January 31, 2012
Good afternoon. Thank you, Arthur, for that introduction. It’s always great to see you. As Chairman of the SEC, Arthur really looked out for investors and promoted greater transparency in the markets. If any of you were not aware, promoting greater transparency is also a passion of mine, but more on that in a minute.
I’m here today as part of an event to honor Jack Bogle, a real innovator who throughout his career was on the side of investors. Jack and Arthur have both written books, all more successful than mine. But I do want to thank both of you for saying nice things about my book on investing.
I look forward to sitting down with Bill Cohan, but first I’ll take a moment to say why Dodd-Frank reform matters. And to whom does it matter?
Dodd-Frank matters as it brings transparency and competition and lowers the risk of the swaps market to the real economy. It matters as well to users of derivatives within the financial sector, such as pension funds, mutual funds, community banks and insurance companies, all part of the buy side.
In 2008, the financial system and the financial regulatory system failed America. The crisis led to eight million jobs lost and millions of families losing their homes. Three years later, foreclosures in this country are still rampant, and the unemployment rate remains stubbornly high.
It’s the real economy – the non-financial side – that provides most Americans with jobs and is the true engine of economic recovery. Between 2007 and 2010, the real economy supplied 94 percent of full and part-time private sector jobs.
The financial system is important as well. It helps to allocate capital and risk throughout the economy, as well as to provide a place to save and invest.
Within this, each part of our economy relies on a well-functioning derivatives marketplace. Companies – in the real economy – can lock in the price of products they’re selling or buying or a rate they paying, thus lowering their risk. This allows businesses to focus on what they do best – job creation and economic investment. At approximately $300 trillion, the domestic swaps market represents more than $20 of swaps for every dollar of goods and services produced in the U.S. economy. And the public should have confidence in the integrity of these markets.
At times, the financial sector also can hurt the real economy. While the 2008 crisis had many causes, it is clear that swaps played a central role. The swaps market helped build up risk in the financial system that spilled over into the real economy, affecting businesses and consumers across America.
The Dodd-Frank Act was the President and Congress’ response to the crisis. Two very important goals were to bring transparency and competition to the swaps market and to prevent risks in the financial sector from again so infecting the real economy.
The users of swaps, both in real economy and the buy side, will benefit from the lower costs and greater pricing information that would come from a more transparent and competitive swaps market.
Dodd-Frank reforms bring this much-needed transparency and competition before the trade is done, pre-trade, as well as post-trade.
Dodd-Frank reform also matters because it will reduce the risks that Wall Street, from time to time, poses to the rest of us. Standardized swaps will be moved into central clearing, lowering the risk of an interconnected swaps market and helping to protect taxpayers. And for the first time, dealers will be comprehensively regulated specifically for their swaps activities.
To date, the CFTC has made a significant down payment on reform in finalizing 26 rules of the road for the swaps market.
But there’s more work to be done. I have great confidence in the Commission and the CFTC staff that we will get these reforms done this year for the benefit of investors, consumers and the broader public.
Some have raised cost considerations about these reforms. But there are far greater costs – the eight million jobs lost, millions forced out of their homes, and the uncertainty throughout the economy that came from risk, which spilled over from Wall Street.
Thank you for inviting me to speak today.
Last Updated: January 31, 2012