Mark Wetjen: A Salivating Wolf in the Regulatory Henhouse

[Editor's Note: This inside look at the real story behind Blythe Masters recently declining a seat on the CFTC's Global Markets Committee advisory board is one of Gilani's Wall Street Insights & Indictments columns this week. To get all of Gilani's insights as soon as they are released, click here.]

In case you missed the kerfuffle last Friday, Blythe Masters, the 44 year-old, super-smart head of JPMorgan Chase's commodities trading business, declined to sit on the U.S. Commodity Futures Trading Commission's (CFTC's) Global Markets Committee advisory board.

This came as a big surprise.

After all, many of us following the CFTC presumed the brainy Blythe had already accepted the position after she showed up as a member of the advisory panel that is formulating the CFTC's cross-border rules for the global derivatives market on the CFTC's website.


While all this is certainly laughable... there's another part of this story that is actually repulsive.

I'm talking about the man responsible for what happened last week and what a slimy, slippery regulator he has been. Worse, he's now acting head of the CFTC.

It's like letting a pedophile babysit your kids. It's sickening.

Let me show you what I mean...

The Wolf Exposed

Before I get to the sordid details regarding CFTC acting chairman Mark Wetjen... let me tell you the backstory.

And that begins with Blythe Masters.

Masters is a true Master of the Universe because the English brainiac helped develop credit default swaps (CDS) back at the old venerable J.P. Morgan when she started there in 1991.

As a fascinating aside, Masters is credited with successfully pitching a massive CDS sale on behalf of Exxon to the European Bank of Reconstruction and Development (EBRD) when she was on the J.P. Morgan swaps team in 1994.

The 1989 Exxon Valdez's spill was looking like it was going to cost the company at least $5 billion and they wanted an open line of credit from J.P. Morgan, their primary banker.

Back then, Basel rules required banks hold 8% of outstanding loans as a capital reserve against losses. That was a lot more than the investment and merchant bank could manage.

Blythe came up with the idea of an Exxon CDS, which would establish the line of credit and at the same time offload the loan to the EBRD. The net result was the bank essentially made the loan for its usual exorbitant fees and didn't have to reserve a drop of its precious capital. That transaction ushered in the era of credit default swaps.

Now, I admire Masters for her early work as a brilliant innovator and disrupter (in every sense of that word) and laud her as a thinking-outside-the-box genius.

But Masters is also the same woman Vanity Fair rated number 65 - just behind Bernie Madoff - in their September 2009 "100 to Blame" piece on who was responsible for misdeeds on Wall Street and the global economic crisis.

Masters, who was named by Jamie Dimon to run JPM's commodity businesses in 2006 and sits on the bank's corporate and investment banking regulatory affairs committees, has also been accused of lying to regulators over the banks "alleged" manipulation of electricity markets in California and the Midwest.

Masters herself wasn't charged with any wrongdoing, but the bank settled with the Federal Energy Regulatory Commission for $410 million back in July 2013 for their September 2010 to November 2012 jiggering of energy prices.

And what about Mark Wetjen?

He's the once-garbage man, once-bartender, and still-lawyer who for seven years was the top legislative aide to Senate Majority Leader Harry Reid. U.S. President Barack Obama appointed Wetjen as a CFTC commissioner in October 2011 and he became the acting chairman of the CFTC on Dec. 16, 2013.

Since his appointment to the CFTC, which oversees derivatives trading, Wetjen, with the backing of Wall Street lobbyists, has systematically and methodically worked to weaken proposed CFTC rules that would have made derivatives trading more transparent and safer... for the world.

From day one as a commissioner, Wetjen proposed several bank-friendly changes to planned derivatives rules.

He unapologetically delayed rules by refusing to commit to voting for them.

He has championed giving Wall Street additional time to comply with established Dodd-Frank rules.

And he recently weakened a critical rule that under Dodd-Frank required traders using new swap execution facilities (SEF) to get at least five quotes (to ensure openness and diversity in the derivatives market, 95% dominated by the five biggest trading banks in the United States) down to two, which is only one more than they get now.

The Democrat chairman has become the key swing vote on the panel, threatening to side with Republicans and vote down any rules his masters don't want.

Mark Wetjen is a wolf in the regulatory henhouse.

His invitation to Blythe Masters is indicative of who he is and, more importantly, to whom he panders. He wanted her on the committee looking at cross-border derivatives rules.

The as-yet unwritten cross-border regulations, which will determine if and how the CFTC can monitor derivatives trades performed overseas by firms with substantial business in the United States, are mandated by Dodd-Frank, which still remains 63% unwritten.

Wetjen doesn't want cross-border rules; he wants the CFTC to issue "interpretative guidance," with virtually no force of law.

He has pushed for "substituted compliance," to let overseas affiliates follow foreign rules instead of the U.S. laws. In other words, he wants to let banks "offshore" their trading away from CFTC oversight.

In the words of former CFTC Chairman Gary Gensler, "that would make 70 percent to 80 percent of all derivatives rules irrelevant."

Can you see where this is going? If you have any kids, lock them up.

Private Briefing's Bill Patalon stays one step ahead of Wall Street, as illustrated by this recent story about a stock he recommended right before a Wells Fargo analyst upgraded it to "Outperform."

About the Author

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.

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