Cantwell Lifts Hold on CFTC Nominee Gensler; Delivers Floor Speech on Regulatory Reform
WASHINGTON, DC - Thursday, U.S. Senator Maria Cantwell (D-WA) lifted her hold on Gary Gensler, the nominee to head the Commodities Futures Trading Commission, and delivered the following remarks on the Senate floor regarding the Obama administration's announcement to strictly regulate derivative markets and open the way to protecting the U.S. economy from unrestricted speculation.
[Cantwell's remarks, as delivered on the Senate floor Thursday, follows below]
"Mr. President, I rise today to discuss what I hope will prove to be a turning point in our road to economic recovery. The Obama administration yesterday asked Congress to swiftly pass sweeping and historic regulatory controls on derivatives, credit default swaps, commodities trading, and other sectors of the financial marketplace that collapsed last year under the weight of unrestrained speculation.
"The road to this point has not been easy. For months I have been urging the administration to move quickly to propose strong regulatory controls on these markets, require transparency in derivatives trading, and restrict market manipulation. With the announcement yesterday by Treasury Secretary Geithner, the Obama administration has come down decisively on the side of imposing order on a marketplace whose collapse made the current recession so much deeper and more painful for average Americans than it needed to be.
"The administration clearly supported in writing bringing the unregulated "dark" over-the-counter derivative market under full regulation- for the very first time. The administration has correctly identified the top three key goals of regulatory reform in the unregulated over-the-counter derivatives markets.
"First, Transparency on dark markets. All derivative transactions and dealers will be brought under prudent regulation and supervision, which means: capital adequacy requirements; anti-fraud and anti-manipulation authority; and very clear transparency and reporting requirements.
"Second, all standardized trading of physical commodities and other derivatives will finally be required to be traded on fully regulated exchanges; and,
"Third, imposing position limits on regulated markets to prevent any market player from amassing large positions that can harm the market. I have received assurances from this Administration that they believe these position limits should be applied in the aggregate across all contract markets to prevent manipulation.
"Mr. Geithner's 5pm press conference announcement was truly historic. Americans have suffered through an era of deregulation that is the primary cause of the economic crisis. Yesterday's announcement corrects that tide. How did we get here Mr. President, and why is this historic?
"A decade ago, Congress passed in the dark of night at the end of a Congress in 2000 a law that provided an exemption for toxic financial tools from regulation. One courageous regulator, then Commodity Futures Trading Commission (CFTC) Chairwoman Brooksley Born, warned Congress and the financial community that unregulated derivatives 'could pose potentially serious dangers to our economy.'
"But some in Washington blocked her efforts, including Wall Street and senior administration officials. One high-ranking Treasury official charged with pushing this deregulation bill through Congress was Gary Gensler—formerly a high ranking executive at Goldman Sachs. As Under Secretary of Treasury, Mr. Gensler testified before Congress that he unambiguously opposed regulating the derivatives market.
"Mr. Gensler was wrong. And for Brooksley Born's courage to stand up in 1998 to power financial interests in proposing tougher rules, she is being awarded the Profiles in Courage Award by the John F. Kennedy Foundation this year.
"With yesterday's announcement, this administration embraces the reforms that Brooksley Born argued we needed a decade ago. This was an uphill battle: there were too many people with a financial stake in the old, unrestrained trading system. It was because of my concern that the president's commitments to government reform and increased transparency would be overshadowed by those willing to take a go-slow approach to regulatory reform that I placed hold on the President's nomination of Gary Gensler to be Chairman of the Commodities Futures Trading Commission.
"In my view, Mr. Gensler helped perpetuate the lax regulation that contributed to our current economic crisis while he was Under Secretary of Treasury during the latter years of the Clinton administration. While Mr. Gensler has recently stated he supports stronger regulatory rules for financial markets, in 2000 he supported legislation that provided iron-clad protections against regulations of financial products such as credit default swaps and derivatives. I hardly need remind my colleagues in the Senate of the disastrous results of this course of action.
"Mr. President, the world of derivatives and credit default swaps is foreign to most Americans. The vulnerability of these markets to rampant speculation, and the complex set of regulatory structures needed to address the problem, are not easy to grasp - even for insiders in the financial industry. But my constituents in Washington state know all too well the consequences of inaction and lax oversight. To us, the financial meltdown is not just an object lesson in greed and avarice playing out on the Other Coast. It is an issue that has affected our daily lives.
"We remember when the lights went out all over the state when a rate crisis brought on by Enron's predatory speculation threw the West Coast power grid into disarray. This 'perfect storm,' a combination of drought, botched deregulation, and Enron's market manipulation, cost West Coast consumers more than $40 billion. It took years to unravel the mess.
"The rules of the financial game may be esoteric, but the consequences of financial meltdown are well understood by my constituents. It is because of my involvement in bringing Enron's speculative schemes to light and seeing the same type of abuses in the financial markets that I determined to take steps to ensure such abuse could not happen again.
"I am glad that President Obama has listened to those of us on Capitol Hill and those within his own administration who believed strongly that bold and timely action was critical to ensuring the stability of our financial markets. I continue to have concerns about Mr. Gensler's appointment to head the agency responsible for regulating the very swaps and other derivatives whose collapse amid unrestricted speculation caused so much damage to our economy. But in light of the administration's significant and potentially historic stand on new controls over derivatives markets, I am prepared to lift the hold on his confirmation and focus on ensuring that the legislation we pass gets the job done.
"I say that I hope the Obama administration's new policy stance will become a turning point because we have more work to do to make sure these concepts become law. The Treasury Department's announcement was not a piece of legislation but rather a policy outline, a statement of the kind of bill the White House could support. It is now up to us in Congress to turn these concepts into law. I am committed to working with the Senate leadership to ensure that the resulting legislation closes the loopholes that have made it easy for speculators to get around well-intentioned but poorly designed controls.
"Where necessary, we must be willing to go even further than the administration in crafting a bill that puts an end to destructive and predatory forms of speculation.
"But I applaud the bold positions outlined in the Treasury Secretary's letter to the House and Senate leadership yesterday.
"The idea here is not to impose regulation for regulation's sake. The idea is to protect the American people from the consequences of unrestrained speculation. Our constituents are justifiably angry because they have seen millions of jobs and trillions of dollars in savings evaporate while the speculators who aggravated this crisis float away on golden parachutes.
"Undoubtedly in the weeks to come, Wall Street interests will have a lot to say about these regulatory reforms. They should say it to the average Americans who have been taking a crash course in financial crisis over the past year. Our obligation is not to the speculators. It is to the people whose hard work, ingenuity, and extraordinary productivity provide the lift that has made our economy the envy of the world. If we can do our job and pass robust reform, their hard work will lift us out of the economic abyss."
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