When Commodity Futures Trading Commission vice chirman John V. Rainbolt II was in the Army's presidential honor guard, his duties included standing watch at the Tomb of the Unknown Soldier in Arlington national Cemetery and marshaling the military band, honor guard and firing squad at full-dress funerals there.
Following the internment of an Army general officer at Arlington in just such a solemn ritual, Rainbolt, as hel tells it, ordered the two platoons of honor guards, the band and the firing squad to line up behind him for their departure from the hilly plot.
"It was a stiflingly hot, sunny day," he recalled "and as they fell in behind me, I turned around to lead them away with the sun in my eyes." A tourist, home movie camera in hand, squatted a few feet in fron of the platoon commander.
"He was shooting us marching down the hill, backing up all the way as we marched forward," Rainbolt said. "Then all of a sudden he stopped and we were still marching. So I said to him, 'Move aside, sir.'"
With a sheepish grin. Rainbolt continued. "And instead of backing up, he stepped to one side as we continued forward.Except there was no ground left. The guy had been standing in front of a freshly dug grave. As I felt my leg buckle under me, the soldier behind me said "S . . ., sir'."
To some observers of the beleaguered CFTC, this anecdote could be an allegory of the curious progress the agency has made since its creation two years ago.
Both industry and government critics of the commission, after watching its labored, if not circuitous, path, think the agency should be dismantled before it does any more damage to itself and to the markets.
One of the most public of the critics is Michael McLeod, general counsel to the Senate Agriculture Committee. A standard McLeod speech before futures industry audiences raises the question of whether the agency should be reauthorized by Congress next spring and suggests three alternatives to maintaining the independent commission.
A sunset provision written into the CFTC's enabling act requires a review of the agency's performance and a "reauthorization" every three years.
McLeod suggests that if Congress decideds to terminate the CFTC it could either "1) return (it) . . . to the Department of Agriculture under a top administrator, possibly even an under-secretary for futures trading, 2 (trans-secretary for futures traind. 2) transfer (it) . . . to the Securities and Exchange Commission, or 3) place (it) . . . in the Department of the Treasury, under a top administrator."
McLeod doesn't discuss the fact that none of the three bodies he cites desires to have the highly specialized commodities sector thrust under their jurisdiction.
In a recent interview, he shrugged off the observation by sources within and outside of CFTC that the alternatives he raises are not realistic but that he is gunning for an appointment as a commissioner, possibly even as the agency's chairman, next year.
"The Maine potato default last year should never have occurred, and the way they handled the Hunt case was poor," McLeod said. He conceded that his characterization of the Hunt case as a failure was inaccurate because the CFTC won its case against the Hunts for violating speculative limits in the Chicago soybean market on appeal.
But he pointed out that order criticisms in his public addresses are accurate. McLeod noted that Rep. W. R. (Bob) Poage (R-Tex.) had opposed creation of another federal agency during the 1974 legislative hearings.
"He said that, if we did it, the commissioners would have to have a lot of chauffeur-driven limousines, they would have to have their own building and they wouldn't be responsive to anyone," McLeod said. "Everyone said he was wrong, but look at what they've got now - one of the pshest buildings and most expensive trappings of any agency in town, and they cry about being starved for funds and being understaffed'."
Rep. Fred Richmond (D-N.Y.), a critic of the commission, dismissed McLeod's alternatives to an independent agency to regulate the futures industry.
"That's ridiculous," he said. "The industry has four times the volume of trading that the stock exchanges do and he wants to put that monstrous job in some corner of another agency. There'll be a CFTC at the end of the reauthorization hearings, but it may be a substantially different one that exists now."
Another CFTC source picked up on McLeod's criticism. He said the agency's annual budget does not itemize the three limousines and three chauffeurs it has, choosing instead to lump those expenses under "operations."
"Compared to the SEC, this agency spends significantly many more resources, money and manpower on strange things," a former policy-level attorney said. "Strangely unjustifiable things. There is lots of money for public relations - they have a staff of seven, I think - and on congressional relations and Gods knows what else," he said. "There are nine people in personnel alone and personnel does no hiring, just paperwork.
"But yes, the CFTC is understaffed to do its job. At the SEC, most of the money and manpower is spent on enforcement, market disclosure systems," he said. "The CFTC has not used its resources on enforcement or to address the problem of a central market system or on the fundamental problems of commodity markets."
An enforcement attorney noted that only 26 lawyers in all of the agency's bureaus are deployed in that division, while another 15 CFTC employees with law degrees are on the Washington staff.
"There aren't any markets in Washington. They should be shipped out to New York, Chicago and Kansas City where we could put them to work immediately," he said.
Not immediately. For another major criticism made by current staff members is that there is no training program. Some staff lawyers in Washington have never been on the trading floor of an exchange, one source said, and half a dozen still do not comprehend the concept of futures trading.
"Anyone with any intelligence would expect a neophyte to do some reading and try to teach himself in addition to on-the-job training," he said, "but without personal motivation and no effective, required training program, we've ended up with some totally useless employees here who are paid in excess of $25,000 a year."
Although the agency's reparations program for customers with complaints against brokerages and floor traders frequently is cited as one of the innovative priorities of the commission and its chairman, one administrative law judge there noted that a single attorney is handling a backlog of more than 700 reparation cases.
"You'll note a significant difference between what they say is a priority to the commission and how they handle the issue within the agency," the judge said. "Customer protection is also supposed to be a priority, but they are just now considering a draft of customer protection regulations. One wonders how come."
The customer protection rules were amont the first to be drafted by the trading and markets staff headed by Thomas Russo, who left the agency to rejoin the law firm of Cadwalader Wickersham & Taft a few months ago. "We wrote them first, but the commission jointly pushed them aside in favor of higher-priority items," Russo said recently.
Commissioner Robert Martin, whose advisory committee considered the protection rules, said the en banc decision of the commission to shunt them aside was not one he fought. "Without getting into a turf fight, let's just say that other issues, like options, were said to be more important and it was agreed we'd handle options before customer protection rules."
While Martin was careful in a recent interview to make no criticisms of his fellow commissioners, his comments subtly reflected the many disagreements he has had in private and during the weekly public hearings, particularly with chairman Bagley and vice chairman Rainbolt.
Martin, who is the only commissioner to have been an active trader in markets, said, "We all have different perspectives. What I might not regard as a problem, somebody else might.
"It also depends on age and personal goals for the next five or ten years. If one is using the commission as a stepping stone to something else, it makes a difference about how you go about doing things."
NEXT: The GAO's preliminary report.