The CFTC, Dodd-Frank, and LIBOR

Apparently, there's some good use being made of Dodd-Frank despite Republican efforts to block, defang, and defund. According to Ben Protess in "Libor Case Energizes a Wall Street Watchdog," the Commodity Futures Trading Commission (CFTC) under former Goldman Sachs banker Gary Gensler is aggressively pushing adoption of dozens of new rules under Dodd-Frank.

Protess writes that

"The agency’s revival stems from the wave of new regulation. Dodd-Frank, passed in 2010, greatly expanded the responsibility of the agency, stretching its reach to the dark corners of the $300 trillion derivatives market. Before that, the agency oversaw the $40 trillion futures business."

While it remains to be seen how much further they'll be able to run with the LIBOR investigations beyond the Barclays settlement, a $450 million settlement sure seems a good start. If the CFTC can parlay further investigation and enforcement of LIBOR into an ongoing crack-down empowered by Dodd-Frank that makes the financial industry start shaping up, then maybe -- just maybe -- Dodd-Frank might go down in history as the real crackdown on the financial industry that so many on the left say we've been lacking.

LIBOR Ought to Nail Deregulation's Coffin Shut

If our world were ruled by rational, informed decisions, the LIBOR scandal would serve as the final nail that would forever end the plague of deregulation fervor and the pestilence of laissez-faire myopia. It won't be. Most true believers will never give up that push towards more and more laissez-faire, no matter how clearly it's shown to destabilize our systems of commerce. Wave ream after ream of documented business and finance train-wrecks under their under their noses and it they'll be unconvinced. They'll still rant and rave that we need less govt just as they've been doing for decades.

"In the early 1990s, the Fed suspended its surveillance of primary dealers, another example of Alan Greenspan's laissez-faire approach to regulation. Since then, there has been "failure after failure" among their ranks, Kotok notes, citing Lehman Brothers, Bear Stearns, Merrill Lynch, MF Global, Countrywide, and now Barclays."
- Aaron Task in "Why the LIBOR Scandal Matters: ‘Destruction of Confidence to the Nth Degree’"

Even now in the wake of LIBOR, candidate Romney's "Day One, Job One" summary lists elimination of regulations as one of the five executive orders he wants to carry out on day one of a Romney term.

Our markets have proven time and again that we need a mix of market choices with government oversight. The ideal balance may vary from market to market, but in any significant market -- one on which much of the economy depends -- we need stabilizers to improve predictability of returns on investment. And we need oversight in order to not only protect the consumer but to protect the honest businessman from dishonest competitors. In an arena of sensible regulation, the honest businessman can proudly say "my company holds to good business practices and I proudly work with government regulators to confirm that to the public." And he can rest more soundly at night knowing that his competitors won't undercut his otherwise stable business with shady, risky moves that a long-term outlook would abhor. Or at least that they'll have significant risk of being caught and called out if they do. And that businessman's potential investors can better expect a reliable, predictable return year after year rather than a sudden flop into insolvency from cutting corners. Business thrives under sensible regulation that keeps it lined up with good business practices.

Yet this is a truth that runs contrary to laissez-faire dogma. And we can not expect them to give up their notions. The best we can hope for is that maybe these scandals might help to show enough of the public that deregulationists hold to a debunked economic faith and that their doctrines should be no less a subject of mockery than Branch Davidians or Flat Earthers.