Straight Talk

By James Kwak

Gary Gensler, chair of the Commodity Futures Trading Commission, has gotten a fair amount of credit for being one of the good guys when it comes to financial regulation after the financial crisis. Kambiz Foroohar has a very favorable portrayal of Gensler in Bloomberg Magazine. It’s pretty much the usual, but I appreciated Gensler’s bluntness when it comes to his past positions on derivatives (as an official in the Rubin-Summers Treasury):

“As a Goldman Sachs Group Inc. (GS) partner and then Treasury undersecretary, Gensler had lined up with the hands-off- derivatives crowd behind the $601 trillion global market.

“He says the near-collapse of the world’s financial system changed his mind about regulation.

“’My thinking has evolved,’ Gensler says in his ninth- floor Washington office, which is decorated with artwork by his three daughters. ‘I was part of the consensus view on derivatives, and it’s fair to say that the consensus missed it. We should have done more to protect the American people.'”

That’s about the closest thing to an apology you’ll hear from anyone involved in creating the financial crisis.

46 thoughts on “Straight Talk”

  4. But isn’t Gensler less in need of apologizing than his bosses? Than just about anybody? (Maybe that’s why he is one of the few willing to apologize.) Wasn’t he the one who wanted to regulate CDS as insurance before AIG ever got into trouble? Congress refused. Gensler lined up with his bosses at some point, but (unless I have the wrong guy) he was a freakin’ Cassandra in a dark suit back in the Clinton administration. No?

  5. OK, Bernie Sanders says I’m wrong, that Gensler was on the other side of that debate. Dunno. Anyhow, Gensler was on the side of the angels for Sarbanes-Oxley, on the side of the devils with deregulation of electronic trading.

  6. When are the American people going to apologise for living beyond their means and actively participating in the credit crisis?

  7. Due diligence requirements rest with the lender. Extending credit to credit-unworthy, or credit-challenged individuals and business, is the root cause of the “credit crisis.” Besides, there is ample evidence to demonstrate certain financial institutions DID know the risks, and were making side bets. the end result of which greatly enhanced executive compensation, but derailed the entire world financial system.

    The train wreck is still on the tracks, and there’s another locomotive barreling down at full speed. So keep doing God’s work, you shine at it.

  8. I think the question remains whether the Rubin-Summers brigade _missed_ what was coming (in which case they must concede that they were poorer economists than those who predicted the fall) or whether they _counted_ on what was coming, in much the way that Akerlof and Romer argued the architects of the 1980s’ financial crises did.

    It’s perfectly possible that the long-con artists of American finance counted on US government intervention to protect wealth while still failing to anticipate how great the financial crisis would be. But that’s a good deal worse than just “missing it.”

    Whatever the facts, they must in retrospect move to protect their self-images as Great FInancial Minds — resolving cognitive dissonance (though I’ve read that psychologists grant that notion far less currency than they used to). How many criminals actually think of themselves as terrible people?

  9. “When are the American people going to apologise for living beyond their means and actively participating in the credit crisis?”

    So, Desi Girl, are you channeling Marie Antoinette or WHAT?

  10. I do think it smells a little funny on the surface that when Gensler is hanging his hat at Goldman Sachs everyday, he says one thing, and then when Gensler hangs his hat at the CFTC he says something else, and both of these opinions/policy positions just happened to have “jived” perfectly to his current place of employment….. That being said…..

    I tend to be very very cynical (justifiably cynical) about cats such as Henry Paulson, Larry Summers, Robert Rubin, Blankfein, Alan Greenspan, John Paulson and others I would rank into an even lower cesspool. But I do consider myself to be pretty perceptive about people, not a mind reader, and sometimes I get people totally wrong, but I think I’m pretty perceptive about people, and fool that I am, I think Gary Gensler is sincere and that it’s better to join the white hats late than never join the white hats. So I think Gensler is a good guy and I take him at his word. I think the proof of sincerity will come when Gensler takes that magical revolving door back into the private investment world and how much time/effort he takes on his own to continue fighting against unregulated derivatives, proprietary trading, shadow banking, and abuse of “market making” (front-running) activities.

  11. @moses “….unregulated derivatives, proprietary trading, shadow banking, and abuse of “market making” (front-running) activities….”

    All a different way of living “beyond your means”….especially the derivatives….

  12. Aside from regulators, it was the financial “intermediaries” that got us into this fix and are now refusing to help us get out. Milton Friedman said that when you are in a Liquidity Trap, bypass the intermediaries and lend directly. Let the Fed do a QE3 in the form of refinancing existing mortgages at the 10 year treasury rate — without the fees the intermediaries charge (and pocket). If the Fed has a reson for being, let them do something to cut deflation in the housing market.

  13. @ Carla, who chastised Desi girl for writing, “When are the American people going to apologise for living beyond their means and actively participating in the credit crisis?”

    Gee Carla what do you think the graph means here: http://www.theatlantic.com/business/archive/2010/09/how-americans-love-affair-with-debt-has-grown/63552/

    This chart should be startling. It shows that total debt has increased from around $1,186 per person in 1948 to $10,168 in 2010. And remember, that’s using 2010 dollars — and it doesn’t include real estate debt either like mortgages or home equity loans. This debt includes credit cards, auto loans, student loans, personal loans, and other non-real estate consumer debt.

    And remember it doesn’t even include real estate debt.

    Citizens, whether Greek or American, cannot be separate from their banking systems — and are mutually complicit in their demise.

  14. Ok, once again I’m going to break off topic here, Sorry James, but it’s for a good reason. Although this doesn’t fit directly with James’ post, it is indirectly related and I don’t want people to end up missing this video because it’s 3 posts back. This is Nigel Farage, who I am a big fan of. Speaking as an American, Farage is quickly becoming my favorite British politician ever next to Winston Churchill. This guy is a truth teller , a breath of fresh air, and honestly I thank God people like Mr. Farage still exist in this world. Nine minutes, beautiful, worth every freaking second it takes out of your day.

  15. Gosh, Diognenes, you write as if we did not have a debt-based money system. But we do. In this particular type of monetary system, without debt, there is no money. Oops.

  16. Indeed, Carla we do have a debt based system. One of the pillars of this is the fractional reserve banking system. You should look it up.

  17. I finally found something I agree with Senator Jim DeMint of SC on. IF I agree with Jim DeMint 2 more times inside the remainder of my life (a time I am hoping to be roughly 40 more years), I hereby request anyone to shoot me in the head with a shotgun as a type of mercy killing.
    http://market-ticker.org/akcs-www?post=188788

  19. STRAIGHT TALK? REALLY….http://www.commondreams.org/further/2011/06/24-0
    06.24.11 – 12:10 PM
    Better Late Than Never, Buyers’ Remorse On GOP

    by Abby Zimet

    Isn’t “never” just “too late” …
    the vast majority of mainstream business economists AND other political or class bailout apologists cannot provide much consolation for the people who are expected to rely now on their self serving expertise, and who have hurt or crippled those same victimized people by their misleading power position judgments?

    Is there any reason to believe that the same people who were so completely clueless in their understanding of the economy just four years ago are now qualified to be giving advice?

    Or maybe “completely clueless” isn’t quite the same as unscrupulous and negligent for purposeful gains.

    Hell to pay and trickle down will find that fire burns upward!

  20. Straight Talk??? ….Really!

    http://rwer.wordpress.com/2011/06/23/when-did-the-imf-learn-about-the-economy/
    Real-World Economics Review Blog

    Home
    Economics and the Economics Profession
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    real-world economics review
    The Economy
    The Economy and the Planet

    Home > Economics and the Economics Profession, The Economy > When did the IMF learn about the economy?
    When did the IMF learn about the economy?
    June 23, 2011 deanbaker1 Leave a comment Go to comments
    from Dean Baker
    That’s what people around the world should have been asking

  22. REALITY? STRAIGHT TALK…!

    This is all B>S> and distraction! who cares what that jerk apologizes for. The issues aren’t about what they stealth-fully exploited and extracted in the near past. This same class apparatus has been doing the same thing to entire economies all over the world for decades. Now it has become a feature of domestic class warfare. The “real issues” are not behind us but in front of us and as usual the mainstream wants us looking elsewhere!

    see here:
    http://mail.aol.com/33912-111/aol-6/en-us/Suite.aspx

    The Progress Report Banner

    The GOP’s Plan for (Un)Shared Sacrifice

    Jun 24, 2011 | By ThinkProgress War Room
    What the GOP Really Means by ‘Shared Sacrifice’

    Yesterday, we covered the GOP’s temper tantrum, as the New York Times called it, in which Republican leaders bailed on negotiations to avert a default on our obligations — a default that is only on the table as a result of the GOP’s willingness to keep paying the bills we started racking up as a result of Bush-era policies.

  24. Nurses Protest Against US Chamber – Senator Barbara Boxer Speech – StopTheChamber.com

  25. Straight talk!
    ‘This is not democracy, this is dictatorship’

    While the distraction contracts…http://www.commondreams.org/headline/2011/06/22-12

    Published on Wednesday, June 22, 2011 by The Michigan Messenger
    Michigan Lawsuit Seeks Injunction on Emergency Manager Law
    Plaintiff: ‘This is not democracy, this is dictatorship’
    by Eartha Jane Melzer

    In a lawsuit filed Wednesday in Ingham County court, citizens from across the state are asking that Michigan’s Emergency Manager law be declared unconstitutional.

    http://www.commondreams.org/headline/2011/06/22-12

    ‘This is not democracy, this is dictatorship’

  26. “We should have done more to protect the American people”, said Mr. Gensler. I am curious as to whether he thinks the Dodd-Frank financial reform bill is going to be sufficient to protect us now.
    Since:
    1) the TBTF banks are still getting bigger
    2) capital requirements have not been raised
    3) a Tobin tax has not been implemented.
    4) Regulations are still being written for Dodd-Frank with “guidance” from the investment bank lobbyists.
    5) Any nominee for director of CFPB will be blocked in Congress, not just the best qualified Elizabeth Warren
    6) Derivatives are still being traded in shady backroom deals
    7) People still give the fraudulent ratings agencies the time of day

    I’m thinking we, the American people, are STILL not being protected from predatory financial companies and practices.

  27. @Mark McCuthchan: “I’m thinking we, the American people, are STILL not being protected from predatory financial companies and practices.”

    Yeah, I’m thinking thinking the same thing…and worse.

    And yes, Diogenes, I’m aware that private banks create money using the fractional reserve banking system. Do I think this should be the case? Uhm, no.

    I’m also aware that private prisons need an ever-new supply of prisoners and are looking to debtors to fill their cells. http://online.wsj.com/article/SB10001424052748704396504576204553811636610.html?KEYWORDS=prison

  28. Typical psychobabble spin – a handful of *moneylenders* are living BEYOND *our* means, and ponzi-ists that they are, are claiming that WE are living beyond *our* means.

    It’s a stupid waste of time to let a bunch of greedy for themselves and cheap for everyone else babushka busybodies direct the conversation!

    Mind your own *business*.

    For the PREDATORS, their *business* depends on ruining yours. What part don’t you understand?

  31. Nurses Rally to Heal America & Tax Wall Street – Senator Bernie Sanders Speech

  34. Well folks, you might have noticed lately, many Republicans such as Eric Cantor and Jon Kyl find the idea of stopping tax subsidies for the oil industry such a horrid idea, they can’t even bear discussing it. Well, if you look at Michele Bachmann’s personal finances, you might understand it. She has received roughly $30,000 over the last 5 years from the state of Minnesota (part of that Minnesota state money coming from the Federal government). Totally separate from that, her “family farm” (outside the state of Minnesota) has received over $260,000 from the federal government. Of course in some strange circles this is known as “government assistance”. I guess it is called “government assistance” because it is money taken from the federal government budget. In other words it counts against the federal deficit—strange concept I know.

    I know what you’re thinking…….this is impossible!!!! Michele Bachman, $174,000 per year in US Senators salary, a Republican, also getting “government assistance” ???? Now we know that can’t be true, because Michele Bachmann is against wasteful government spending and government interference in the “free markets”, and Miss Bachmann is not a damned LIAR. No no…… Those financial disclosure forms are just a figment of our imagination. Training for Bachmann’s employees free of cost from the government doesn’t count. It’s like monopoly money…. really. I mean just like monopoly money…. really….
    http://www.latimes.com/news/nationworld/nation/sc-dc-0627-michele-bachmann-20110626,0,7255963.story
    Bachman says the farm is her father-in-law’s farm. From LATimes Richard Serrano: “As the Los Angeles Times reported on Sunday, however, in financial disclosure forms, Bachmann reported receiving between $32,503 and $105,000 in income from the farm, at minimum, between 2006 and 2009.”

  35. Oh Carla, Carla, I do not know who this mary antionette is because western history never seemed to interest me but since we want to use historical references, you would be perfectly happy living under Stalin or Fidel Castro. They love to send people to jail.

    ever considered moving?

  36. It’s just more MOPE. It’s interesting to me that his thinking has “Evolved”. As if that’s a good thing. Change. About Face. Might be a better thing to do.

  37. More news from the LATimes about Tea Party favorite Michele Bachmann. No word yet on whether Michele Bachmann considers the hundreds of thousands of dollars she has received from the federal government as “government interference”. I sure would love to hear a Tea Party leader tell us what they consider labeling the hundreds of thousands Miss Bachmann has received in federal government assistance, aside from her $174,000 a year Senator’s salary. I’m guessing Bachmann has the same federal health insurance as Senator Chuck Grassley???

    From the LA Times story by Melanie Mason and Matea Gold:
    “Yet despite her broadsides against “socialized medicine,” Bachmann’s husband, Marcus, applied for public funds for his counseling clinic, Bachmann & Associates. Since 2006, he has received nearly $30,000, according to Minnesota state records. The bulk of the money — $24,041 — came in the form of grants from the state Department of Human Services to train staff how to deal with clients suffering from chemical dependency and mental illness. That program was financed in part by the federal government.”

    You can read the entire article here: http://www.latimes.com/news/nationworld/nation/la-na-bachmann-20110626,0,1896024.story

  38. Yes, Moses, people like Ms Bachmann are forever railing against “government handouts”, but don’t seem to connect their own situation to those very same payments. In my neighborhood, we call folks like that, “hypocrites”.

  40. @ Moses Herzog Way back up at beginning of thread.

    Having read the Bloomberg article, I believe that Mr. Gensler has done a lot more than make an apology. He’s had a genuine change-of-heart.
    He needs the $100 million increase to $300 million to enable the CFTC to write the 50 new rules that have been laid out for his agency.
    Where can you find someone more qualified? He knows how commodity futures markets work. These off-exchange unregulated derivatives will be brought in to a regulated system of trading.
    Margin requirements are a must so if they are wrong in their bets, they can pay the counterparty through the clearinghouse. The beer company is delusional if they think they can get away with a 3% margin requirement. If you want to play this game and minimize risk, you have to put up money. Position limits are a must to curb excessive trading.
    If the beer company has a need to hedge its purchases of grain, then its position limits should be tied to its annual usage. And, they can’t turn around and start trading gold. Because they are a bonafide hedger they will have lower margin requirements.
    Part of the problem is that just because you have unlimited money, you can’t go pushing markets around in which you have no ligitimate interest in being in other than to speculate. And you certainly shouldn’t be able to do it with depositor’s money.
    Legitimate speculators (putting up full margin) have left some of these markets because they no longer react to basic fundamentals of supply and demand.

    Mr. Gensler says that the new markets he is challenged with regulating is seven times bigger than the current futures market.

    I believe he is the right man for the job. As he said, “My role is to work for the whole economy”.
    Mr. Kwak, thanks for bringing this Bloomberg article to our attention.

  41. Gensler and his ilk were a primo reason Congress didn’t regulate financial derivatives in any way, shape or form since the get go. Now that he’s chair of the CFTC, he’s “rethought” and as a consequence, he and his agency need a whole lot more money.

    This is nothing brave or bold.

    The only consistency in Gensler’s career is that whichever agency he’s at should have more authority, more money and the corresponding power that comes with both.

  42. I Pledge Allegiance to the the United States of Goldman Sachs………

  43. @Desi Girl

    “When are the American people going to apologise for living beyond their means and actively participating in the credit crisis?”

    Fair point, perhaps. I don’t know how many have apologized in words, but many who out of foolishness or greed chose to live beyond their means are now losing their homes, and perhaps everything they ever had along with it in the wave of foreclosures.

    And let me tell you about a family member of mine. In her early 50’s, she worked most of her life as a staff professional for a large national (recently turned multi-national) corporation whose name you would readily recognize. She won both internal and external awards for her work products and never raised any kind of trouble at work. But after the financial crisis, her firm decided to outsource the function she filled (and also do a whole lot less of it) and she, along with others of her profession, were laid off. It has been about two years now. While she might have at one point charged up her credit cards a bit more than I would consider prudent, she never incurred major debt and did not live beyond her means. There is simply no work in her field for people her age, regardless of skill or qualifications. In my opinion, it is likely she will never work again. She rents, so she will not lose her home until her last savings are exhausted. She has postponed that moment a bit with occasional “consulting” work–but I doubt that she will be able to parlay that into a self-sustaining business that will support her. Needless to say she no longer has health insurance–did I mention she is diabetic? And with all the cutbacks going on in Federal and state support, her son in college is now going to get less financial aid than last year. In fact, he will be able to finish college only because my wife and I are going to pick up the tab.

    I don’t think she has anything to apologize for. She is a victim of God’s work.

    I have even more horrifying tales I could tell of neighbors and other relatives, but I am less familiar with all the gory details.

    Tell me, Desi Girl, how the financiers have suffered for their sins. I gather some Lehman employees took a few months before they were back on their feet. Of course, all the financial service firms laid off thousands of low-level employees. But the people who made the decisions: what has happened to them? As I hear tell, they didn’t even take a temporary cut in compensation, and are all partying on without so much as an inconvenience. You might be surprised to know that, from my New York days, I have several personal friends who work on Wall Street with whom I stay in touch. They refer to the financial crisis as a “speed bump.”

    Where is the justice in this?

    Oh, and you really ought to find out about Marie (not Mary) Antoinette because pre-revolutionary France is precisely where this country will end up if people who think like you continue to guide its course. And you might be curious as to her fate, since you might then end up sharing it.

  44. CBS from the West asks “Where is the justice in this?”

    I would submit to you CBS, that justice is not exactly Desi Girl’s main preoccupation in life. Just my impression, of course.

  45. @CBS From the West – you need to visit pharmalot.com now and then – your analysis and suggestions don’t really acknowledge where the beating heart of the irrational hatred towards good people has taken residence and control…

  46. @CBS
    …AND THEY BLAME THE OUTSOURCING ON THE UNIONS…

    and exploit immigration…

    while politicizing both to their advantage through a captured media and complicit University system.

    check out:

    (Home Page: current) : http://www.dailykos.com/diaries
    Daily Kos:

    a few months old but still more on the mark than Baseline Economists:
    http://www.dailykos.com/story/2010/11/29/923780/-The-Warburg-Economy-and-Cash-exia

    Mon Nov 29, 2010 at 04:57 PM PST
    The Warburg Economy and Cash-exia
    by arendt

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