After all the excesses and fiascoes the financial community (and country) has undergone – and continues to undergo – you would think that Washington would be more than motivated to keep the foxes out of the hen house.
Especially when it comes to Wall Street's love of building derivatives that fall just shy of being illegal, but certainly self-serving. You would think that this populist-sounding president would be keeping his regulatory Cerberus, which guards the Securities and Exchange Commission (stocks and bonds) and the Commodities Futures Trading Commission (futures, derivatives, options), hungry, alert and only well-fed on investor injustice.
Well, the fact is, not so much. Seems Wall Street has thrown a juicy steak over the fence of the CFTC… again.
As proof of the Washington axiom that no good regulator goes unpunished, President Obama appears set to nominate an inexperienced Senate aide to replace current CFTC Chairman Gary Gensler.
Even though President Obama nominated Gensler, whose term isn't up until year-end, rumors are flying that Amanda Renteria, the former chief of staff to Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich, will be nominated as the next head of the regulatory agency that oversees the $630 trillion derivatives markets.
A New Sheriff in Town
Gensler, whom I respectfully call Gary Genslinger, has been taking aim at big banks' risky derivatives trading, much of which was responsible for bringing the financial world to its knees in 2008.
But Gensler hasn't often had his way. Intense lobbying by bank advocacy groups and lawmakers, as well as pushback from fellow commissioners, has stymied the chairman's efforts to complete Dodd-Frank-mandated rules and regulations.
Gensler recently was forced to relent on a personal crusade to have the commission implement final proposals to make swaps trading more transparent.
He fought for months to move bilateral trading conducted primarily by phone through derivatives brokers, including ICAP Plc., GFI Group and Tullett Prebon, as "voice-brokering" intermediaries, onto electronic trading platforms called Swap Execution Facilities (SEF), called for as part of the Dodd-Frank overhaul. And, Gensler wanted prospective swaps customers trading with swap-dealing banks to be offered a minimum of five quotes by different dealers before entering a trade.
With fellow commissioners voting against him, Gensler relented last month, yielding to the power of the voice-brokers, including ICAP which has been implicated directly in the Libor scandal and enmeshed in another multi-trillion dollar manipulation scheme involving swaps pricing, to allow voice-brokering to continue and cap the quote requirement at only three offers, as opposed to the more competitive proposed requirement of needing five quoted offers.
A Stone in Wall Street's Shoe
Another fight is looming among the commissioners as a July 12 deadline approaches.
The CFTC, against Gensler's advocacy, granted big banks a temporary exemption from rules governing cross-border swaps, based on bank lobbying efforts to quell the rules that they say would disadvantage U.S. banks in the global marketplace for swaps.
The exemption expires in July and pressure is mounting on Gensler to grant an additional two-year exemption. The chairman's articulated fear is that another extension will only give banks time to have the rules watered down or undone entirely.
The move to nominate a new chairperson before Gensler's term is up would not only shut him out from seeking another term and make him a lame duck, it would also signal a significant victory for big banks, their lobbyists and the lawmakers whose campaign war chests are flush with siphoned-off bonus pool money from their darling constituents.
As chairman of the five-member CFTC, Gensler has drawn fire from big banks, the Treasury Department, U.S. lawmakers, foreign regulatory agencies and activist lobbyists over his attempts to shoot holes through the opaque walls that surround trading in the extremely lucrative swaps market. The swaps market is principally controlled by the G-16 dealers, composed of the world's largest trading banks.
One commissioner on the five-member CFTC panel, Mark Wetjen, a former aide to Senate Majority Leader Harry Reid, D-Nev., was the frontrunner to replace Gensler as chairman until his obvious Wall Street leanings exposed him as a jaded bank cheerleader.
So, with the July exemption extension looming and big banks' inside man outed, the once presumably public-minded and former bank-bashing president of the United States looks ready to undercut Dodd-Frank safeguards he championed and signed into law, by castrating his 2009 chosen CFTC man and putting forward a more pliable candidate.
Nominating Ms. Renteria, who according to Senate staffers, "worked on Dodd-Frank but didn't play a significant role," and labored on Senator Stabenow's behalf on the healthcare overhaul and the auto bailout, suggests the administration prefers an inexperienced and light-touch regulator as opposed to a hard-charging, fix-what's-wrong rule-maker and enforcer.
While Ms. Renteria worked for Goldman Sachs Group Inc. as a financial analyst after graduating from Stanford University and later went to Harvard Business School, there's nothing in her background to suggest any depth of knowledge about the arcane intricacies of the most complicated and dangerous product mix that comprises the derivatives underworld.
However, Senator Stabenow said in an e-mail last Thursday Ms. Renteria would be a "tremendous asset to the administration" because "she's known for building bridges to find consensus and get things done."
Whatever that means. And I'm guessing it's not good news for anyone outside of Wall Street.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.