SEC Commissioner Paul Atkins' term is up this summer. With the SEC down to only three commissioners, it remains uncertain if he will depart the SEC or stay on until new commissioners come on board. Either way, he will leave a powerful legacy, albeit one shadowed by an undertone of disdain for the institution he was appointed to represent.
Atkins is the commissioner who has probably argued most forcefully (and often with considerable literary panache) that economic analysis should drive regulatory decisions. In repeatedly driving home this argument, and in not concealing his low opinion of the staff lawyers at the SEC who do not employ economic analysis, he will likely also be remembered as one of the most divisive commissioners in recent memory.
Atkins has famously remarked that the SEC is "of, by, and for lawyers." While a lawyer himself, he has lamented the failure of the SEC to hire more economists and MBAs and to hew sufficiently to statutory mandates to conduct economic and cost-benefit analysis of rule proposals. He has declared that "a lack of appreciation for economic principles has hampered the efforts of well-intentioned attorneys in many practice areas." Remarks about the PCAOB and accountants suggest he lumps them together with SEC lawyers as equivalently misguided.
In a speech delivered to the National Association for Business Economists in 2007, where Atkins faced a friendly audience, his remarks about the role of lawyers at the SEC were particularly pointed. In this speech, Atkins did little to harbor his view that the SEC, and other governmental bodies, would be entirely better off if they were essentially run by economists who could provide direction to inept lawyers, not merely in regulatory decision-making, but in enforcement decisions involving analysis of harm, settlement costs, and financial penalties.
What are we to make of this? If we look beyond Atkins' often impolitic bluntness about the institution he represents (but apparently does not love), he is probably correct that an economist's perspective can sometimes usefully frame analysis of specific regulatory and enforcement choices. If we set aside his clearly and consistently anti-regulatory bias, he is probably correct that the SEC continues to need to work from a principles-based, not prescriptive regulatory philosophy, and that it should continue to partner with the industries it regulates to the degree possible. If we set aside his instinct to minimize enforcement of any sort against corporations (as opposed to individuals), it is true that he raises good questions about the impact of large financial penalties on shareholders who have probably already suffered from plunging stock prices.
But if we don't look beyond these personal and ideological biases - Atkins loves markets and dislikes laws, hence "loves" economists and "dislikes" lawyers - we are left with someone who does not have the conceptual tools to manage the kind of financial and regulatory crisis we face today. In 2004, Atkins spoke out forcefully against hedge fund adviser registration, but has entirely missed the boat on matters regarding hedge fund valuation and more general issues about how we are to value complex financial instruments for which the markets themselves appear to have no solution. For these reasons, even as Atkins waves the bloody flag of overregulation, the hedge fund and pension fund industries are themselves calling out for help and will almost surely accept greater regulation if it assists them in managing market turbulence and uncertainty that threatens to overwhelm them.
Atkins believes the markets can restore the needed balance without undue regulatory involvement, even as its key players say otherwise. The problem is that - as even Treasury Secretary Paulson has emphasized - the markets have outpaced the regulators. There is now consensus that we need time for government bodies to deliberate on how best to frame market structures to avoid the breach in the dykes that has characterized the subprime lending debacle. If by "lawyers", we mean policymakers and regulators with deep domain knowledge of the industries involved in this crisis, and by "economists" we mean formal modelers and empirical testers beholden to their own, market-driven "prescriptive" solutions, I am not sure the present situation might not call for more lawyers!
