Former SEC boss backs Fannie, Freddie aid
Donaldson: Agency must continue to protect investors
By James Paton
Originally published 11:00 p.m., September 10, 2008
Updated 12:13 a.m., September 11, 2008
William Donaldson, the former chairman of the Securities and Exchange Commission
appointed to the post by President Bush, made national headlines when he endorsed Barack
Obama. Donaldson recently attended a meeting with the Illinois senator and other officials.
In an interview with the Rocky Mountain News , Donaldson praised Obama’s approach to regulatory reform, tackled the Treasury’s takeover of Fannie Mae and Freddie Mac and urged government officials not to lose sight of the SEC’s mission to protect average investors.
The co-founder of investment bank Donaldson, Lufkin & Jenrette and the chairman of Perella
Weinberg Partner’s advisory board visited Boulder Tuesday to speak at the University of
Colorado Foundation’s annual conference for chief investment officers.
Excerpts from the conversation follow.
On joining other former SEC heads in backing Obama:
We came out for Obama thinking he would have a strong hand in correcting the regulatory
situation if he got elected. I think Obama is a very intelligent person and can be a real change
agent. We need some change.
That doesn’t mean I agree with everything he says, but I hope and believe if he gets elected
he will have a pretty open mind to making some changes. He would have his hands full
because we have a lot of problems here.
We have to start addressing those problems, financial structure, environment, energy, all of
those things, and he’s of a mind to do it. How he’s going to do it, when he’s going to do it, remains to be seen. Whoever is president will be handed a hot potato.
On the mortgage bailout:
Fannie and Freddie are such a huge factor in the mortgage business, the housing business.
More important than that, their debt instruments are out there around the world, and if those
instruments were to fail it could have a ripple effect throughout the world. So I think it was
imperative, in the same way the government had to step in with Bear Stearns.
The big debate is those who say to “rescue” them brings up a moral hazard, that this would
just encourage people to take big risks knowing the government will bail them out. It’s a huge
concern. It looks like common-stock shareholders of Fannie are going to get wiped out. On
this issue I believe they’ve made a difficult, but correct, decision. The issue is how effective
the turnaround will be and how much money it’s going to cost.
On regulatory change:
I think there has to be a careful look at reorganization to address the regulatory institutions
and the markets as they now exist.
This also means an attempt to figure out how to coordinate with foreign jurisdictions.
American investors are putting increasing amounts of money overseas, and as far as the SEC
is concerned, I think it’s very important we maintain the investor protection aspects of the
SEC. That’s a very important part of its mission, and we have to be very careful that if we
rearrange the chairs we don’t subvert that mission.
On the Bush administration’s performance:
I think in this case (Treasury Secretary Henry) Paulson and the Bush administration
have done the right thing. As far as a critique of the Bush administration, I was chairman of
the SEC during the Bush administration.
© Rocky Mountain News
