Thursday
Mar032011
Video: CFTC Chairman Gary Gensler Says More Resources Needed To Police $340 TRILLION Derivatives Market
Reuters Video - Gary Gensler - Mar. 2, 2011
Gensler, a former Goldman executive, says oversight requires more resources.
Mar 3, 2011 at 1:07 PM
Reader Comments (3)
http://www.nakedcapitalism.com/2013/07/banks-win-again-cftc-caves-sec-opens-door-wide-open-to-fraud.html
I’m going to be brief, in part because the CFTC’s probable demonstration of lack of gumption is still in play, while the SEC’s was expected but nevertheless appalling. But the bottom line is that even though we seem some intermittent signs of the officialdom recognizing that big banks remain a menace to the health and well-being to the general public*, the measures to constrain them continue to be inadequate.
As readers may recall, CFTC chairman Gary Gensler was in a position to stare down bank efforts to water down critical provisions of Dodd Frank on derivatives (see here for details of the issues at stake). The short version is that Gensler did not have the votes among his commissioners to support his position since the Administration had managed to appoint a bank stooge as one of the Democrats. However, Gensler controlled the agenda. That meant he had the option of not putting the matter to a vote of his fellow commissioners at all, which meant Dodd Frank would become effective as written (mind you, normally legislation does legitimately require some tweaking since the legislative language may be imprecise or not mesh well with existing rules).
What appears to have forced Gensler to relent was not the CFTC politics, but bank refusal to prepare, which meant they could stamp their feet and say if Gensler did not back down, the markets would blow up and it would all be his fault. From the Financial Times:...
...US based branches of foreign banks won’t have to comply with CFTC rules/deadlines.
Hedge funds may be considered US persons but if they deal through London they’ll escape CFTC rules, at least untill Europe finalizes their comparable rules.
Non US swap dealers will not need to comply with CFTC requirements/deadlines from this point.
Now the deal is still not final and the deadline is Friday, but with so much allegedly at stake, I’d expect this to at worst be ironed out by the end of the weekend...
...This is a textbook example of corruption. The SEC wouldn’t dare skip the economic analysis step if it were to take the out-of-character step of making life difficult for the securities industry; it would need to take these steps to withstand a legal challenge. But the Supreme Court has raised the bar very high for public advocacy groups to obtain standing to oppose these measures. And with weak rules in place, there’s no harm, no foul. For instance, one of the legitimate reasons it’s been hard to sue financial firms for all the toxic CDOs they created was that they (not unlike these JOBS Act offerings) were not registered securities but were private offerings, and so were not subject to the high disclosure standards of public offerings. So the SEC is not only making it easy to commit what by common sense standards is fraud by allowing well off but not necessarily sophisticated people to be hawked risky investments, it’s also making it hard for them to sue if they are misled, not by being lied to but by having important information withheld.
While this mess started on Mary Shapiro’s watch, Mary Jo White owns it. White could told the Republican commissioners that she wasn’t going forward unless there were adequate investor protections. It would have been easy to use their own arguments against them – that the rule proposal was clearly legally deficient, that she had pledged to follow guidelines on economic analysis, and that this proposal was way out of line with those procedures. The result would have been a compromise rather than an abject sellout to the industry. It is now no longer possible to pretend that the SEC is an investor protection industry. It might as well throw out the SEC logo and put the Chamber of Commerce’s on its door. At least we’d have some truth in advertising.
History is being written as we speak, 50 years from now the schools will teach how the financial crisis of 2008 was the American peoples fault, and that the banks and government did everything possible to protect the economy and the poor bankers from the peoples error...
And then when the fraud occurs in their generation there will be a collective gasp of "my God, how could this happen?", and the process of stripping the people of wealth will repeat again.
Meanwhile the calls for further deregulation of the financial industry are great. After all where there is no law, there can be no lawbreaker...