Bloomberg News

Republicans Try to Starve Wall Street Watchdog: William D. Cohan

December 06, 2011

Nov. 28 (Bloomberg) -- Just when it didn’t seem possible for the public’s opinion of Congress to get any lower, a bunch of Republican representatives figured out how to push it further down.

No, I am not referring to the unsurprising news that the congressional “supercommittee” utterly failed in its mission to put the country’s fiscal house back in some semblance of order. Rather, I am thinking about the stealthy efforts of Representative Jack Kingston, Republican of Georgia and the chairman of a powerful subcommittee of the House Appropriations Committee, to gut the budget of the Commodity Futures Trading Commission at the very moment when the CFTC is engaged in the hugely important task of figuring out how to better regulate Wall Street’s often-squirrelly behavior.

In fulfilling its mandate under the Dodd-Frank financial-reform law, the CFTC has approved 18 new rules, has proposed an additional 55, and has 30 or so still to write. But Kingston apparently doesn’t much like the Dodd- Frank Act, so he has set about using the power of the purse to try to change the law of the land and put the CFTC under his thumb.

According to Politico, Kingston -- who refers to Gary Gensler, the CFTC’s chairman and a former partner at Goldman Sachs Group Inc., as “Mr. Goldman Sachs Gary Gensler” -- “welcomes” the control he has over the CFTC’s budget, maximizing “his own leverage over the CFTC’s rule making on the derivatives and swaps market.”

Political Budgeting

As a result of the machinations of Kingston and other leaders of the House Appropriations Committee, the CFTC’s 2012 budget will be held at $205.3 million, more than $100 million less than what President Barack Obama requested, even though its workload has increased dramatically following the passage of Dodd-Frank. Just as Kingston cuts the CFTC’s budget, the need for the commission to rein in excesses in the derivatives, futures and swaps markets has never been greater. Those markets have grown exponentially in size and complexity over the past few decades. One need look no further than the implosion of MF Global Holdings Ltd. to know that regulatory oversight is more necessary than ever.

Instead, we get Kingston’s cynical micromanaging. He insists that of the $205 million appropriated for the CFTC in 2012, $55 million must be spent on long-term information-technology investments. (This is an almost 50 percent increase on IT spending from 2011.) That leaves just $150 million next year to pay for the rest of what the commission is supposed to do, including pay for 712 people working at the agency. This year, the CFTC had $165 million for its non-IT costs.

As a result, the commission is now, in effect, facing a budget shortfall of some $15 million, and close to 60 employees, 8 percent of the staff, could lose their jobs. Representative Barney Frank, Democrat of Massachusetts, told Politico that cutting the CFTC budget was a “terrible act of irresponsibility” that is “sort of like disarming America.”

Forget that Gensler believes that for the CFTC to be most effective it should have closer to 1,000 people and the ability to spend time in the offices of the companies it regulates. This is what bank regulators -- with much bigger budgets -- are able to do.

Good Investment

Needless to say, the threat of job losses at the CFTC has created morale problems, which Gensler has tried to assuage. “We will be reviewing budget options, and along with the Office of Management and Budget will continue to advocate with Congress for necessary resources,” he wrote in an e-mail to the staff on Nov. 22. “I want to assure you that we’re fighting to keep every one of our talented staff on board.”

When I asked Gensler whether it made sense for Congress to cut the CFTC’s operating budget at a time when the need for oversight has never been greater, he said he feels the commission is a “good investment” for the American public.

“The financial system failed, but the financial regulatory system failed, as well,” he said. “And we were able -- working with Congress -- to get an historic new package of reforms in Dodd-Frank, but we also need to ensure that there are the appropriate resources of people and technology to oversee this $300 trillion marketplace, the swaps marketplace.”

He said he was somewhat hopeful that by working with the Office of Management and Budget and members of Congress the money may be found to keep the CFTC on its mission, uninterrupted.

Putting it in perspective, Kingston’s power play makes no sense if he and fellow Republicans are of the mind to help the American people by bringing a modicum of transparency to the complex swaps and derivatives markets. The same can be said if they want to prevent the systemic risks we identified -- too late -- in 2008 from becoming new dangers in 2011 and 2012. Or if they have any concern about the effects of the European debt crisis, should it land on our shores and wreak more havoc with our economic prospects.

On the other hand, their behavior makes perfect sense if they don’t want any “rules of the road” in the financial markets and have no interest in creating any traffic lights on the financial superhighway.

It’s pretty clear, isn’t it, where Kingston’s priorities lie?

(William D. Cohan, a former investment banker and the author of “Money and Power: How Goldman Sachs Came to Rule the World,” is a Bloomberg View columnist. The opinions expressed are his own.)

--Editors: Tobin Harshaw, David Henry.

Click on “Send Comment” in sidebar display to send a letter to the editor.

To contact the writer of this article: William D. Cohan at wdcohan@yahoo.com

To contact the editor responsible for this article: Tobin Harshaw at tharshaw@bloomberg.net


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