Yves here. I take exception to Bill Black’s praise of Richard Cordray. He falls in the category of “not too bad” as the head of the CFPB. Similarly, Ohio-based readers were generally critical of his performance as state attorney general, as being late and cautious to pursue foreclosure abuses, but painted himself in the media as being more aggressive than he was. But that remark is a throwaway opinion in an otherwise astute post. I suggested in a tweet today that Hillary was using Gensler as Obama used Volcker, as ornaments to burnish their “tough on banks” bona fides, but Black’s analysis goes much further.
By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly published with New Economic Perspectives
Richard Cordray (former Attorney General of Ohio), the head of the Consumer Finance Protection Bureau (CFPG) and Gary Gensler (a former disaster under Bill Clinton and Goldman Sachs) have been the two great appointments by President Obama in the field of finance. Obama’s other appointments at Treasury, the financial regulatory agencies, and the (non) prosecutors who are supposed to specialize in financial prosecutions have been nightmarishly bad.
Gensler was another Rubinite from Goldman Sachs who, under Bill Clinton, helped destroy Brooksley Born’s effort to protect the nation from the financial derivatives that blew up AIG and much of the financial world through passage of the infamous Commodity Futures Modernization Act of 2000. As Obama’s appointee to chair the Commodity Futures Trade Commission (CFTC), however, Gensler justly earned praise for attempting to restore effective regulation. Gensler was a grave disappointment to Obama’s administration, which thought it was sending a reliably pro-finance Rubinite to run a fairly obscure agency he had helped emasculate.
When Gensler showed a spine Obama refused to reappoint him and replaced Gensler with Timothy G. Massad, a Timothy Geithner minion noted for his pro-industry views. Massad’s claim to fame was being one of the principal unprincipled architects of the failed homeowner relief programs. As I pointed out in my first Bill Moyers interview, failing (for the right political reasons) proves you are a reliable “team player” and gets you promoted in Washington, D.C. As Gensler found out, succeeding gets you your walking papers. Jesse Eisinger, as his norm, wrote a great piece about Massad when Obama nominated him in November 2013. An alternative view can be found in the American Banker, which gave prominently space to an op ed praising Massad’s nomination written by the head of a firm that trains CFTC staff.
Massad’s tenure represents a regulatory retreat at the CFTC, but in fairness, as bad as Obama is on financial regulation the Republicans are vastly worse. They are trying to force the wholesale repeal the Dodd-Frank protections on financial derivatives and they have waged an unholy war on the CFTC’s budget to try to make it impossible for the agency to protect the public. The GOP also fought hard to prevent Cordray’s appointment because they (more precisely, their donors), rightly, feared his integrity and skills.
One might think that Obama, and Democratic Party candidates for the presidential nomination would be campaigning on the issue of Republicans being in the pocket of the industry and trying to recreate Bush’s anti-regulatory “Wrecking Crew” (as Tom Frank aptly labeled it) that produced the financial crisis. But leaders of the Democratic Leadership Council (DLC) (aka “new Democrats,” which include both Clintons and Obama – by his own words) cannot bring themselves to channel their inner FDR and take on big finance. (The DLC is defunct as a formal organization, but its political leaders and pro-finance and anti-regulatory dogmas remain intact.) Big finance is the DLC’s financial base. Senator Bernie Sanders may run. If he does the Republican Party’s unholy war on regulation will be one of his primary issues.
Hillary Clinton’s Successful Gensler Gambit
The financial media is abuzz today with the leaked news that Hillary Clinton is hiring Gensler as a senior campaign staffer. From H. Clinton’s perspective, the media buzz was perfect. Bloomberg’s article bears this gushing one sentence summary: “Hillary Clinton will bring on one of Wall Street’s fiercest critics to oversee her campaign’s finances.” The article explains the politics.
For Clinton, who has been fighting her left flank’s concern that she is too cozy with Wall Street, Gensler is a notable hire. He became known as someone with sharp elbows —even during his negotiations within the Obama administration—in his push for tighter regulation.
In short, H. Clinton’s campaign got the ideal spin from what could have been a very hostile financial media. Hiring, and leaking, Gensler’s hire was a very smart political move.
Just One Little Catch
But here’s the catch. Gensler is being hired for a job that will take 150% of his available time given H. Clinton’s ability to raise money and the obscene rules that make modern campaign finance a sport in which both parties routinely devise “black box” funding devices to allow the wealthy to rule American politics secretly. This has two critical implications. Gensler will not be working to block the power of the secretive wealthy – he will be doing the opposite, at least 16 hours a day. It also means that he was not hired to advise H. Clinton on the crimes of Wall Street banksters and the vital need for vigorous regulation and prosecutions. Even if he had the desire to fill that role he will have no time to do so and he will be busy secretly catering to the needs of the wealthy and politically dominant criminal class.
Gensler Was No Godzilla When He Led the CFTC
Gensler’s stint at the CFTC is a nice story of redemption. He did try to be a vigorous regulator over great opposition from the industry, much of Congress (including many House Democrats), and Treasury.
Gensler’s desire to be an effective regulator was unacceptable to Obama, who in another act of “revealed preferences” refused to reappoint Gensler.
But Gensler is not, remotely, “one of Wall Street’s fiercest critics.” Quick: memory association: what’s Gensler’s “fiercest” criticism of Wall Street? You came up blank, didn’t you? I checked the Wall Street Journal and did a more general web search. The WSJ was happy to see that Obama refused to reappoint him (the cover story is that Gensler did not want to serve another term) and it criticized him as harsh – but I could not find a story quoting any harsh denunciation of Wall Street by Gensler. Given that even life-long banking apologists like Geithner’s replacement as President of FRBNY now routinely refer to the corrupt culture of Wall Street, Geithner is not even one of the harsher critics of Wall Street within the none-too-critical Obama administration.
The “sharp elbows” claim is pure invention by Geithner’s worse than useless minions. Anyone who refused to brownnose the finance industry was considered far too aggressive by Geithner. Geithner and his team launched the same smear at Sheila Bair (FDIC chair) and Neil Barofsky (SIGTARP). We (the S&L regulators) were routinely referred to as “Nazis,” the “Gestapo,” and the “KGB.” The political, dirty tricks, and litigation attacks on us were far more severe and consequential because our actions were sending elites to prison and humiliating their political patrons who rushed to return campaign contributions from those we exposed as frauds.
Back in the S&L days under the team assembled by Federal Home Loan Bank Board Chairman Edwin Gray, the Reagan administration detested us precisely because Gensler (in his CFTC incarnation) would have been somewhere in the middle of the distribution of regulatory vigor. The comparison is conjectural because under Gray’s leadership, which generally became so supportive of regulatory vigor, and the tutelage of Joe Selby and Mike Patriarca (the Nation’s consensus choices as the most effective and vigorous financial regulators), Gensler might have developed into a far more effective regulator. Gensler’s mentor, Robert (“Bob”) Rubin, inflicted a severe impediment to regulatory effectiveness that Gensler had to struggle to try to overcome.
Ignore the media crush on Gensler’s appointment. As campaign CFO for H. Clinton his job is the care and feeding of the DLC’s financial base – the finance industry. H. Clinton’s Gensler gambit is smart politics, but if you think it means she is seeking progressive advice you are being played – successfully.