By Pam Martens and Russ Martens: March 29, 2021 ~
It was a bone-chilling 42 degrees with winds gusting to 28 miles per hour when Joe Biden was sworn in as the 46th President of the United States on January 20. Today is Biden’s 69th day in office. Washington D.C.’s beloved Cherry Blossoms are within days of reaching their peak, and yet, Biden’s nominee to Chair the Securities and Exchange Commission, Gary Gensler, has not been confirmed by a full vote in the Senate.
Given that former President Trump’s SEC Chair, Jay Clayton, has left U.S. markets in their most perilous state since 1929, one would think that the Senate would be rushing to hold a vote to confirm Gensler. (Clayton had legally represented 8 of the 10 largest Wall Street banks in the three years before Trump nominated him to become SEC Chair. Clayton left the SEC after a controversial attempt at a coup at the U.S. Attorney’s Office for the Southern District of New York.)
After Gensler’s March 2 confirmation hearing before the Senate Banking Committee, the Committee followed up with written questions. A number of Gensler’s answers to those questions are problematic with what some Senate Republicans wanted to hear.
One unnamed questioner attempted to flush out where Gensler stands on the most rigged market structure since 1929. The question and response was as follows:
Banking Committee Question: “Can you commit to evaluate how to best promote competition between national securities exchanges, alternative trading systems (ATS) [Dark Pools], market makers, and broker-dealers engaged in internalization to benefit investors?”
Gensler’s Response: “Markets – and technology – are constantly changing. The overall U.S. equity market is a critical national asset that provides a vital mechanism for capital formation for firms and individuals; investment opportunities for Main Street; and economic growth. If confirmed, I will work with fellow Commissioners and SEC staff along with hearing from market participants on how best to promote transparency and competition in the equity markets. If confirmed, I would work with fellow Commissioners and SEC staff to examine market structure issues holistically to best maintain fair, orderly and efficient markets as many of the technical and economic issues of markets are highly interrelated.”
If Gensler is going to leave the current rigged market structure in place in the name of promoting competition among market players and to appease right-wing Republicans on the Senate Banking Committee, all Americans and the U.S. economy will be the giant loser in the end.
Someone on the Senate Banking Committee is likely getting big campaign donations from one or more big players in the field of money market mutual funds. Those questions and responses went as follows:
Banking Committee Question: “If confirmed, will you protect the SEC’s jurisdiction to regulate money market funds?”
Gensler’s Response: “Yes.”
Banking Committee Question: “If confirmed, will you ensure new SEC regulations for money market funds, if any, will be narrowly tailored and will not eliminate or significantly reduce the viability of money market funds as an investment?”
Gensler’s Response: “Money market mutual funds are an important part of our financial ecosystem with nearly $5 trillion in investments. The regulatory framework governing such funds should ensure access to investors for this important product while also ensuring stability in our financial system. If confirmed, I will study SEC regulations adopted in the last decade to determine if they are working towards these goals.”
Clearly the SEC is incompetent at regulating money market funds. Money market funds have received massive government bailouts twice in the past 12 years.
“Cost-benefit analysis” is code by some Republicans on the Senate Banking Committee (whose political campaigns rely on funding from Wall Street, their big law firms and hedge funds) to stymie regulation of Wall Street by demanding cost benefit analysis of any planned changes. Clearly, the collapse of the U.S. economy in 2008 at the hands of Wall Street and more than a decade of sub-par U.S. GDP growth should have ended the nonsense around cost-benefit analysis. And yet, it persists by Republicans with a straight face. This was another of the written questions posed to Gensler.
Banking Committee Question: “I want to discuss guardrails on Systemically Important Financial Institution (SIFI) designations by the Financial Stability Oversight Council (FSOC): (a) Should SIFI designations allow for due process, including a clear process for both designation and de-designation? (b) Should they incorporate robust economic cost-benefit analysis? (c) Should they first explore an activities-based approach to regulating a systemic risk, before considering a firm-specific SIFI designation?”
Gensler’s Response: “FSOC designations should follow the statute as set forward in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and any guidance or rulemakings issued therein. As I understand it, the FSOC process allows for multiple avenues for input for non-bank financial firms both during the multi-stage designation process and via established processes to de-designate, as evidenced by de-designations in the recent past. In making designation decisions, economic analysis is an important tool to consider. Further, Dodd-Frank provides for both entity designations and activities-based designations, as Congress recognized that both approaches are sometimes useful. Depending on the unique circumstance, either or both approaches may be warranted.”
That answer clearly did not please most Republicans on the Senate Banking Committee.
Curiously, numerous Senate Republicans, who profess to be “conservative” are big fans of crypto currency. These crypto questions were posed to Gensler in writing:
Banking Committee Question: “Do you believe a crypto-currency can transform from a ‘securities token’ to a ‘utility token’? The securities laws define a security to include investment contracts. The Supreme Court has defined such investment contracts to include arrangements in which ‘a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.’ ”
Gensler’s Response: “If confirmed, I will review questions of whether a crypto-currency is a security in light of the definition laid out by the Supreme Court.”
Banking Committee Question: “As suggested by SEC Commissioner Hester Peirce, would you consider whether to pursue an experimental safe harbor for a digital token offering?”
Gensler’s Response: “If confirmed by the Senate, I look forward to engaging with Commissioner Peirce, other Commissioners and SEC staff on this issue.”
For what it means to invoke the name of Hester Peirce, see: Koch Fronted Regulatory Hit Woman Edges Closer to Seat on SEC.