If the audience had illusions that bipartisan cooperation would follow the U.S. election, such thoughts were quickly dismissed at SEFCON III last week, a conference sponsored by the Wholesale Money Brokers Association Americas. Rep. Scott Garrett (R-NJ5) , Vice-Chairman, House Budget Committee, and Rep. Jim Himes (D-Conn4), Member, Committee on Financial Services, gave only moderately different views on regulation but showed no sign of compromise. It would have been interesting to see them debate, though the organizers “separated them in time and space” as Rep. Himes observed expressing relief.
Rep. Garrett was sarcastic. He opened by describing Dodd-Frank as “skiff made of paper in a storm”, a phrase he attributed to John Adams arguing for independence in the Continental Congress, but this time resulting in contraction rather than an expansion of liberty. I was taught the phrase was said by John Dickenson arguing against independence in that same venue, but maybe that’s because I went to school in England. Rep. Garrett struck an optimistic tone but stopped midsentence – then feigned that he had brought the wrong speech, one that presumed Mitt Romney had won. He changed tone abruptly, said the CFTC has only just begun to listen to concerns raised from other governments and that if President Obama “continues to wait for others to lead” he may need to go on another “apology tour”.
Beneath the wry humor, Rep. Garrett made some solid points: the SEF rules are only one-third complete (though he made no mention of the CFTC’s funding issues); the rules should accommodate different styles of trading, including voice brokerage, and he acknowledged the need to lower systemic risk. He emphasized that trading rules should not reveal strategies of the buy-side, saying this could disadvantage fire-fighters and “others on Main Street”. He commented on the lack of coordination between CFTC and SEC, as many did that day. Rep. Garrett ended his speech with a blistering attack on Tim Geitner and the lack of cooperation he perceives in the Senate.
Rep. Himes drew a parallel between financial regulation and nuclear energy. You can’t see it – you know it can be good but equally it can be very dangerous. He described the challenge of good regulation to be awesome, in the Biblical sense. Rep. Himes distinguished pre-trade and post-trade transparency in ways that showed a strong grasp of the issues; he suggested we should reexamine whether the CFTC and SEC should be merged while acknowledging there would be issues merging the respective Congressional Committees to whom they report. He described the position-taking in Congress as a “morality play” where each side takes the opposite side as a matter of principal.
There may have be only one point on which the two Congressmen differed substantially, at least before this audience: Rep. Himes considered there to be a public interest in distinguishing speculative versus non-speculative flow and said he was worried about volatility in the energy markets. However, Rep. Himes’ morality play analogy seems right. Dodd-Frank is a complex piece of legislation, it’s here to stay but will need maintenance. We did not see a tone that would facilitate that.
Views expressed are those of James Sinclair and not of MarketFactory, Inc.