Gary Gensler: A U-Boat Sent into the CFTC?

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Although we would substitute "loophole expansion" for the term "de-regulation", inasmuch as the number of financial regulations has more than doubled over the last decade and a half and we have not had anything approaching free markets for well over a century (the received wisdom perpetuated by your oligarchs, notwithstanding), and would finger state-sponsored moral hazard along with free money handed out by the Fed as the primary driver of our financial predicament, the following exposes a number of important facts about the conflicted ex-Goldman Sachs alum that now runs (or did he recuse himself?) the US Commodity Futures Trading Commission, a government chartered institution, whose legacy should one day earn the dubious destinction of that which has institutionalized the trampeling of customer rights (see here for a most egregious example). - EB

Guest Post Submitted by MFGFacts.com

Who was Gary Gensler?

When Gary Gensler was nominated to head the CFTC, most Americans had never heard of him. Yet he had been cruising the inner Beltway of D.C. and halls of influence for years under the radar of most.  Genlser succeeded Brooksley Born who was given a very rough time by the club of Summers, Rubin, Greenspan et. al  when she sounded the alarm bell on the rapid and unregulated growth of off-exchange derivatives. Born sought at least transparency as they “could pose potentially serious dangers to our economy.” Although appointed by Clinton, she never got his support and resigned from her post. For more on her prescient warnings, view this fascinating PBS documentary.  As more collapses happen, the failure to regulate off exchange derivatives from CDO’s to re purchase agreements are increasingly understood to be a prime source of financial collapse.

Lobbying for Loopholes

Back to U-boat Gary. While still at Goldman Sachs brought Robert Rubin (yes, also from GS) recruited Gensler in 1997 to join him as Assistant Secretary for Financial Markets. Later he was promoted to Undersecretary for Domestic Finance in 1999.  Here he worked on the changes to regulation assuring that credit default swaps and other off exchange derivatives were free from regulation.  During the Enron disaster these were called “The Enron Loophole.”

In 2000 Congress passed the Commodity Futures Modernization Act, sponsored by Senator Phil Gramm (and John McCain’s campaign Economic Adviser).  This act was written to keep off exchange derivatives unregulated and, as many are now discovering, opening “Mac Truck sized loopholes” allowing expanded access to customer funds for off exchange, but rated instruments beyond US Treasuries. Gary Gensler was the Treasury’s under secretary for domestic finance and it was his job to assure lobby that the CFMA got through Congress and signed into law.

Cheering the Confirmation

Gensler’s confirmation flew through Congress in 2009, but it was not cheered by all, especially the informed public.  The New York Times named it  “troubling”  at the time and Salon came out with a damming article, “The Oligarch’s President."    Senator Tom Harkin, of the Agriculture Committee, at the time  released a statement of “concerned about the de-regulatory orientation in this nominee’s past.” Senator Bernie Sanders tried to block it and was one of the two votes against Gensler with the strong statement:

… I cannot support his nomination. Mr. Gensler worked with Sen. Phil Gramm and Alan Greenspan to exempt credit default swaps from regulation, which led to the collapse of A.I.G. and has resulted in the largest taxpayer bailout in U.S. history. He supported Gramm-Leach-Bliley, which allowed banks like Citigroup to become “too big to fail.” He worked to deregulate electronic energy trading, which led to the downfall of Enron and the spike in energy prices. At this moment in our history, we need an independent leader who will help create a new culture in the financial marketplace and move us away from the greed, recklessness and illegal behavior which has caused so much harm to our economy.

Like Brooksley Born, Sander’s lone and prescient voice was ignored by the cheering mob in Congress. Gensler’s nomination was approved.

So how did a guy like this who was a key member of the Washington Beltway Demolition Derby get appointed as Chair of the CFTC?  How did this happen after it was known that the loopholes Gensler had a hand creating and defending known loopholes in regulation that were pivotal to the mortgage banking collapse? Those things do not matter in Washington. Independence has no value.

Gensler served as senior economic adviser to the Hillary Clinton in the 2008 campaign.  When her campaign closed shop, he jumped into the Obama camp as a fundraiser and adviser.  Once elected, the Obama transition team then charged him with charge of the reviewing the SEC.

Prior to this Gensler was active in Democratic party politics, appointed treasurer of the Maryland Democratic Party in 2003. He emerged as a major donor contributing more than $220,000 to Democratic party candidates and committees from 2002.  This figure includes the more than $72,000 in 2008 shortly before his appointment.

Washington D.C. is filled with souless hacks.  Such men and women reduce themselves to be nothing more than instruments of others.  We saw that on display at the hearing this week called by the Agriculture Committee where Chairman Gensler was asked to testify.  His prepared statement did not address the purpose of the hearing, but instead offered more about the Swaps market concluding with meaningless platitudes, “This is why the CFTC is working so hard to ensure that swaps-market reforms promote more open and transparent markets, lower costs for companies and their customers, and protect taxpayers. Thank you, and I would be happy to take questions.”

As questions were asked, more than once Gensler replied he could only speak only as allowed by his legal council…

Mr. Gensler talked much, but said little.  On Monday, the CFTC will finally, and after much delay, vote on rule a required under the Dodd-Frank act removing a brokers’ ability to use their clients’ excess margin, or collateral for future trades, in corporate notes, bonds and commercial paper.  The very changes to CFTC rule 1.25 that Gensler worked so hard to put in place 12 years before.  The changes John Corzine and Laurie Ferber, MF Global’s general counsel, lobbied hard in recent months to protect and  keep in place.

Expect Mr. Corzine to say nothing when he appears to answer to the American people.  Such are the the government servants delivered to us.

 

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For our own presentation of Gensler as giddy-as-a-schoolgirl power-hungry regulator (indeed, he said he was "tickled pink" by his new authority, and had autographed copies of Dodd-Frank by Bernanke, Shapiro, Geithner, etc. on his desk) and the CFTC's directive as soon-to-be price fixer in chief, see our article from November, 2010: Ex-Goldmanite Gary Gensler "Tickled Pink" as CFTC Ramps Up for Price Fixing. -EB