Gary Gensler: A U-Boat Sent into the CFTC?
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 and others when she sounded alarm bells 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 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 Loopholes.”
In 2000 Congress passed the Commodity Futures Modernization Act, sponsored by Senator Phil Gramm (who happened to also be John McCain’s campaign Economic Adviser). This act was written to keep off exchange derivatives unregulated and, as many are now discovering, to open “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 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 “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 public 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 voice was ignored by the cheering mob in Congress. Gensler’s nomination was approved.
So how did a guy 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 Gensler had a hand creating, defending and promoting regulatory loopholes 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 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 and concluded 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 as allowed by his legal council. So Mr. Gensler talked much, but said little. A disgrace from a regulator with investigative authorities over a possible crime.
On Monday, the CFTC will finally, and after much delay, vote on a rule required under the Dodd-Frank act to remove a brokers’ ability to use their clients’ excess margin, or collateral for 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 for which John Corzine and Laurie Ferber, MF Global’s general counsel, furiously lobbied to protect and keep in place.
Expect Mr. Corzine to say nothing when he appears to answer to the American people. Such are the government servants delivered to us.