The Financial Times reports today (subscription required) “CFTC chair Gary Gensler warns on fund cuts to police derivatives”:
“Mr Gensler’s plea for more money is a standard regulator’s lament and one that he personally has made many times over the past two years. But it comes as Congress must approve a budget by October in a fractious showdown between the White House and Republicans that could spark a government shutdown if not resolved.
President Obama has asked for $315m in funding for the CFTC but it is far from clear that the Republicans, under pressure from the Tea Party to clamp down on government spending, would agree to such a figure. Mr Obama has also proposed a transaction fee on derivatives trades to fund the agency.”
Cost Benefit Analyses Are Only Done at Request of Financial Services Industry, Not US Taxpayers
The House Republicans demanded a cost-benefit analysis of a fiduciary standard for stockbrokers, when the Department of Labor requested more stringent standards on financial advice to retirement plans. The House Republicans got their request and sent the Department of Labor packing. There is still no strict standard for advice to American’s retirement investors, hence advisor fraud is rampant as Joint Committee of the CFTC and the SEC in February 2011 to do a cost benefit analysis on OTC derivative speculation in our economy and the accompanying regulatory costs, which were estimated at $6.5 billion following Dodd Frank. This was a year before the London Whale trade, which caused billion dollars in losses to a US commercial bank from OTC derivative speculation. President Obama has proposed a transaction fee on derivative trades, why is that not on the table?
The Derivative Project wrote in 2011 to the Joint CFTC-SEC Committee, linked to above:
“Please delineate for the U.S. taxpayer, in an environment of large deficits, the cost/benefit of the allocation of $6.5 billion in regulatory costs. What is the IRR of this $6 billion investment in government staff, technology and procedures in lieu of investment in infrastructure and jobs outside the government sector?”
The priorities of the House Republicans are:
(1) Cut food stamps for the needy
(2) Continue an economy dependent on derivative speculation to fuel GDP growth, with no regulation, either through new transaction taxes or through elimination of unnecessary OTC contracts that could be moved to regulated exchanges
(3) Allow a financial planning/investment advice industry to skim huge, huge fees from retirement accounts with no transparency or regulation, and allow an ever-increasing amount of fraud to harm American’s life savings.
Common sense would dictate leveling the playing field after the 2008 financial crisis. Tax OTC derivative speculation, eliminate unnecessary OTC contracts (replaced by exchange-traded contracts) and save close to $6 billion in regulatory costs, assisted by a transaction tax on speculative derivative contracts.
In exchange, give those less fortunate a helping hand until they can get back on their feet and insist the SEC hire a bona-fide SEC Advocate, as Congress mandated, to level the playing field through bona-fide financial education and real transparency of the costs and hazards created by the “financial investment advice” industry today.