Obama should not chase CFTC-head Gary Gensler away
The Huffington Post’s Shahien Nasiripour brought news of the Obama Administration’s effort to run off the most effective financial regulator since Franklin Roosevelt signed the 1933 and 1934 Securities Acts into law:
President Barack Obama is poised to nominate Amanda Renteria, a former Senate staffer, to replace Gary Gensler atop the main U.S. derivatives regulator amid an intensifying fight between Gensler and the world’s major banks and regulators over cross-border transactions.
And why is Gensler being run off? Nasiripour writes:
Renteria’s elevation would end Gensler’s tenure as the nation’s top derivatives overseer. A former Goldman Sachs executive who was viewed skeptically by some liberal lawmakers when he was first nominated in 2009, Gensler has become perhaps Wall Street’s leading foe as he has sought to curb risk and expand transparency and competition in the previously opaque market for a type of derivatives known as swaps.
Gensler has transformed a once-unknown agency to one at the forefront of financial regulation as CFTC rules are shaking up a marketplace unaccustomed to government supervision. His rules threaten to decrease profits at the nation’s largest banks as formerly unregulated activities are forced to comply with provisions that help buyers compare prices and compel banks to stump up more cash to back their trades.
One of the administration’s longest-serving regulators, Gensler has clashed with the Treasury Department, foreign regulators from countries including the United Kingdom and Japan, dozens of U.S. lawmakers and the leading world banks over his efforts to impose stringent rules on a once little-regulated market that fueled the financial crisis and nearly toppled financial groups including AIG, the giant U.S. insurer.
It is refreshing to see someone who understands the global financial markets and is willing to fight to reign in the banks. Nasiripour writes this about what Gensler is trying to do to safeguard the stability of the U.S. financial system:
Gensler’s plan would extend the reach of U.S. rules to JPMorgan Chase’s London branch as well as to Deutsche Bank’s Frankfurt office if it’s offering a swap to a Chicago investment firm.
To garner support for his agenda, Gensler has mentioned that AIG’s swaps division was run out of London and that Long-Term Capital Management, a leading hedge fund that was rescued in the late 1990s thanks to the efforts of the U.S. government, booked its disastrous swaps “in a Cayman Islands affiliate that wasn’t much more than a P.O. Box.”
He’s also said that the U.S. ‘had another stark reminder that swaps booked offshore can send risk straight back to the United States’ when JPMorgan suffered a $6 billion trading loss from swaps executed by its London branch by a group of traders led by the so-called ‘London Whale.’
Last week, Gensler warned that all of the U.S. government’s efforts to reform the swaps market ‘could be undone’ if U.S. banks’ foreign affiliates and branches whose activities are guaranteed by their U.S. parent companies ‘are allowed to operate outside of these important requirements.’
Something has changed President Obama’s mind about nominating Gensler as CFTC chair. A scan of the news over the last three months suggests that Obama’s enthusiasm for Gensler was turned off by his aggressive stance toward banks as CFTC head.
Without Gensler, America loses its best advocate for financial stability. Obama should rethink his decision and allow Gensler to complete the Dodd-Frank rulemaking. Every other financial regulator has acceded to bank demands to water down Dodd-Frank. In the most important area of securities and bank regulation, someone must stand against the banks. Gensler is the best person to do that.