Commodity trading oversight on hold

May 1, 2009
by DTN
Commodity trading oversight on hold

Senatorial holds placed on the nomination of Gary Gensler to chair the Commodity Futures Trading Commission (CFTC) are increasing Wall Street’s power to stop efforts to boost regulation of credit default swaps and other derivatives, House Agriculture Committee Chairman Collin Peterson, D-MN, said last Tuesday.

The role of CFTC, which regulates oil, agricultural and financial futures, has been controversial since last year when critics charged that CFTC had allowed investors to speculate on oil and agricultural commodities, resulting in price spikes that disrupted business.

The Senate Agriculture Committee has recommended that the Senate approve Gensler’s nomination, but Sen. Bernie Sanders, I-VT, and Maria Cantwell, D-WA, have both placed holds on Gensler’s nomination. The holds mean that 60 votes are required to end debate on the Gensler nomination, but the Senate traditionally does not vote on nominees on which senators have placed holds. The Obama administration has been attempting to convince Sanders and Cantwell to take off the holds, according to Senate sources.

“People holding him up are doing the biggest favor to Wall Street,” Peterson said last Tuesday in a speech to the North American Agricultural Journalists. “We need a strong person who can stand up to [Treasury Secretary] Geithner. We’ve been trying to bring the expertise of the CFTC into this [debate].”

Gensler was a Clinton administration official at Treasury in 2000 when Congress, with administration backing, passed the Commodity Futures Modernization Act which exempted most derivatives, including credit default swaps, from regulation. Insurance giant American International Group’s use of these instruments is considered a key factor in the financial crisis and there is now an effort to increase government regulation of them. At his confirmation hearing, Gensler said the financial crisis had made him favor more regulation. But Sanders has said that Gensler’s pro-deregulation position at Treasury and his work at Goldman Sachs make him a poor candidate for the job. Cantwell has not spoken publicly about her reasons for putting a hold on Gensler’s nomination, but she has in the past criticized CFTC for not trying to stop speculation in the oil and agricultural commodities markets last year. A Sanders’ spokesman declined to comment on Peterson’s statement Tuesday and Cantwell’s office did not return an email seeking comment.

Peterson said he believes derivatives must be backed by capital if a repeat of the financial crisis is to be avoided, but Congress is inclined to go along with a proposal from Wall Street banks and financial companies to use the New York Federal Reserve as a clearinghouse for derivatives.

Wall Street companies that offer derivatives want “to get out of being regulated in any way,” Peterson said. Noting that the financial services industry contributes the most of any industry to congressional campaigns, and twice as much as pharmaceutical companies, Peterson said the financial companies “are out to keep this Ponzi scheme going.”

The House Agriculture Committee has jurisdiction over CFTC and has approved Peterson’s bill to give CFTC more power to regulate derivatives and increase capital requirements backing derivative instruments. But House Financial Services Chairman Barney Frank has claimed jurisdiction over a large-scale re-regulation of the financial services industry. Peterson said that whether his committee has any role in regulating derivatives depends on whether congressional leaders decide that derivatives are securities or futures contracts.

Many of the final decisions, he noted, will be up to House Speaker Nancy Pelosi, D-CA. — Jerry Hagstrom, DTN