“Road to Reform”
Statement of Commissioner Bart Chilton before the Global Markets Advisory Committee
December 9, 2009
Thank you Madame Chair, and thank you for your leadership. I also welcome our new members.
The nasty weather we are seeing reminds me of a talk I had with European Embassy Attaches a year ago. I made the analogy that our financial regulations in the U.S. were similar to driving on ice. I think since 1999 we veered too far to the right, gutting regulation and oversight, not only with regard to banking and mortgages, but in the securities area, and with regard to swaps. Credit default swaps are a prime example of the government allowing for trillions upon trillions of dollars in transactions to occur totally unregulated. Our challenge, I said, was like driving on ice in that we need to ensure that we do not over-steer—to veer too far to the left as it were. To veer too far in the opposite direction could certainly cause harm.
That said, I think that we and our brethren regulators around the world recognize that there need to be appropriate guard rails as we consider regulatory reform. That doesn't mean we don't go forward or that we should be scared to go first, or second for that matter, to put in place regulatory reforms to guard against, among other things, excessive speculation.
In 1865, Britain put in place the very first speed limit. That limit was a whopping 2 or 4 miles per hour—depending on whether you were in the city or the country, respectively. And, the law required 3 drivers for each vehicle; two to travel in the vehicle and one to walk ahead of it carrying a red flag. Now that was zealous. It was, and is, hard to do a lot of damage if you put in place appropriate rules of the road.
These markets, futures markets, need to work for consumers, which means they need to work for commercial users who rely on the markets as a business hedge and for price discovery. That hasn’t always been the case in recent years, and we are still seeing issues that need attention. These markets shouldn’t, for sure, become a private jungle gym for speculators.
If there wasn't enough cause for concern that regulatory reforms are needed, this week and next week—given what is taking place in Copenhagen—provide yet another reason for us in the U.S. to want changes to our law and appropriate regulatory rulemaking reforms.
It is clear with the Obama Administration’s determination this week that we will join other nations in moving forward with needed reduction in greenhouse gases. Should it come to pass that a cap and trade bill becomes law, we are looking at a $2 trillion futures market within five years of trading. On top of the jobs created in the area of renewable fuels, etc., the carbon markets may well represent the largest commodity market in the world. It would help fuel the economic engine of our democracy. However, without additional regulatory authorities like those being considered in Congress this week, and without reasonable limits on trading in the energy and metals complexes (no one has given me a good reason to limit the focus to energy), not to mention staffing needs, we could open the door for myriad problems.
So, I don't mind being first, or second on the road to regulatory reform. That is, as long as we set reasonable rules of the road that don't over-zealously regulate while doing job one: protecting consumers.
Last Updated: June 10, 2010