Republicans don’t like regulations, except for when they do
Republicans typically don’t like federal regulators to stick their nose into Wall Street’s business. But when something goes dreadfully awry in the markets — and even the CEO can’t account for what’s happened — they tend to change their tune.
At a Senate Banking Committee hearing Tuesday, Republicans grilled top regulators about JPMorgan’s estimated $3 billion loss on derivatives trades, sounding incredulous that the government didn’t have broader oversight of the market. “You didn’t really know what was going on — the problems — until you read the press reports?” Sen. Richard Shelby (R-Ala.) asked Gary Gensler, chair of the Commodity Futures Trading Commission. “That’s what I said,” Gensler replied.
Shelby went even further in lamenting the failure of the regulators by bringing up the case of MF Global, the bankrupt derivatives broker where $1.3 billion in customer money went missing last year. CFTC regulators “were on site when the funds went missing,” said Shelby, accusing them of having “failed to protect those customer assets in the first place.”
In light of his past work with former governor and MF Global chief Jon Corzine at Goldman Sachs, Gensler has generally recused himself from congressional testimony on the issue. But in the hot seat before the Senate, under intense questioning from Shelby, he relented just a little — even telling the Republican senator that he “put on his bathrobe” before getting on a conference call with MF Global officials during the firm’s meltdown.
Republicans also slammed banking regulators for failing to implement Dodd-Frank more quickly and effectively. Even supporters of Dodd-Frank recognize that the process of finalizing the new regulations and putting them into effect has taken longer than expected. And the law’s long-standing opponents hammered home the point on Tuesday. “The fact that it’s taking two years to define what a swap is, is pretty incredible,” Sen. Bob Corker (R-Tenn.) told Gensler and Mary Schapiro, head of the Securities and Exchange Commission and another witness at the hearing.
But even though they criticize regulators for being asleep on the job, Republicans still oppose efforts to give government watchdogs more resources or greater oversight. Gensler, for instance, explained that the CFTC found out about JPMorgan’s loss through the media because the trades were in a London office largely outside of the agency’s purview. But rather than proposing an extension of authority, Sen. Pat Toomey (R-Pa.) argued that the real problem at banks was too many rules, not too few. “Who know what kinds of unintended consequences [there will be] when people decide to just avoid this incredible micromanagement,” Toomey said.
Republicans also put regulators in a bind when it comes to enacting Dodd-Frank. If regulators enact the law more quickly, as Republicans suggested at the hearing, conservative defenders might criticize them for rushing ahead without listening to industry feedback about the proposed rules. In fact, much of the reason that it’s taken regulators so long is that they’ve taken the time to listen to an enormous number of responses from industry lobbyists on Dodd-Frank. “We’ve had 30,000 comment letters, 1,600 meetings with folks from the markets,” explained Gensler.
In fact, some senators were careful to explain that they didn’t want regulators to overreach either. Corker, for one, warned that there might be “a rush to make it look like Dodd-Frank addresses these issues,” to make the final rules “look good” in light of what’s happened at JPMorgan.
In other words: You’re moving too slowly — but don’t be too aggressive and move too quickly either.