~ Another Toxic Legacy Adviser

Would it surprise you to learn there is another former Goldman Sachs employee and derivatives advocate that was nominated by President Obama and is now working his way through the nomination process? His name is Gary Gensler. If you haven’t heard of him, don’t be surprised. We are all learning more than we ever thought we needed to know to be good taxpayers. But since he’ll be a government employee and you’ll be paying his salary I just thought you should know a few things about Mr. Gensler.

What brought Mr. Gensler to my attention was a Harpers’ article (h/t BGD) about Senator Bernie Sanders (Independent from Vermont) working to block President Obama’s nominee, Mr. Gensler, from heading the Commodity Futures Trading Commission. A statement from Sanders’s office said:

While Mr. Gensler is clearly an intelligent and knowledgeable person, I cannot support his nomination. Mr. Gensler worked with Sen. Phil Gramm and Alan Greenspan to exempt credit default swaps from regulation, which led to the collapse of A.I.G. and has resulted in the largest taxpayer bailout in U.S. history. He supported Gramm-Leach-Bliley, which allowed banks like Citigroup to become “too big to fail.” He worked to deregulate electronic energy trading, which led to the downfall of Enron and the spike in energy prices.

At this moment in our history, we need an independent leader who will help create a new culture in the financial marketplace and move us away from the greed, recklessness and illegal behavior which has caused so much harm to our economy.

So what is the Commodity Futures Trading Commission? It regulates the exchanges that trade futures contracts for products such as oil, wheat and instruments for betting on interest rates. So Mr. Gensler will be a key player during what most American’s hope is a major battle to reining in the trillion-dollar markets for credit-default swaps and other ”derivative” financial instruments that compounded the damage caused by the subprime mortgage meltdown. But will that be Mr. Gensler’s role?

Robert Scheer at The Nation gives a more indepth analysis (that is well worth a full read) of Gensler and his former cohorts who are now regrouping as toxic legacy advisors under the Obama administration.

…The explosion of toxic assets is a direct result of the laws pushed through by Rubin and his followers [Summers and Gensler], and in the decade since, we have had a twenty-fold increase, to more than $530 trillion, in the value of those newfangled financial instruments, which Warren Buffett in February 2003 correctly termed “financial weapons of mass destruction.”

Yet when one member of the Clinton administration, Brooksley Born, then head of the Commodity Futures Trading Commission, attempted to sound a warning, she was treated by the rest of Clinton’s economic team as the enemy.

In response to Born’s warning, they drove her from government and pushed through the Commodity Futures Modernization Act, which summarily exempted from regulation the derivatives that now haunt us. The claim at the time by Summers, now top economic adviser in the Obama White House, was that “[t]his legislation promotes innovation and competition in the U.S. financial markets and may help to reduce systemic risk.” Of course now we know, as Born predicted, that it did quite the opposite. What irony that Gensler is being rewarded with Born’s old job for getting it wrong.

In congressional testimony supporting the radical deregulation of the financial derivatives market, Gensler had insisted with great enthusiasm that “OTC derivatives directly and indirectly support higher investment and growth in living standards in the United States and around the world.” As to the many trillions of dollars in credit swaps that now afflict the world economy, Gensler specifically called for freeing swaps of this kind from existing government regulation in the Commodity Exchange Act, which regulated other futures such as wheat sales. …

So “they”–Summers, Gensler, Treasury Secretary Timothy Geithner and their ueber mentor, Rubin–were as wrong as anyone could be. Perhaps such error is human, but aren’t there folks out there with a better prospect of getting it right that Obama can rely on?

… the latest administration plan, announced by Geithner on Monday, seems to be more of the same. We taxpayers are being asked to buy back from the banks the very toxic assets that the members of Obama’s economic team once celebrated as an unmitigated blessing. Only this time, instead of trusting the banks, we will turn over control, but little risk, to hedge funds that are totally unregulated. Here we go again.

I have to say that it is a pretty impressive legacy for a handful of men to have accomplished. I’m impressed at the magnitude of their wrong headedness and confounded that anyone could possibly be considering them for any position in this administration. But another point in Scheer’s article provides an explanation of sorts.

Sanders’ hold will not stop the Gensler nomination, because Congress and the president, recognizing the nation’s mood, want to give Wall Street whatever it wants to make the stock market go up. And Gensler is a reassuring figure to the moguls of finance…

Wow. If, after all that has happened in the last few weeks, Congress and President Obama still think the American people are wanting to give Wall Street whatever it wants to make the stock market go up, then they have not been paying attention and we are all in deep, deep trouble.

Thank you Senator Sanders for your efforts to block Mr. Gensler from heading the CFTC. I am desperately hoping and praying your hold sticks. And hoping against hope, that your actions will motivate a few more Senate government employees to have the courage to stand up and do their job. Because if you want to know the truth, the American people are not that into Wall Street any more. We lost what we had and can’t afford to lose what little is left. So maybe it’s time you all let Wall Street take a beating just like the one rest of us got.

And if any of you readers can spare the time – please let Senator Sanders know you appreciate his efforts.