President Obama has decided that CFTC chief Gary Gensler, unlike most of his first-term economic team, is worth keeping around. Gary Gensler agrees. Now if only they could figure out in what capacity. Read more »
Treasury Secretary Hank Paulson’s “blueprint” for revamping the financial regulatory system is already coming under fire from powerful agency heads. As early as Friday, even before the details of the plan were widely-known, the plan was lambasted by John Reich, the director of the Office of Thrift Supervision, which oversees the savings and loan industry. Immediately after Paulson’s speech this morning, Commodity Futures Trading Commission big shot Bart Chilton released a colorful and blisteringly critical statement describing the plan as “moving boxes around in Washington DC.”
Paulson’s plan would combine the Securities and Exchange Commission, which regulates equities and debt markets, with the Commodity Futures Trading Commission, which that regulates the exchanges trading commodities and financial futures. The two commissions have very different regulatory approaches, with the SEC favoring direct regulation and a rules-based approach and the CFTC favoring a principles based approach that relies heavily on self-regulation by commodities and futures exchanges. SEC head Chris Cox has been described as being disposed to supporting the plan.
After the jump, we delve into the dirty, metaphor-strewn past of the CFTC commissioner.
The President’s budget for Fiscal Year 2009 includes $130 million in funding for the Commodity Futures Trading Commission. What has the CFTC done to earn this dramatic growth in its funding? Has it proved especially effective at exercising oversight and ensuring integrity in the markets where it has jurisdiction?
Of course not. While the agency avoided embarrassments like the collapse of Amaranth last year, commodities futures markets are no cleaner or better run last year than the year before. But this presents no obstacle to additional funding. The private sector rewards success but in the government sector all too often failure is rewarded. According to government logic, failure indicates not a broken regulatory model but a “need” for additional resources. Thus this funding is intended to help the commission cope with the growth in futures markets, although the connection between market integrity and commission funding is assumed without evidence.
We gave up on this model with schooling. Failing public schools now risk losing funding, while improving schools can earn more funds. Yet somehow in market regulation, failure is still rewarded.
CFTC Applauds President’s Recommendation for Increased Agency Funding [CFTC Press Release]