Hillary Clinton is using a prominent surrogate to attack Bernie Sanders’ emphatic proposals for reforming Wall Street: Gary Gensler, former chair of the Commodity Futures Trading Commission.
by David Dayen
Gensler, who is the Clinton campaign’s chief financial officer, has enormous credibility among financial reformers after his aggressive (and lonely) efforts to rein in banks during the early years of the Obama administration.
But Gensler’s attacks on Sanders come across as hollow given that the Clinton campaign has been largely silent on the issue that defined Gensler’s legacy – the regulation of derivatives – and the undermining of that legacy by the man Obama chose to succeed him.
Much of what Gensler accomplished at CFTC has been washed away by his successor, Timothy Massad. But reversing Massad’s weakening of financial reform is barely a feature of Clinton’s platform.
Gensler came to the Obama administration from Goldman Sachs — in fact, Sanders tried to block him from becoming CFTC chair in 2009 for that reason. Despite his background, however, Gensler used his considerable power to rein in the out-of-control derivatives market. Derivatives are different types of bets placed by investors who don’t own the underlying assets. They helped fuel the 2008 financial crisis by magnifying the amount of money at stake when the housing bubble collapsed.
When he was at the Treasury Department in the Clinton administration, Gensler worked to ban derivatives regulation. But after the crisis, he helped write stronger derivatives language in the Dodd-Frank financial reform bill, ensuring that they would be transparently traded through central clearinghouses — giving everyone a window into their risk and scope.
He took extreme action to preserve those rules, beating back lobbyists and even fellow regulators. Gensler’s former friends on Wall Street felt betrayed; his name became “like a curse word,” according to former SEC Commissioner Daniel Gallagher.
But since his departure in early 2014, most of Gensler’s priorities for a transparent derivatives market with consistent rules of the road have been weakened or obliterated. Massad, a former corporate lawyer, is known for pursuing a “softer tone” with the financial institutions he regulates, as well as handing the industry favors that roll back what Gensler worked so hard to accomplish.
[Clinton] wants to reinstate the “swaps push-out” rule to force derivatives trading desks to be separately capitalized — something Congress, not Massad, eliminated. And she makes a vague nod toward enhancing “international cooperation” on collateral requirements for derivatives trades. But bringing international collateral rules in line doesn’t really address what Massad did to U.S. rules just last month.
When asked for Gensler’s views on Massad’s tenure and whether a hypothetical Clinton administration would prioritize restoring stronger derivatives rules, the campaign declined to comment.
Gensler’s comments about Sanders repeatedly attacked him for failing to consider the shadow banking system: the collection of financial institutions whose activities sit outside the regulatory perimeter. But after two years of CFTC give-backs, much of the derivatives market sits in the shadows as well. On this point Gensler and Clinton have said little, and the silence speaks volumes.
Source: The Intercept