Friday, December 19, 2008

FOXES IN THE CHICKEN COOP: GARY GENSLER

Pro Publica - President-elect Barack Obama announced the nomination of two key regulators: Mary Schapiro as the chairman of the Securities and Exchange Commission and Gary Gensler to head the Commodity Futures Trading Commission. The two will be responsible for creating "a 21st century regulatory framework to ensure that a crisis like this can never happen again," said Obama.

The choice of Gensler for that mission is ironic. While in the Clinton administration, the former assistant Treasury secretary helped oppose regulation of the exotic derivatives at the center of the financial crisis.

Gensler was a top negotiator for the White House in discussions with Congress in support of the now-controversial Commodity Modernization Futures Act of 2000. The law largely prevented the SEC and the CFTC from regulating credit default swaps and other complex instruments that would later wreak havoc with financial markets. Gensler also played a prominent role in batting down an effort by the CFTC to regulate these derivatives. . .

In 1998 the then-chairman of the CFTC, Brooksley Born, had proposed that her agency regulate the rapidly growing market in derivatives, which allow investors to bet on the change in value of anything from interest rates to commodity prices. Regulators witnessed the dangers from these financial instruments when Orange County, Calif., declared bankruptcy in 1994 after it lost $1.6 billion in derivative trading.

Nonetheless, Born's efforts were beaten back by top Clinton officials. They argued that if the CFTC had jurisdiction over the market, it could call into question the legality of trillions of dollars in existing trades. Gensler, who helped shape the response to Born's proposal, told Pro Publica last October, "There was a legitimate and widely held view that this aggravated the very question of legal certainty."

A little more than a decade after Gensler worked to stop Born's vision of a stronger CFTC, it may now fall to him to make it a reality.

1 Comments:

At December 26, 2008 8:35 PM, Anonymous Anonymous said...

Wonder if he is brave enough to tackle the massive naked short selling in the Comex silver market. Or is he going to squib it and let it default on demands for deliveries of physical silver? I can't see the the Goldman Sachs boy opting for a real investigation into that market. Much easier to close it after it blows up. Either way silver is heading for $100, best buy some whilst it is still around $10.

 

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