You are here

Gensler's struggles mark regulatory changes

Section: Daily Dispatches

By Deborah Solomon
The Wall Street Journal
Tuesday, July 19, 2011

When the Dodd-Frank financial-regulation overhaul became law last July, Commodity Futures Trading Commission Chairman Gary Gensler raced to implement new rules assigned to the agency.

But as the landmark law nears its first anniversary on Thursday, Mr. Gensler's zeal has triggered a backlash.

Republicans in Congress have moved to cut the CFTC's budget, curb its power and request time-consuming analyses for every proposal. Some commissioners are irked by Mr. Gensler's aggressive approach. And crucial parts of the $600 trillion global market for derivatives, which many observers believe played a central role in the financial crisis, remain free of new regulations, partly because the CFTC has missed deadlines.

At a meeting Monday of the new Financial Stability Oversight Council set up by last year's law, Mr. Gensler warned that the financial system still is largely at risk, saying, "until the CFTC completes its rule-writing process and implements and enforces these new rules, the public remains unprotected."

... Dispatch continues below ...


Lewis E. Lehrman on How to Solve the U.S. Debt Problem

Lewis E. Lehrman, chairman of the Lehrman Institute, sponsor of The Gold Standard Now project, advises that to reduce the $1 1/2 trillion U.S. deficit, the Republican Party must initiate an investment program.

Working Americans are not saving, which enables the banks to lead the country into a cycle of debt, leverage, boom, panic, and bust.

Lehrman says: "Eliminating the budget deficit of a trillion and a half dollars cannot be done overnight. The proposal by U.S. Rep. Paul Ryan was very dramatic -- one Republican called it radical -- but it was not happily received. The solution, of course, is to design an American program for prosperity, because you can solve these entitlement problems with a growing economy. We need a tremendous program of investment, and investment comes from savings. When you pay savers, middle-income professionals, and working people 0 percent at the bank, you are not going to encourage them to save. Then we are left with a bank cycle of debt, leverage, boom, panic, and bust."

To read more and to sign up for The Gold Standard Now's free, noncommercial, weekly report, "Prosperity through Gold," please visit:

Opponents of Dodd-Frank decry what they call a rapid and haphazard approach, saying market participants "don't know what the rules are or whether these rules cover them," said Jess Sharp, a top official at the U.S. Chamber of Commerce.

And supporters are up in arms at the lack of progress. "Right now we have the Wild West," said Michael Greenberger, a former CFTC official who teaches law at the University of Maryland. "We have no governance at all in this market." He thinks it will be five years before all derivatives are fully brought into the new regulatory structure.

Mr. Gensler played down the criticism of how he has approached implementing the law, saying the fast pace is largely mandated by Dodd-Frank, which requires most rules to be in place by July 21.

The CFTC chairman's struggles spotlight the hurdles facing regulators as they try to implement the 2,000-plus-page bill, which took aim at every corner of the financial landscape with the goal of preventing another crisis.

On the eve of its one-year anniversary, many of Dodd-Frank's central mandates haven't been accomplished or are bogged down in fights on Capitol Hill, from curbing risk-taking on Wall Street to establishing a new consumer agency.

On Monday, President Barack Obama nominated Richard Cordray, the former Ohio attorney general, to head the Consumer Financial Protection Bureau, but the agency will begin its life without many of its new powers. The bureau, which officially opens its doors Thursday, won't get all of its powers until it has a confirmed director, a tough hurdle given that Republicans have said they won't confirm anyone for the post.

To be sure, regulators have proposed a slew of rules intended to better protect the financial system, including requiring the return of payments from executives who cause a firm's demise. Banks now have heftier capital cushions to protect against losses, and regulators have the tools to dismantle a large, failing firm like Lehman Brothers Holdings Inc.

The rules the CFTC is writing are vital to the functioning of financial markets. Thousands of companies trade, use or benefit from derivatives. One example: airlines seeking to protect profits from fluctuations in the price of jet fuel. Still, derivatives allowed firms such as American International Group Inc. to place disastrous bets on some investments, which led to its bailout by the U.S. government.

The CFTC was once seen as sleepy and toothless, but the Dodd-Frank law handed the agency arguably more power than any other regulator. Under the law, the CFTC is supposed to police the derivatives market and force once-private transactions onto open exchanges, in full view of regulators.

At the center of this task is Mr. Gensler, 53 years old, a hypercompetitive former Goldman Sachs Group Inc. executive who cut his teeth in Washington in the 1990s opposing some of the very rules he is now charged with implementing.

Mr. Gensler's competitive spirit extends to his personal life. While awaiting confirmation by Congress to lead the CFTC, he killed time by running a 50-mile race. Rob Gensler, his twin brother, said Gary Gensler is so driven that he simultaneously completed his undergraduate and graduate degrees in four years at the University of Pennsylvania. "I always felt like he pushed me back in the womb and got out three minutes before me," Rob Gensler said.

For his part, Mr. Gensler seems intent on remaking his image as he remakes the CFTC. After being nominated for CFTC chairman in 2009, Mr. Gensler called Brooksley Born, the former CFTC chairman whose push to regulate derivatives Mr. Gensler helped block.

The two met at Ms. Born's office, where Mr. Gensler sought her views on what would make the financial system more stable, according to people familiar with the discussions. He soon began advocating for the type of regulatory policies Ms. Born envisioned a decade earlier.

Mr. Gensler defended the speed at which rules have been proposed. "Congress laid out 360 days, and I think they did that because there was a real crisis in 2008 and they wanted to lower regulatory uncertainty," he said in an interview. Mr. Gensler said he embraced the pace partly as a motivational tool, while knowing it was likely some deadlines would be missed.

Immediately after President Obama signed the bill, Mr. Gensler drew up a brisk, six-month schedule for proposing more than 50 rules. He centralized power in the chairman's office, creating 31 teams, none of which included fellow commissioners' staff. He read hundreds of comment letters rather than relying on staff summaries.

Critics said his strong opinions leave little room for dissent. At a recent meeting with a large law firm, Mr. Gensler interrupted a lawyer outlining concerns the firm raised in a comment letter.

"I don't need you to tell me what's in the letter. I read it," Mr. Gensler said before rebuffing the argument, according to people at the meeting.

At the same time, Mr. Gensler isn't above joking about his spot at the center of regulatory controversy.

In March, as he prepared to speak at a private dinner at the U.S. Chamber of Commerce, chamber President Tom Donohue told the business executives in attendance: "Enjoy your meal."

Mr. Gensler, smiling at the group, said: "I hope I'm not on the menu."

In April, CFTC commissioners received tweaks to a proposal that would let the public comment on the CFTC's rules at 10 p.m. the night before a vote and continued receiving revisions during a commission meeting.

Republican Commissioner Jill Sommers voted against the proposal. A person familiar with her thinking said she is irked by a pattern of last-minute changes.

Clashes between turf-conscious regulatory agencies became common, delaying matters further. In April, Securities and Exchange Commission officials were surprised when language both agencies spent months fleshing out was dropped from a proposal days before a scheduled CFTC vote.

When SEC officials inquired about the missing language, which raised questions about whether some foreign entities should be subject to a rule, they were told CFTC policy makers "didn't want it to be in there," according to SEC and CFTC officials. The plan passed, 4-1.

Mr. Gensler said he wants unanimity on the five-member commission, which includes three Democrats and two Republicans. He said there have been only a handful of 3-2 votes on more than 50 rule proposals, divisions that often encourage court challenges by trade groups to rules, and said he tries to incorporate other commissioners' concerns when possible.

The CFTC's overseers on Capitol Hill are urging him to make as many rules unanimous as possible. "Our position is they need to slow things down. We're trying to use the power of the purse to achieve that," said Rep. K. Michael Conaway (R., Texas), chairman of a House Agriculture subcommittee that oversees the CFTC.

Sen. Richard Durbin (D., Ill.), a Gensler supporter, said he has heard the criticism that the agency has confused the market.

"I think there's uncertainty because of the fragmented approach to this, but eventually the day will come when it will all be there," Sen. Durbin said.

The backlash has begun tempering Mr. Gensler's approach. In February, he began calling financial-services executives with an unusual request: "Help us get this right," according to people familiar with the phone calls.

In a tacit acknowledgment he may have moved too fast, Mr. Gensler announced in May that the CFTC would give market participants extra time to comment on rules the agency has proposed but not finalized.

Bart Chilton, a Democrat on the CFTC who is supportive of Mr. Gensler's efforts, said it is likely the commission will have to repropose some rules.

"We had a very steep learning curve, so I think some proposals weren't as good as many of us would have liked. Some of them we hit the target, others we really missed the mark on," Mr. Chilton said.

* * *

Join GATA here:

Gold Rush 2011
GATA's London Conference
Thursday-Saturday, August 4-6, 2011
Savoy Hotel, London, England

Toronto Resource Investment Conference
Thursday-Friday, September 15-16, 2011
Sheraton Toronto Centre

The Silver Summit
Thursday-Friday, October 20-21, 2011
Davenport Hotel, Spokane, Washington

New Orleans Investment Conference
Wednesday-Saturday, October 26-29, 2011
Hilton New Orelans Riverside Hotel

Support GATA by purchasing gold and silver commemorative coins:

Or by purchasing a colorful GATA T-shirt:

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

To contribute to GATA, please visit:


Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit: