Speech of Commissioner Bart Chilton at the Federal Reserve Bank of St. Louis, St. Louis, MO

April 16, 2013


Thank you, President (James) Bullard, for the invitation to spend time at the bank. We are fortunate to have you working for our country. Your efforts, particularly on transparency, are so very significant. (Although, I guess someone at the Fed went too far this last week with the FOMC minutes). It is an honor to know and work with you.

Today, let’s do something a little different. Rather than give a protracted speech, let’s do sort of a “lightning round” of observations and comments on five subjects. A few of these might be a bit provocative. We’ll see. Then, when finished, while I’ll be pleased to give more texture to my remarks or answer questions on other matters, let’s get your take on things. I’m most interested in hearing what you might have to say.

Debbie Downer

Before we begin the now super-anticipated lightning round, here’s fair warning that some of the remarks won’t be so encouraging or cheerful. Who remembers the character Debbie Downer from Saturday Night Live? Rachel Dratch is so funny in that role. Even when there is good news, she’ll say something depressing or discouraging. Then, it’s followed by that, “WAH, WAH, WAH.”

In one skit, Jimmy Fallon says he loves steak and eggs. Debbie Downer replies, "Ever since they found mad cow disease in the U.S., I'm not taking any chances. They say it can live in your body for up to three years before it attacks and destroys your brain." WAH, WAH, WAH.

So you’ve been warned. But don’t worry; we’ll end on a somewhat loverly and positive note. I promise.

Lightning Round

Here we go with our lightning round (somebody queue the Sabre Dance music):

    1. The Dow Jones industrial average closed on April 9th at an all-time high of 14,673, a week after the previous record—yea! Throwing you off with this positive news, aren’t I? But, (there’s always a “but”) one percent of America—one percent—owns half the stocks and bonds. Think about that. One percent owns half of all the stocks and bonds in the nation. That’s kind of mind-blowing, and not good news at all in my book. Something is whacked. In fact, the bottom 50 percent of Americans own only a half a percent. Wha wha what? WAH, WAH, WAH. In fact, according to a study by Michael Norton from Harvard and Dan Ariely from Duke, 40 percent of our wealth is concentrated in that same one percent of our population. That’s just amazing—and messed up.

More lightning round…

    2. The unemployment rate fell to a four-year low of 7.6 percent last month, down from 7.7 percent in February. However, many suggest the rate fell only because more people stopped looking for work and were no longer counted as unemployed. WAH, WAH, WAH.

    3. Wall Street salaries, while still lucrative, have been reduced for many. On average, however, a U.S. worker spends at least a month to make what a Fortune 500 CEO makes in one hour! WAH, WAH, WAH

More lightning round…

    4. Federal regulators are catching more bad actors in the financial sector than ever before—yea! Still, more financial sector malfeasance is going on than ever before. Heck, I wrote a book called “Ponzimonium: How Scam Artists Are Ripping Off America” in the wake of the Madoff scam. But it isn’t just Ponzi cons; we see violations of the law at the largest of the large firms in the world.

We have the Libor manipulation efforts with Barclays, UBS and RBS. In fact, I’ve suggested that regulators should be suspicious of many of these benchmark rates—metals, energy, swaps and others. We wouldn’t be doing our jobs if we assumed that the likes of those who brazenly and flagrantly tried to manipulate Libor might not try it with other marks. We should consider our oversight of benchmarks like President Ronald Reagan considered dealing with the Soviets: trust but verify.

Plus, there are many U.S. banks, including U.S. Bank, Bank of America and a dozen others who ripped off their own customers and settled with the Department of Justice for rigging ATM and overdraft fees. Wells Fargo discriminated against minority customers by charging them higher mortgage interest rates and fees. There’s MF Global losing a billion in customer funds, and last year, close to here (in Iowa), we saw Peregrine Financial go down.

By the way, at the CFTC, we have 750 to 1,000 individuals or entities under investigation at any one time.  Bully for us, but we have only about 165 people in our Division of Enforcement.  You can do the math.  WAH, WAH, WAH.

And the final lightning round issue…

    5. Congress passed and President Obama signed the Dodd-Frank financial reform law to address the problems that created the 2008 (and counting) economic fiasco.  After some delay in getting their motors running, regulators headed out on the highway.  In fact, by last summer they—most federal agencies working on Dodd-Frank rulemakings—seemed to be on cruise control and had completed 31 percent (123 out of 398) of the required Dodd-Frank rules by the two-year anniversary of the law.  Our Agency had held 28 Dodd-Frank open public meetings related to rulemaking.  We’d completed 64 percent of our rules.  We’d done a greater percentage than any other agency.  We were rocking n’ rolling. I’m very proud of my colleagues and our staff for all that important work.  

But, since last July, we’ve held 15 different days as potential public rulemaking meeting dates.  We’ve held three different dates this month.  Guess how many pubic rulemaking meetings have taken place?  Not one:  zero, zilch, zippo.  We have managed, through our private approval process, to complete a few rules.  That brought our 64 percent from last July up 3 percent to 67 percent.  WAH, WAH, WAH.

But it isn’t just the CFTC. All the federal financial regulators, as a group, have slowed significantly. To some, we might seem like slackers. I’m afraid we have lost our way.  We’re certainly in a heck of a jam.  All of the Dodd-Frank agencies went from 31 percent last July to only 37 percent (148 out of 398 rules) now!  That’s just a 6 percent improvement.  It’s been a long time since we rock n’ rolled. A lonely, lonely, lonely, lonely, lonely time. WAH, WAH, WAH.

On that high note, someone sound a buzzer or something.  That’s the last of the lightning round. 

Volcker Rule

However, before we move on, let’s spend a little more time on this one—Dodd-Frank—because it’s a big deal that we have lost our way.  When I say “we” I mean the federal government regulators working on these rules.  While I certainly can’t speak for other regulators, I can say that I’ve had private conversations with some of my colleagues in government, and I’m not the only one who has the view that all is not going so tremendously. Plus, those percentages speak for themselves and they say, “Ugh!”

Now, before those who hate Dodd-Frank read this and get their tails in a wag and into some weird foamy froth, let me add a warning.  Some don’t know how lucky they are to have Dodd-Frank.  I’m talking about the biggest of the big financial players, those once (and some potentially still) in that category of firms that could cause some systemic risk to our economy if they go down—those folks.  Dodd-Frank explicitly says there won’t be another bank bailout like the Troubled Asset Relief Program (TARP).  But heck, I worked in Congress for many years.  Congress changes laws all the time.  They could theoretically do another bailout, sure.  However, I don’t see that happening—no way, no how.  Even though TARP sorta kinda worked, folks hated having to vote for it.  Even the auto bailout was a political football last year, and that, too, worked out really well.  I mean, we have an auto industry because of it.  That’s nice.  But, I can’t envision another bailout for any financial institution.  Nope, I don’t see it.  What that means is that rather than looking for Dodd-Frank loopholes or getting in a giddy that regulators are going slow, the big financial firms should be uber risk averse.  Rather than potentially compromising your supposed values, in favor of fast, dicey deals with potential profits, the best approach is to be extra cautious.  Not only is the bailout backstop gone, but the break-up-the-banks crowd is growing. 

That’s why one Dodd-Frank rule, in particular, might actually be the large investment banks’ best buddy:  The Volcker Rule.  It’s named, of course, after former Federal Reserve Chairman Paul Volcker.  It states that investment banks may no longer undertake proprietary speculative trading.  A strong Volcker Rule will stop those over-the-top, big fish gambles. 

A sturdy Volcker Rule will end the perverse incentive to put a firm above customers.  We saw that happen at two notable banks.  They coaxed their very own customers into certain funds, and then once the funds were populated, the banks took the opposite position of their customers.  The Department of Justice had something to say about that.  It involved the banks paying hundreds of millions of dollars.  A strong Volcker Rule would take away the motivation to whack your own customers.  Customers would be their special purpose, not the investments of the banks.

Of course, those folks don’t listen to me on strategy, but this isn’t some Jedi mind trick.  My unsolicited advice is this:  keep your noses clean, do your best to clean up the culture in the industry by example, support a robust Volcker Rule and hope one of your colleagues doesn’t have some colossal screw up that takes you all down.  WAH, WAH, WAH.


So, I mentioned that I wanted to end on something positive.  Guess what?  Chairman Volcker is once again very useful and can help me explain.  Funny how that works, huh?  The Chairman said he wished the Volcker Rule had been a lot shorter.  He said, “I’d love to see a four-page bill”—that, as opposed to the mammoth 240-page proposed rule.  The moral of the story is, and my remedy for these bureaucratic blues is this:  keep it simple stupid.  You may remember that acronym:  K-I-S-S—keep it simple stupid.

There are many reasons why we have lost our way on Dodd-Frank.  We’ve seen this over and over and over again in attempting to promulgate the rules.  The fault is not just the financial sector seeking to assert a heavy hand.  It isn’t just those suggesting that we “go slow” or those that take us to court.  They (the financial sector) do, by the way, have ten lobbyists for each member of the House and Senate.  They do, by the way, have a political war chest larger than all others.  They do, by the way, have the resources to litigate.  That’s because even after many in the financial sector helped create the economic crash, every single quarter since that time, the financial sector has made more profits than all other sectors of our economy.  But, the delays aren’t just due to those folks.

The delays also aren’t just from those seeking innumerable carve-outs and exemptions.  And, it’s not just anti-regulatory elected officials attempting to defang and defund financial market reform by cutting our budgets or weakening the law.  It is also the regulators themselves, and that includes the CFTC, and at times, even me.

All too often, over the past three years, regulators have unnecessarily “complexified” a proposal.  I guarantee it is going on at the CFTC headquarters as I speak.  Although, the Volcker Rule proposal could be Exhibit A, they’ve mired things down with so many addenda, caveats and provisos that we’ve lost sight of what we’re working toward.  To my mind, there need be no disconnect between finding a result that ensures a healthy business atmosphere and at the same time safeguards a fair, open, competitive marketplace for consumers.  We can do this, in a respectable, reasonable and responsible way, but not if we needlessly continue the cycle of increasing complexity in attempting to develop our solutions. 

Don’t get it wrong, I’m no Pollyanna (as has been documented in voice and verse this afternoon).  This area of law can be really complicated.  However, we’ve made things worse by focusing too much on the minutiae and too little on the end game. 

Sure, it can be difficult to work a deal between disparate and competing interests (remember I worked in the Senate).  However, given the importance of these issues and where we find ourselves today, we need to focus less on the deal-making, and more on the final deal.  Have some meetings.  Take a hint from President Bullard and add more transparency by letting the public see us.  Offer some amendments. Git-r-done!  We just need to KISS.  I mean, we need to keep it simple stupid.  If we do that, I’m very optimistic that we can get back on our regulatory road to recovery. 

Thank you.

Last Updated: April 16, 2013