Obama is no longer bothering to pretend that he is anything other than a stooge for banks and other big money interests.
The president is effectively dismissing Gary Gensler, the ex-Goldman partner who headed the Commodities Futures Trading Commission. Gensler used his post at a secondary financial regulator to push for reforms. It was his office that blew the Libor scandal wide open by taking referrals from British regulators seriously (by contrast, Geithner, who heard about widespread, deliberate mismarking in 2008, passed the buck to the Bank of England). Gensler has also been making himself unpopular by taking the view that swap dealers, which includes foreign branches of US banks and parties that conduct business with US parties, must comply with Dodd Frank. As Automated Trader noted in April:
“As the CFTC completes the cross-border guidance,” Gensler said, “I believe it’s critical that Dodd-Frank swaps reform applies to transactions entered into by branches of US institutions offshore, between guaranteed affiliates offshore, and for hedge funds that are incorporated offshore but operate in the US.”
In a speech before the US Chamber of Commerce, he added: “Where there are comparable and comprehensive home country rules abroad, we can look to substituted compliance, but the transactions would still be covered.”
Gensler has made strict adherence to Dodd-Frank a centrepiece of his swaps market reform campaign, although his initial stance generated considerable pushback from market participants and foreign regulators alike.
In his latest speech, he repeated his concern about risk overseas coming back to the United States.
“During a default, risk knows no geographic border,” Gensler said. “If a run starts in one part of a modern financial institution, whether it’s here or offshore, the risk comes back to our shores. That was true with AIG, which ran most of its swaps business out of the London neighborhood Mayfair. It was also true at Lehman Brothers, Citigroup, Bear Stearns and Long-Term Capital Management.”
He’s also made himself more of a threat than most regulators via his willingness to get into the weeds of regulatory language. One of the ways banks and large corporations get their way today is that legislation is seldom specific enough to serve as a guideline for regulators, who need to develop detailed rules. Lobbyists swarm over this process like locusts, both by organizing their clients’ allies to weigh in against tougher rules, and by insinuating themselves deeply enough in the process that they provide the text for the rules, which is often adopted wholesale by the regulator. So someone like Gensler who was willing to insert himself in this process was a considerable impediment to the banks’ usual route for quietly getting their way.
Shahien Nasiripour at the Huffington Post describes how Gensler is being ousted for his position on swaps regulation, which was coming to a head in international meetings starting June 20, with a July 12 deadline looming. The industry was pushing for the usual “race to the bottom” approach, since the Dodd Frank provisions are more stringent than overseas requirments (the spin, of course, was that Gensler was acting unilaterally, as opposed to implementing what Congress mandated). Gensler faces varying degrees of resistance from three of his four fellow commissioners. International regulators were apparently also unhappy with Gensler’s tough stand, to the point where they were complaining to Treasury Secretary Jack Lew.
Even if Obama fails in fast-tracking his chosen replacement, Amanda Renteria, Gensler’s lame-duck status will considerably weaken his ability to arm-twist the fence-sitters among his colleagues.
And Renteria is a simply pathetic choice. Oh, she’s got a very appealing personal story, having worked her way up from a very disadvantaged background, a child of migrant workers who made her way to Stanford and later Harvard Business School. But there’s nothing in her background that qualifies her to act either as a senior regulator or as the head of a large operation (the CFTC has over 400 employees). This leap in responsibilities is tantamount to taking a promising law firm associate and making them the head of a large law practice. You’d never do that if you cared about the health of the firm. A move like this looks an awful lot like an effort not just to sideline Gensler’s push on swaps regulation, but to render the CFTC incompetent over time.
Renteria’s knowledge of finance appears to consist of having worked right after college for a few years at Goldman. She served as an analyst in the then investment bank’s Wealth Management Division. Analysts (the role between college and business school) are typically worked very hard on low-discretion tasks that still require a high degree of accuracy. They might also get to see clients now and again. She was in the business that hawked products to super rich clients and appears to have done some modeling, but she was a LONG way away from derivatives operations, particularly the parts that dealt with institutional clients and the firm’s risk management. In other words, she’s highly unlikely to have observed much if any tradecraft that would be relevant to her CFTC role.
And if you read her own description of her activiites since 2008, as Chief of Staff for Senator Debbie Stabenow of Michigan, she’s done perilous little on finance matters. Nasiripour confirms:
Renteria has little experience in financial regulation. Congressional aides who worked on the 2010 overhaul of financial rules known as Dodd-Frank said she played a bit role in formulating the law.
Jesse charitably writes:
She might turn out to be a highly effective regulator despite her lack of practical experience in financial regulation. That would be a nice change of pace for a generally docile and Big Finance compliant administration. Let’s see what she has to say. But I am not hopeful given the Obama crew’s abysmal track record in financial reform and ‘change you can believe in.’
Renteria will be scripted well enough to sail through confirmation hearings. But she’s utterly lacking in the experience needed to even begin to do her job, let alone stand up to pressure from big banks or parse their legalistic legerdemain. Even if her intentions are the best, it will be easy to steamroll her. The fact that Obama would nominate someone who is not even remotely up to the role shows that he’s not bothering to hide that he’s handing the store over to corporate interests.