October 28, 2013
Hello, thank you Isaac for that kind introduction, but I think you could have just said I’m Isabel’s dad. I’m honored to have the opportunity to speak to the Maret Business Club.
Though Isaac mentioned some of the professional roles I’ve played in life, the most important role I’ll ever play was as a husband to Isabel’s mom, my darling Francesca, and as father to Anna, Lee and Isabel.
But when I’m not relearning calculus, making halfhearted efforts at cooking dinner or driving with Isabel to one of your houses, I am Chairman of a federal agency called the Commodities Futures Trading Commission (CFTC).
Before I get back to Isabel's driving and how it relates to what we do at the CFTC, I will tell you a bit about how I got this remarkable job.
I feel very fortunate. Neither of my parents went to college. After World War II, my dad used his mustering-out pay to buy some used, beat up vending machines. He later placed cigarette and pinball machines in local Baltimore bars. I used to travel with him when he would take the nickels out of the machines and help him count them. I guess you could say this was my first foray into business and the world of finance.
I knew from that early age that I wanted to pursue a career in business. At the same time, I felt a deep passion for politics, government and public service, so I sought to pursue both of these dreams.
My junior year in high school, I was the class treasurer. My senior year, though, I lost my campaign for class president. Yes, I remember to whom – it was Amy Goldberg.
I was a bit of a math/science geek in high school, yet I chose to go to the Wharton School at the University of Pennsylvania instead of MIT to pursue my dreams of business and service.
My daughters constantly remind me that it was way easier, though, to get into college back in 1975. They are right. Nearly 25 of my high school classmates went on to Penn. Not to mention I had gotten a D in high school French.
I know, you're asking yourself where did Isabel get her talent for French?
I graduated from Penn with a bachelor’s degree and an MBA and followed my passion into business. In 18 years on Wall Street, I became a partner at Goldman Sachs, which is an investment banking firm, worked in New York and Tokyo and met countless talented people.
Banks play an important role in our economy.
They stand between those who have savings – for retirement, to build a home, or for college education -- and those in our economy who need to borrow -- companies that want to build factories or your parents who have taken out a home mortgage.
Like most fields, in business or otherwise, you generally find really good people. There are those people, though, who push to the edge of the law. There are others, again like in any field, who just make mistakes. It’s a human exercise.
There is no doubt that financial institutions, including banks, and the regulatory system overseeing them failed our country in 2008.
From Goldman Sachs, I moved to the U.S. Treasury Department under President Clinton where I could merge my experience in finance with my desire to be in public service.
After President Obama was elected, I was honored to be asked to serve again in a new role as Chairman of the CFTC.
Now let me turn back to Isabel. Like many of you, Isabel now has her learner’s permit. Some of you may even have an actual driver’s license.
When I hand Isabel or her sisters the car keys, I sleep better knowing that there are common-sense rules of the road. I sleep better knowing there are stop signs, traffic lights and speed limits, there are prohibitions against drunk driving, and there are cops on the streets to enforce all these rules and keep my daughters safe.
That’s basically what good regulation is about – protecting the public while promoting our economy.
Thus, when my mom and dad invested their savings, our family benefited from the securities markets’ common-sense rules of the road.
It was during the Great Depression that President Roosevelt asked Congress to pass laws to bring transparency to and protect against abuses in the securities and commodities markets. For those of you who had Mr. Kilborne for U.S. history last year, I know you learned that the Securities and Exchange Commission was set up to oversee these new laws for the stock market.
These reforms of the 1930s are at the foundation of the economic growth that we've had in the U.S. for decades. The stock market is where companies can raise money – to build factories or to innovate with new products.
You might have read that Twitter is going public. Facebook went public last year. This means the broad public can own a part of these companies. To ensure that the playing field is fair for all of the investing public, regulations ensure that each of you can get the same basic information about Twitter or Facebook and the price at which their shares can be bought or sold.
I’m afraid that Mr. Kilborne may have left out that President Roosevelt also asked for common-sense rules for commodities markets, such as for corn, wheat and soybeans. Instead of stocks, the commodity markets trade contracts called futures.
Futures provide farmers, ranchers, producers and merchants a way to lock in the price of a commodity at harvest time, and allow them to focus on that which they do best in the field.
Some of you might know a little bit about futures if you ever saw the 1983 movie Trading Places with Dan Aykroyd and Eddie Murphy. Al Franken, now U.S. Senator from Minnesota, had a cameo as a train baggage handler. There’s a scheme in the movie about cornering the market on futures for frozen orange juice.
About the same time Trading Places was being filmed, a new type of financial contract emerged, called swaps. Swaps are very similar to futures. Originally, it was just that swaps were not on exchanges, like in Trading Places. As a result, they also were not regulated.
The swaps market, like the futures market, is essential in our economy. They provide businesses an opportunity to manage their risk. It’s no longer just the farmer or rancher locking in the price of corn or cattle. It’s now airlines locking in the price of their fuel or banks managing the risk that interest rates will change.
The swaps market is vast, measuring approximately $400 trillion in size. That's actually about $23 of swaps contracts for every dollar of goods and services produced in the U.S. economy.
In 2008 when the economy collapsed, the swaps marketplace lacked necessary street lamps to bring it out of the shadows. It lacked traffic signals to protect the public from the oncoming crash.
The dimly lit swaps roads had no rules and no cops.
Eight million Americans lost their jobs. Millions of families lost their homes. Hundreds of thousands of small businesses folded.
President Obama and Congress responded in 2010 with a law to reform our financial system and protect against another crisis. This law includes critical reforms bringing common-sense rules of the road to the swaps market.
The five-person Commission that I am honored to chair was given the responsibility for making sure these swaps reforms become a reality.
Future Mr. Kilbornes will likely teach your children about President Obama’s financial reforms as one of his signature achievements.
I’m sure you are looking forward to studying with them about these topics.
Now I get it, you might not see it this way.
Isabel has been kind enough to tell me that during the government shutdown, her friends were focused on the panda cam going dark, not her dad’s agency. I thank Isabel for pointing this out.
Why are these reforms important?
Just like the reforms of the 1930s, they have brought transparency to a dark market. Just like the 1930s, these reforms lower the risk that markets overwhelm our economy and leave millions out of work.
There’s something else that happened during the 2008 financial crisis – a bunch of financial firms were bailed out by taxpayers.
Companies, large and small, though, should be free to innovate, to grow, and, yes, to fail without taxpayer support.
Isabel's grandfather knew this. If he didn’t make payroll for his small business, nobody was going to bail him out. We lost Isabel's grandfather last year, but if he were alive, he would say it shouldn’t be any different for banks and other large financial institutions.
That’s what Congress said, too, in passing financial reform after the 2008 crisis.
I’ll close with some thoughts about business and public service.
On business – if you are interested, try it out. If you have an idea for a product or a service, it’s never too early to try to offer it, and, yes, make money on it. Mark Zuckerberg was in college when he founded Facebook. It does take a bit of risk, and you’ve got to be willing to take a lot of rejection. But it can be well worth it – for the satisfaction you take from servicing customers to, if you are successful, the money you provide for your family and future.
On public service – there is no doubt that democracy is noisy and messy at times. This was as true at our founding as it is today. I’m guessing Mr. Kilborne shared with you a bit about Burr and Hamilton.
I’d like to tell you, though, that we all can get things done in Washington.
The CFTC is just slightly larger than the Maret student body, but it has been able to put in place the vision that President Obama and Congress laid out for financial reform.
Talented people like you need to enter the public square and advocate for your point of view. You can't influence the outcome, otherwise.
At Maret it might be about the next DJ at the dance, the benefits of the Social Emotional Learning (SEL) program or maybe getting peaches in the cafeteria. Just get involved. Join a presidential campaign, for instance. The 2016 trail is not that far away.
Thank you again for the opportunity to speak today, and I’d be glad to take questions.
Last Updated: October 29, 2013