In a Sunday op-ed piece in the NY Times, Michael Lewis and David Einhorn argue that the revolving door of SEC enforcement attorneys to high-paying Wall Street jobs is a deterrent to the SEC working hard to penalize serious corporate and management malfeasance.  They state:

[A]nything the S.E.C. does to roil the markets, or reduce the share price of any given company, also roils the careers of the people who run the S.E.C. Thus it seldom penalizes serious corporate and management malfeasance — out of some misguided notion that to do so would cause stock prices to fall, shareholders to suffer and confidence to be undermined. Preserving confidence, even when that confidence is false, has been near the top of the S.E.C.’s agenda.

IT’S not hard to see why the S.E.C. behaves as it does. If you work for the enforcement division of the S.E.C. you probably know in the back of your mind, and in the front too, that if you maintain good relations with Wall Street you might soon be paid huge sums of money to be employed by it.

In a second op-ed, they add that the answer to this problem is “perfectly obvious:”

Close the revolving door between the S.E.C. and Wall Street. At every turn we keep coming back to an enormous barrier to reform: Wall Street’s political influence. Its influence over the S.E.C. is further compromised by its ability to enrich the people who work for it. Realistically, there is only so much that can be done to fix the problem, but one measure is obvious: forbid regulators, for some meaningful amount of time after they have left the S.E.C., from accepting high-paying jobs with Wall Street firms.

I disagree with this “obvious” reform.  In my experience at the SEC, the incentives seemed to be the opposite of what the authors describe.  That is, there was a common desire among the go-getters at the SEC’s Division of Enforcement to try to get on the big, high-profile, high-impact cases so as to build one’s credentials and resume.  If you look at the press releases for people hired out of the SEC to the private sector, they invariably state something like, “Mr. Jones played a significant role in the case against WorldCom.”  They do not say, “Mr. Jones successfully did nothing in his 5 years at the SEC and did not roil the markets.”

In addition, at least anecdotally it strikes me that far more SEC Enforcement lawyers go on to private careers with law firms, not to Wall Street (although some of the recent heads of Enforcement heads have gone on to Wall Street).  Law firms also value high-impact resumes for their own marketing purposes.

I am not alone in this opinion, it appears.  Today I saw a post on the excellent Conglomerate blog stating something similar:

They say that the SEC falls down on the job because of the revolving door between government and Wall Street. Ho hum, and maybe true in a sense that few SEC officials want to abolish financial intermediaries and most hope that the markets will prosper. But revolving door conspiracy theorists should imagine the results of an empirical study on the career prospectors of white collar crime prosecutors. We could check this if we wanted, but I suspect that financial crimes prosecutors who bring big cases against big defendants make much more money when they go into private practice than do prosecutors who bring no cases against no defendants. The revolving door would suggest otherwise, but would you, an ambitious young bureaucrat who secretly really wants to make money rather have been put on the Enron team or the Dynegy team? I’d recommend the former.

So, to me, the reform proposed in the NY Times op-ed will not have much impact, if any, and will arguably deter the most ambitious and talented SEC prospects who do not want to be locked-out of the private sector for “some meaningful amount of time” from joining the SEC at all.