[Note: this was written by several Alternative Bnaking members in November, 2013. Since then, his replacement has been nominated, the Volcker Rule has been finalize, but the basic facts are still in place. It is important to have good regulators. Obama made no effort to keep one of the most effective we had.]
Gary Gensler is the current Chair of the CFTC, the financial regulator responsible for most derivatives. Word on the street, and from Gensler himself, is that he is supposedly not interested in a new term as CFTC Chair when his term is up at the end of the year. We in Alternative Banking group of Occupy Wall Street think he’s just saying that to be nice. In fact, we suspect he’s being pushed out by the Obama administration as punishment for doing his job well.
Because here’s the thing, Gensler is the best regulator we’ve had recently and it makes no sense not to reappoint him if the goal is to have effective regulation. Therefore that must not be Obama’s goal. His goal is presumably being defined by financial lobbyists. We demand Mr. Obama either re-appoint Gary Gensler, or find someone with an equally impressive history of effective regulation to replace him.
Put it this way. Imagine you own a basketball team, and you want your team to win. How do you make that happen? You recruit the very best players. You at the very least do your best to retain your star players, the ones that have already shown consistent performance and teamwork.
Now imagine you’re Obama, and it’s not a basketball team, it’s the CFTC, the regulator in charge of futures and swaps. Not reappointing Gensler is like not renewing a contract with Michael Jordan and then asking around for a player who can score 50 points a game. Even if Gensler really is reluctant to stay, Obama should be doing everything he can to get Gensler to stay.
Except it’s worse, because it’s really our financial system and the stakes are higher than in sports. After all, the worst thing that could happen with a basketball team is you have a losing record. The worst thing that could happen with a bad CFTC is the next longer and sustained financial crisis.
Not possible, you think? Think again. Brooksley Born’s was ignored in 1999 when she warned that unchecked trading in the derivatives market could lead to disaster. She was proven right in 2008. When leaving Washington, Born said she was gratified that her concerns related to derivatives were being addressed but in fact, as she was well aware, they were not. And because they were not addressed, the impact of the housing bust was much more catastrophic than it would otherwise have been. Taxpayers, foreclosed homeowners and unemployed workers are still paying the costs today.
In other words, history is repeating itself. Once again, important regulatory issues are waiting to be addressed and the most effective regulator is “voluntarily” leaving town. Dodd-Frank is a law that passed in 2010. But the law just outlines the rules, and the regulators are supposed to turn that law into regulations which they then implement. Writing Dodd-Frank has been painfully slow, in part due to the furious efforts to water it down by the big banks. Occupy the SEC – a subgroup of the Occupy Movement – even tried to sue the major regulators for not keeping up with the deadlines. But they were found to not have standing. That is to say, the people have no legal interest at stake but the banks that delay the process do.
Just in case you think it’s always been like this, you should know that the regulators haven’t always been weak. People were actually afraid of the SEC in the 1990’s. But when you take into account recent pressure from lobbyists, deregulation-oriented Fed chairs, and a lack of Congressional funding again due to lobbying, you have weak, underfunded, and overworked regulators.
In spite of these pressures, the CFTC has gotten through the most implementation of Dodd-Frank of all the major regulators, and with the smallest staff and the least funding. But a lot remains to be done, and it is essential that the CFTC has a strong and capable chair.
This begs the question, why would Obama not re-appoint him?
Most of what Obama has done is actually a story of what he hasn’t done. As an example, just take a look at HAMP, which was supposed to help 4 million homeowners stay in their home but has so far helped only about 1.1 million and arguably done serious damage to thousands of others. Tim Geithner even admitted that the real goal of HAMP was to slow down the foreclosure process and “foam the runway” for the banks — not to provide relief to homeowners.
When it comes to financial issues, Obama is deliberately hands-off, and spends his time on other things. An exception is Obama’s recent appointment of Jacob Lew, with his questionable background at NYU, his meddling in student loans, and his role at Citibank. But excepting Lew, Obama’s actions in finance are inactions, and not re-appointing Gensler is tantamount to firing Gensler.
Maybe Obama is afraid to re-appoint him? After all, critics say that Gensler has been too confrontational and aggressive. This is a strange criticism from an administration that appointed Rahm Emanuel chief of staff and wanted Larry Summers as Fed Chair. But in any case, without being confrontational, Gensler would not have gotten as many, or as effective, regulations in place. For example, he wouldn’t have been able to launch his swap execution facility, nor pressure European regulators to make rules to help avoid another AIG situation. Calling him confrontational is code for “willing to stand up to the big banks”. We need that kind of confrontation.
If the next CFTC chair is weak, the industry efforts to water down Dodd Frank will succeed and the stage will be set for the next crisis. As Obama, is making no effort to retain his star regulator, we are forced to conclude that Obama does not want effective regulation, and will replace Gensler by someone who is either unable or unwilling to do their job. As taxpaying citizens we are very concerned about what this will mean for the future of the economy. Mr Obama, reconsider.