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Bart Chilton Pt.3: For regulations to be effective, there has to be political will and proper resources

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. We’re continuing our discussion with Bart Chilton. Bart is a commissioner at the Commodity Futures Trading Commission in Washington. Thanks for joining us again.


JAY: So Section 737 of the Dodd-Frank bill says you are–you and your commission are supposed to control excessive speculation. So how are you doing? And what’s stopping you from doing better?

CHILTON: Well, we’ve got to have the political will to do it. We were supposed to have this done earlier this year, to put limits on what traders could have in any given market. And we’ve seen, Paul, in the last couple of years traders having upwards of 20, even 30 percent of individual markets. To say that they couldn’t potentially manipulate, I think, begs question. So we’re supposed to have that in place. Hopefully, we’re going to do it sometime in the next several months, I’m hopeful by the end of September.

JAY: This is what they call position limits.

CHILTON: This is position limits. And that would limit the amount of positions–that’s what you hold in the futures market. The level we have suggested would be roughly 10 percent of a market. That’s a level that I think is fair. There’s been a few people that have–a few traders who’ve said it’s a little too low, but by and large we’ve got over 10,000 comments on this proposal, and by and large people think that that 10 percent is a good number. I think it’ll work. I think it’ll have some sort of impact on ensuring that the excessive speculation is out of the market, while allowing the appropriate speculation to discover prices that affect the prices people pay at the gas pump and at the grocery store.

JAY: So appropriate speculation meaning it has some real connection with supply and demand and what a farmer might need or what an airline might need in terms of oil and–.

CHILTON: Yes. And it doesn’t mean that speculators that don’t have anything to do with that can’t get into the market, but you just don’t want somebody to get into the market that has such a big footprint–just like getting into a bathtub–that they create waves and volatility. These markets were designed for two reasons: one, to help businesses like you referred to, whether or not you’re a farmer or an oil company, to help avoid their large swings in prices, a risk management tool; and the second reason was to ensure that prices were fairly stable for consumers. And with some of the market changes, like excessive speculation, like the massive passives we’ve talked about in the past, like these cheetah high-frequency traders, I get worried that the volatility in markets and the price swings that the consumers are paying is too much. And so that’s why the law is important.

JAY: What about all the exemptions? Are you concerned that there’s going to be so many possible exemptions that it renders the position limits ineffective?

CHILTON: I often talk about–you know, we have meetings every day with people coming in and talking to us, and these are primarily market participants. There’s not a whole lot of consumer representatives coming and meeting with us, unfortunately. I encourage them to. But by and large, these folks are coming in to us, scores of them, and it’s sort of like–I don’t know if you remember Dana Carvey back on Saturday Night Live as Church Lady. She could say, “Isn’t that special?” Well, they all come in and tell us how they are special and why they deserve not to have to comply with the law. Now, I don’t want to paint them all with one brush. There are some exceptions that they really are special. But I’ve heard some very contorted reasoning for why people should be exempt. And so far we haven’t allowed that. So I feel confident that ultimately on position limits we’re not going to allow sort of sporadic, willy-nilly exceptions. I think it’s going to be a good law and I think it’s going to be good for consumers and good for markets, I think.

JAY: Well, one of the arguments is is that allowing exceptions allows lobbying, allows pressure, allows, well, you gave it to them, why don’t you give it to us, and it’s a kind of domino effect. Wouldn’t it be better just to say no exceptions?

CHILTON: By and large. But, you know, there are certain circumstances that you want to look at and you don’t want to be haphazard or cavalier in you approach. If we were like that, we’d probably have the regulations done. But we’re trying to put our nose to grindstone and look at these things in a detailed fashion. These are very complicated markets, and there are things, quite frankly, that we don’t know, we still don’t know. And for us to make sort of a haphazard, blanket decision about no exemptions, never, ever, ever, I think, wouldn’t be responsible to the job I’m supposed to be doing. But I’m going to be very judicious about it, because I think in the past too many exemptions have been written, have been allowed, and we shouldn’t allow that in the future.

JAY: Because when you get to the potential for exemptions, then so much winds up being who’s on the commission, ’cause we know under the Bush administration, you know, in terms of regulatory authority, I mean, some of these areas were regulated, but, you know, if you have someone running the SEC who doesn’t enforce the rules of the SEC, then, you know, the rules aren’t so effective. So once you open the door to exemptions, and then if you start–you know, if one of the parties (and I don’t know if it matters which one) wound up controlling all the houses and really controlling–you know, and I think you can’t have more than three commissioners from a single party, but they wind up getting three that are very pro-exemption, you’ve got a problem.

CHILTON: Well, by and large, I think, you know, government operates better than most people think. That doesn’t mean that there aren’t nefarious things that happen. I’ve not seen anything at the CFTC. It doesn’t mean that before I got there there wasn’t something going on. But I think, by and large, people who serve in government are dedicated public servants and, you know, they’re not being bought off for a lunch or a drink after work.

JAY: One of the big issues about the collapse in 2008 was the idea that some of these banks were too big to fail. What’s been done, if anything, to change that? The big banks are still the big banks. If anything, in fact, they’re bigger, ’cause there’s been some collapses and there’s been even more concentration of ownership.

CHILTON: Right. Well, the entire financial reform law was geared at putting sideboards on what they can and can’t do. So the goal is is that they won’t be so systemically important, and that there will be certain rules and regulations that will prohibit them from doing risky behaviors, and that we won’t have such a bailout like we did. A matter of fact, the law said we will not have another bailout, the government will no longer bail out these large institutions. So we’d better do our job, and we better have the resources to do our job.

JAY: But they are still–as I said, they’re not as big; they’re bigger. In terms of executive compensation, nothing’s been done. I mean, one of the problems of the 2008 business is that it actually–for some of the individuals involved, it didn’t matter if they failed. They had cashed out or had made so much money individually that in some ways it didn’t matter what happened to their bank or their trading company. None of that’s changed. I mean, does–the systemic risk is still there, isn’t it?

CHILTON: There’s some systemic risk now, but, again, we’re putting sideboards on the rules and regulations to ensure that there’s procedures and policies in place. But you’re right: there are still large institutions out there that you wouldn’t want to see collapse, although the government said they’re not going to do any bailouts. But the point you raised just a moment ago is a good one. I mean, a lot of the bonuses that these CEOs were receiving were based upon performance, which rewarded risky behavior in the markets. I found it the height of hypocrisy that the government would actually spend billions of dollars to bail out some of these companies, and then you would see the CEOs get million-dollar bonuses. I don’t know what world they’re living in. Now, the Securities and Exchange Commission, not my agency, has the authority to deal with executive compensation, and I sure hope they do. Taxpayers should demand it.

JAY: In the next segment of the interview, let’s talk about what happens if you don’t get the resources, you don’t get the people, or there isn’t the political will. What stops 2008 from happening all over again? Please join us for the next segment of our interview with Bart Chilton.

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Bart Chilton is the current commissioner for the U.S. Commodity Futures Trading Commission, and Chairman of the CFTC's Global Markets Advisory Committee (GMAC).  He was nominated by President Bush and confirmed by the U. S. Senate in 2007. In 2009, he was re-nominated by President Obama and reconfirmed by the Senate. He has served as the Chairman of the CFTC’s Energy and Environmental Markets Advisory Committee (EEMAC). His career spans 25 years in government service—working on Capitol Hill in the House of Representatives, in the Senate, and serving in the Executive Branch during the Clinton, Bush and Obama Administrations. Prior to joining the CFTC, Mr. Chilton was the Chief of Staff and Vice President for Government Relations at the National Farmers Union where he represented family farmers. In 2005, Mr. Chilton was a Schedule C political appointee of President Bush at the U. S. Farm Credit Administration where he served as an Executive Assistant to the Board. From 2001 to 2005, Mr. Chilton was a Senior Advisor to Senator Tom Daschle, the Democrat Leader of the United States Senate, where he worked on myriad issues including agriculture and transportation policy.