Curious Capitalist

Wall Street Cop Goes After Corzine — and Derivatives Loopholes

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Gary Gensler, the chairman of the Commodity Futures Trading Commission, has been the toughest cop in D.C. since the financial crisis, and the only person really willing to take on Wall Street. Although his term may soon be coming to an end, the CFTC yesterday showed it still has plenty of bite left by suing Jon Corzine, the former New Jersey governor and U.S. senator who used to be the chief executive of MF Global, the brokerage firm that melted down after it apparently misused some $1 billion of customer money. The CFTC also filed civil charges against Edith O’Brien, ML Global’s former assistant treasurer.

If the case is successful, it will be one of the few times that a banker has been held personally responsible for the failings of a firm. The CFTC isn’t saying Corzine himself approved any misuse of funds, but it is accusing him of failing to “supervise diligently” the activities of the firm. It’s also got plenty of juicy insider language from phone records laying out the impending implosion of the firm, and various efforts to keep MF, and Corzine, from melting down – which reminds me of the way Gensler and company successfully used incriminating emails from traders to show just how egregious their behavior was during the LIBOR scandal.

(VIDEOQ&A with CFTC Chairman Gary Gensler)

While Corzine versus CFTC will get the headlines over the next few days, the agency is involved in what is arguably a bigger fight to make sure that the Dodd-Frank rules for derivatives — which are the complex financial instruments that got us in trouble during the financial crisis — don’t get watered down. Financial regulation can be a race to the bottom, with parts of Europe and Asia having much lighter regulation that the U.S. will under Dodd-Frank. But finance is global: 50% of derivatives trades from the major U.S. banks are routed overseas. Gensler and the CTFC have been staging a single-handed effort — against huge pressure not only from U.S. banks, but overseas financial institutions, and even regulators — to make sure that international trades done by players registered in the U.S. are subject to tighter Dodd-Frank rules, in an effort to increase transparency and the safety of the system. Those rules are set to go into effect on July 12, around the same time that Gensler may be stepping down from his position.

This week on Money Talking, Joe Nocera and I talk about what the future of the agency, and banking regulation, might be without the toughest cop in DC. You can hear the whole show using the audio player below.

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