from Rolfe Winkler:
Go for it Gary
Gary Gensler -- regulator and, yes, Goldman alum -- has distinguished himself in Washington. As CFTC Chairman, he's fought to impose stricter rules on OTC derivatives and recently proposed rules that would cut the leverage currency traders are allowed to deploy from 100:1 to 10:1. Lest we all forget how dangerous leverage can be when traders misuse it, there's LTCM to serve as exhibit A. In a clear sign that Gensler is fighting the good fight, traders are screaming about the proposed rule. Fantastic.
From Carolyn Cui and Sarah Lynch at WSJ: Foes take on leverage curbs from CFTC
An attempt by regulators to protect investors from volatile global currency markets has triggered an uproar among lawmakers, currency dealers and thousands of small traders.
The Commodity Futures Trading Commission has proposed rules that would reduce the amount of borrowed funds that retail investors can use when investing in the U.S. foreign-exchange market to as much as 10-to-1, from the existing 100-to-1 for major currencies.
Under current rules, a customer putting up a security deposit of $1,000 in cash will be able to trade a notional amount of $100,000, a common contract size for currencies such as the dollar and the Japanese yen. The new rule would cap that amount at $10,000.
The rules also would require dealers to abide by new capital and disclosure requirements.
If the rules come into force, investors would be required to either put more capital in their accounts or pare their positions.
Unfortunately, what I'd like to start calling "the politics of easy credit" may get in the way of this sensible new rule:
"If our leverage rules are 10-to-1 and leverage rules elsewhere are 100-to-1, the business is going to move elsewhere," House Agriculture committee member Jim Marshall (D., Ga.) said.
Thanks Congressman Marshall, for protecting American entrants in the race to the bottom.
As I argued yesterday, on the one hand we want tougher financial reforms, but reforms are related in the sense that they're all designed to reduce the availability of credit. Call it what you want: leverage, credit, debt finance. Americans love the stuff because it magnifies rewards. The less you put down for an investment -- whether you're a bank, mortgagee or currency trader -- the more juice that comes back to you if a trade goes right.
Senators press tough line on commodity rules
Prominent senators have put Gary Gensler’s nomination to head the Commodity Futures Trading Commission (CFTC) on “hold” in a bid to force the administration to take a tougher line on commodity regulation.
Gensler’s nomination was approved by the Senate Agriculture Committee on March 16, but almost immediately put on ice before it could reach a vote on the Senate floor by Senator Bernie Sanders (Independent, Vermont) and one other unidentified senator.
Holding a nomination is a relatively common procedure allowing any senator to request a delay before it moves to a vote on the Senate floor, ostensibly to seek more information or testimony from the nominee.
However, the practice is controversial because it allows even a single senator to delay the confirmation process, in some cases indefinitely, and because holds can be placed anonymously. Senators simply notify their party’s floor leader, who will prevent the nomination from coming up on the Senate calendar for a vote.
ARCANE, BUT CRUCIAL While the practice is arcane, it plays a crucial role in the nomination process. Holds can block nominees with whom the senator has a strong personal or political disagreement; punish past transgressions by the nominee; or create bargaining leverage with the administration on related issues, or even unrelated ones.
But in this case the hold appears to reflect substantive disagreement. Announcing it, Sanders criticized Gensler for backing financial deregulation when he was a senior official in the Clinton Treasury Department and said the CFTC needed “an independent leader”.
Obama promised change. The vast majority of his appointments are Clinton retreads who enriched themselves handsomely while out of power. Geitner, Summers, Emmanuel ….. all of them and more made tidy fortunes in finance. Could it be that all of their great concern for the finance industry is a blatant conflict of interest?
