just for a moment, a term called the housing bubble. It was mentioned earlier. I'd like to say that my understanding is the problem with the housing bubble is that too much of it was made up of uncollectible loans, and those uncollectible loans were made because they were -- I was going to say allowed, but I'm going to refer to it as financially incentivized by removing the responsibility of the entity making the loan for the loan if it goes bad.

GARYAnd then, of course, there's much more behind that. But why -- and my question is, rather, what is going to be done to prevent this from happening again?

REHMDina, any comment?

ELBOGHDADYWell, I think that they have really tightened up mortgage-lending standards. I mean, some say it's gone too much in the other direction at this point, and I think that's been the main thrust in trying to, you know, prevent that housing bust from happening again.

REHMDo you believe...

NAYLORYeah. The Dodd-Frank Act passed in 2010, I think, has a number of important potential measures that I hope and believe will safeguard it. The cornerstone is the creation of the Consumer Financial Protection Bureau which is meant to protect against abusive lending. Dina has mentioned the qualified mortgage proposal. Unfortunately, more than half of this law remains unimplemented.

REHMAll right. To Key, N.H., Marie, you're on the air.

MARIEThank you for discussing such an important issue. I wanted to ask -- well, I just wanted to make a comment, really, that if the banks were not so big and if they didn't have so much market power and control both, you know, assessing the value of a firm and handling, issuing stocks and bonds for the same firm, then we wouldn't really need to have such intense regulators.

MARIEBut if you let -- since we have let both firms get very, very large, the only way to stop people -- you know, if you have inside information because the firm is so large and handles so many things, the only way to stop people from using that is to have kind of draconian enforcement. And personally not, you know, in that case, you're going to have to just like really hugely increase the powers of the SEC and other institutions. And, I guess, personally, I don't feel so comfortable going after individuals, but I think that that is what we would really have to do.

REHMTom Gorman.

GORMANI think the caller raises a really interesting point here about too big to fail and the size of these institutions. And this also goes back to something Bart said. One of the really unfinished pieces of business under Dodd-Frank is the so-called Volcker Rule, that is whether or not commercial banks and investment banks really should be in the same house which is something that took place back at about that's turn of the -- the turn of the decade when they deregulated all of that.

GORMANAnd now they've been struggling to rewrite this, and they simply haven't done it because they've been arguing about the semantics. And Sandy Weill, who was chairman of the Citicorp, at one point, came out and said, look, write a one-page rule. And I agree with them. You can write a one-page rule and make it...

REHMThat would?

GORMANThat would separate investment banks from commercial banks. And if you did that, you would change the dynamic landscape of what's going on here.

REHMDina.

ELBOGHDADYI think that, again, we must talk about the courts. I think that all of these agencies now are almost paralyzed by fear of what the courts will do to them with any rule that they put out because the threshold, the bar has been set so high now about doing an economic analysis. Do the costs justify the benefits? And some people say, well, you know what, some of these things, the benefits is just very difficult to put a dollar value around them.

ELBOGHDADYHow do you put a dollar value around preventing another financial crisis, you know, and so they just know that they have to make these rules bulletproof, or they'll suffer other embarrassments in the courts.

REHMBart.

NAYLORAnd these courts are not acting in a vacuum. This goes back to what the caller has just pointed out. In other words, these large banks have been looking at any avenue they can to dilute or to delay Dodd-Frank. Let's give members of Congress a lot of money. Let's have them write to regulators as to this, to that, and they finally scored a homerun when they sued through the Business Roundtable and the Chamber of Commerce over this SEC rule, proxy access, that it allowed shareholders to name some directors to be -- to run for the board.

NAYLORAnd the -- and as Dina has pointing out, the court said, that's right. There needs to be far more robust cost-benefit analysis. In fact, we think the decision was a poor one, and that it's unfounded that it has, in fact, paralyzed the agencies. And now what we're seeing is having scored that homerun, let's do that again. And they're having members of Congress introduce legislation to increase the standards of cost benefits.

NAYLORSen. Warner, Portman, Collins of Maine introduced a bill that was about to be marked up last month. Fortunately, with a little bit of sunshine on it such as from Dina and other reporters that wrote about it, they have shown some modesty and withdrawn that bill. But I believe that the fight that Dina is talking about over cost-benefit analysis of these rules will be the fight as the 113th Congress begins.

REHMTom.

GORMANThat fight is going on in the courts, and it has caused the SEC some problems. But one of the good things that Chairman Schapiro did was after they lost the proxy access rule, she bolstered their economic analysis, and she's now embedded that into not only the rule-making but other parts of the agency. So that now when rules come out, they should be much more robust, and they should be able to withstand the challenge in the courts.

GORMANNot that we're not going to see them. We are. We'll continue to see these kinds of challenges because people who oppose these rules will do what they can. But they should be able to withstand scrutiny now.

REHMHere's a tweet, "It isn't fair to single out the timidity of the SEC. The entire Department of Justice criminal decision -- division has been passive during the Obama administration." Bart Naylor.

NAYLORWell, I agree with that. We have not seen the Department of Justice name people. The most recent case on Countrywide in Bank of America, for example, is a case where they talk about a system that was broken. The defect, in effect, defrauded Fannie Mae of a billion dollars-plus. And they're in the taxpayers which bailed out Fanny Mae, but they don't name individuals. It's -- apparently, this thing sort of happened nebulously, and no human beings were actually responsible.

REHMTo Greensborough, N.C. Good morning, Jared.

JAREDGood morning, Diane and guests. I was wondering. It struck me when Commissioner Schapiro said that there was a problem with funding. I was always wondering what happened when they recommended prosecution for Martha Stewart? And I know that there's insider trading not security fraud, but do they just go after big names? And if so, why not go after financial celebrity Jamie Dimon or somebody like that?

REHMTom Gorman.

GORMANWell, they did prosecute Martha Stewart. The SEC prosecuted her for -- civilly for insider trading. The Justice Department, though, did not prosecute her for insider trading which most people think. They prosecuted her for not telling the truth during the SEC testimony, and that's why she was prosecuted. That's very different from what you're talking about with the Justice Department.

GORMANIn particular, the Justice Department has conducted numerous investigations, as has the SEC, the CFTC, some of the banking regulators, and all of them collectively looking at these things have not found the kind of criminal evidence that they would need to hold an individual accountable. Not to say that the institution shouldn't be held accountable, they should, and they're getting sued now in civil cases, but that's a different kind of standard. That's a different kind of proof.

REHMTo Dallas, Texas. Good morning, D.R.

D.R.Good morning. Thank you so much for taking my call.

REHMSure.

D.R.Your panelists has been a little reticent to mention names of people who are responsible for some of the issues here with, I'm sure, very valid reasons. But how can we be expected to reform when no one is setting up and really pointing fingers to the people who need to be held accountable to what's happening? And I'll take my answer off the air.

REHMAll right. Thanks for calling. Tom.

GORMANThe way to reform these institutions is the traditional way. Back in the days when the SEC's program was considered to be the best in government, it couldn't penalize people. They never could put people in jail. What they did do back in the '70s and the '80s when they were very effective at doing this was they stepped in and they reformed the culture of the company.

GORMANThey put in different directors. They put in different committees. they'd monitor them over a period of years to make sure that the company was operating the way that they wanted to. That basically they had a policeman standing in their boardroom all the time.

REHMThey held their feet to the fire.

GORMANExactly right. They held their feet to the fire, and that reformed these companies. No penalties, just reformed the companies. If you change the culture, you change the way they do business.

REHMBut we have a tweet here saying the SEC was in shambles when Schapiro took over due to eight years of an administration that did not believe in regulation. Bart Naylor.

NAYLORI think that's right. I don't know that the Clinton administration should be hailed for reform-minded. They had a chance to on -- with a valiant Commodity Futures Trading Commission chair Brooksley Born to put a dent into the problems that derivatives trading causes, and the Clinton administration backed away from that. We continue to pay for that bad decision in the Clinton administration. But I think there was a decided effort under the two terms of the Bush administration to deregulate.

NAYLORWe saw that Alan Greenspan, nominated or confirmed by the Senate 96-to-2 on August 3, 1987, set this whole era of deregulation. And I think it played out very much in the second W. Bush's two terms with appointing as a chair somebody who, when he was in Congress, try to dilute in the powers of the Securities and Exchange Commission.

REHMAnd who is that?

NAYLORChristopher Cox.

REHMAll right. And, Dina, would you agree with that?

ELBOGHDADYI do think that the feeling is that the SEC was asleep at the wheel, and that, you know, there was this non-regulatory environment, and that's why Lehman Brothers, Bear Stearns basically imploded. They just, you know, their policies basically sunk them in the end.

REHMAll right. To Somerville, Mass. Hi there, Alma.

ALMAGood morning.

REHMMorning.

ALMAThanks for taking my call.

REHMSure.

ALMAThey -- I think it was touched on in the last couple of calls. But it seems to me that the biggest issue that I'd like to see us focus a lot more on is the politics behind all of this because with financing campaigns being so critical now with so much money being spent, the Wall Street and the financial institutions have so much money, it seems to me that both parties are kind of trying to tread lightly because they don't want to offend them. They need their money.

REHM(word?).

NAYLORYeah. Wall Street spends $1.5 million a day lobbying. It's the first, second or third largest campaign contributor in -- on -- at any...

REHM$1.5 million a day.

NAYLORThat's actually on a 365-day -- if they're only lobbying Monday through Friday, it's -- works out to $1.9 million...

REHMOK.

NAYLOR...a day. You know, so on the progressive side, we write very persuasive memos, but they don't come with checks, which apparently means something to these members of Congress and regulatory agencies. In the last year, my side, if you will, the progressive community has probably met with the regulatory agencies maybe 50 or 80 times. But the industry, Wall Street side, has met with them 4,000 times.

NAYLORDuring the period leading up to the proposal of the Volcker Rule, industry met -- we got out met 320-to-20. And I don't know if it's Stockholm Syndrome that if you have meeting after meeting after meeting with Wells Fargo and JPMorgan and Bank of America, you begin to internalize what they're saying.

REHMBart Naylor, he's financial policy advocate for Public Citizen and Congress Watch, and you're listening to "The Diane Rehm Show." Let's go to Birmingham, Ala. Hi there, Nick.

NICKHi. How it's going?

REHMGood.

NICKI just want to say I love your show. Thank you so much for having me.

REHMThank you.

NICKI was going to say, you know, there is talk about the housing bubble and how that went through. And I'm just wondering, as a person who has taken on many student loan debt, how that's going to be regulated, how we're not going to have a student loan bubble because it seems like there's almost less regulation when it comes to student loan debt than there is mortgage. It's -- I'll take my answer off the air.

REHMAll right. Dina, do you want to comment?

ELBOGHDADYI do think there is a movement afoot to make sure that that doesn't happen. And I think that probably because of the housing bubble, you know, bursting as it did that all eyes now are on the student loan program.

REHMAnd what do you see going forward, Tom?

GORMANI think this new consumer bureau that's been created under Dodd-Frank is taking a hard look at some of those issues. And all of the lending issues are getting tightened up now to the point where in some circles, like the housing circle, for example, it can be difficult to get a loan. People are complaining that they can't get refinancing because the standards have become so harsh. I think some of that spilling over into the student loan. And I think at some point, it's got to come back to an equilibrium so it balances out.

REHMWhat about the high-speed trading that's going on on Wall Street? To what extent is the SEC able to keep up with that, willing to keep up with that, Dina?

ELBOGHDADYI think that they're taking a hard look at it. They're not moving as quickly as some of the European countries are. The European countries are cracking down, trying to rein it right away. British agency just came out with a report saying they're not really sure that the high-frequency trading is a bad thing, but the SEC is starting to take a closer look. A lot of people are complaining that it's moving too slowly. But, you know, the jury is out on that.

ELBOGHDADYI mean, that does provide liquidity to the market, but things are going extra fast. Now, how fast should they go, or how slow should they go once the technology is out there? It's very difficult to rein it in.

REHMBart Naylor.

NAYLORWell, I would take issue that it provides liquidity to market. It provides liquidity to market when liquidity is not needed. The high-speed trading is working when people are wanting to sell or there are willing sellers and buyers of the stock already. I think it's computerized front running. They are literally sticking their modems or their USB ports right into the exchange computers and getting a fraction of a second advantage.

NAYLORThere is a win-win-win solution to this short of addressing the complexity of these algorithms, and that is a very miniscule tax. It's being -- there's several version of this being proposed in Congress, but one of them endorsed by Sen. Harkin and Congressperson DeFazio is I think raises something like $30 billion a year, which -- as we're dealing with the fiscal cliff -- is -- would be welcome revenue.

REHMBart Naylor of Public Citizen, Dina ElBoghdady of The Washington Post, Tom Gorman, co-chair of the American Bar Association's security fraud subcommittee. And let us wish the best of luck to Elisse Walter as she steps into Mary Schapiro's position. Thank you all so much. Thanks for listening. I'm Diane Rehm.

ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Denise Couture, Susan Nabors, Rebecca Kaufman, Lisa Dunn and Jill Colgan. The engineer is Erin Stamper. Natalie Yuravlivker answers the phones. Visit.