Gary Gensler: Unlikely Hero

Cynics on the left and anti-government ideologues on the right often pound on legislators and bureaucrats for being ineffectual, biased and generally useless. But every so often a real hero emerges that refutes the dangerous and widespread belief that government does not work.

Gary Gensler, Chairman of the Commodity Futures Trading Commission since 2009, is indeed a hero. He is different from the archetype depicted in Mr. Smith Goes to Washington, a man of humble background unburdened by sophisticated experience. While not a product of a privileged background, Gensler spent 18 years at Goldman Sachs and, as a Treasury Official under Clinton, was a part of the government that produced much of the deregulation that enabled the catastrophic excesses on Wall Street. Many progressives resisted his appointment, fearing that he would slow-walk financial reform into oblivion.

These opponents failed to comprehend the values that Mr. Genlser brought to his new assignment. The New York Times says that he has achieved “redemption” from his past. In fact, Gensler needed no redemption. Bankers can (and should) have principles notwithstanding the “fat cat” legend. Like any industry, they simply need sensible rules.

Before 2009, the CFTC had been intentionally suppressed by administrations that preferred an unfettered environment for Wall Street traders, sometimes based on naiveté and sometimes based on venality. The CFTC should have been the agency that regulated the massive and dangerous derivatives market that grew from nothing to $60 trillion per year in a decade. When the CFTC merely suggested that it had jurisdiction over this burgeoning market, Clinton administration officials and Congress joined forces to crush any possibility that sensible rules could be imposed.

Chairman Gensler has labored tirelessly to introduce reasonable regulation of the vast derivative marketplace, promoting the concepts of transparency, fairness and prudency. He is no politician. He sees his role as founded on technical proficiency applied in the service of the principles articulated by Congress in the Dodd-Frank Act. His tenure as CFTC Chairman is characterized by principle.

His primary obstacle has been an absurdly small budget -- the legacy of a laissez-faire era in which Wall Street could do no wrong. The Republican House has sought to keep that budget small and help suffocate financial reform, using the straw man of deficit fears and driven by a lethal mix of ideology and technically acceptable graft that is behind so much of the dysfunction in Congress these days.

Gensler has inspired his small but talented Agency to generate a set of rules, not all finally adopted, that work despite flaws caused by compromise. These bureaucrats will never receive the credit they deserve from the American public, but their Chairman just might.

Understandably, the public has a difficult time comprehending proficiency in financial markets rulemaking. How a derivative really works will remain a mystery to John Q. Public. While the public does understand that derivatives were at the core of the crisis that robbed them of their savings and their homes, technical rules will remain a mystery.

But the public does understand theft and fraud. Chairman Gensler was the driving force behind a full investigation of the manipulation of LIBOR by Barclays and (undoubtedly) other banks that led to the single largest penalty in US regulatory history. While others sent out posterior-covering memos, Gensler actually did something to protect the integrity of the borrowing function in the worldwide economy. He fulfilled the duty of his office, overseeing a years-long comprehensive investigation of this complex deception while simultaneously driving the unprecedented regulatory regime needed to protect the planet from the threat of a derivatives market gone mad. This is hardly the work of the oft-derided bureaucrat who is unable to chew gum and walk at the same time.

Yet a few remaining rules, yet to be implemented in a practical sense, threaten to undermine these good works. For example, after three years of heroic effort, it is possible that the final jurisdictional policy adopted by the CFTC will enable the international banks to evade U.S. rules by locating their transactions overseas.

The concept of national jurisdiction is fundamentally challenged by the world of derivatives trading that is, at best, tenuously connected to any physical location. Gensler has forcefully advocated a new way of defining jurisdiction that is completely in concert with federal legal concepts, but is practically ineffective in today’s marketplace that exists in cyberspace. Unfortunately, the Chairman has been burdened by Republican opposition and increasingly aggressive legal challenges by industry-sponsored groups like the Chamber of Commerce. Even worse, Gensler’s support from Democratic commissioners has weakened as influence inspired by the financial community has taken a toll on resolve.

The time has come to recognize Chairman Gensler’s accomplishments and acknowledge the quality of his leadership. He may well go on to other service to the American public. But, for today, the task is to drive home the good work that he and the rest of the CFTC have produced by adopting a robust jurisdictional policy and completing the remaining rules without gutting the regime already in place.