Speech of Commissioner Bart Chilton to the Global Grain Chicago Conference, JW Marriot, Chicago, IL
June 21, 2013
Hello! Thanks for that introduction. More importantly: Go Hawks! Go Hawks! Go Hawks!
It’s good to be with you at this time in this place: the morning of June 21, 2013 in Chicago, Illinois, USA. Some of you may look at me with my weird freak flag and assume I’m from the 80’s or 90’s, but in reality, for today at least, “I am a traveler of both time and space.” And I must be, “To be where I have been.” If you guys are up for it, I’d like you to join me for what will only be, in real time, the 15 short minutes I’ve been allotted.
Back to the Future
Cool. Remember the original Back to the Future with Michael J. Fox (Marty McFly) and Christopher Lloyd (Dr. Emmett Brown—Doc)? They were wonderful. Do you realize that was a 1985 movie? It is already 28 years old? Wow! For those of you who don’t know, Doc builds a time machine into a DeLorean automobile—those hipster cars. And, by the way, John DeLorean was a brilliant engineer. When he worked for General Motors, he brought us the fantastic GTO, the Firebird and the Grand Prix. Too bad he couldn’t get DeLorean off the ground like Doc.
At any rate, let’s get back to the future. There’s an exchange in the movie—in 1955—when Doc discovers that Marty is actually from the future, from 1985. Doc says, “Then tell me, future boy, who's President of the United States in 1985?” And Marty says it’s Ronald Reagan. Chuckling in disbelief, the good doctor says, “Ronald Reagan? The actor?” Then he muses, “Then who's vice president? Jerry Lewis?”
So, let’s fasten our seatbelts. I’m turning on the flux capacitor in our DeLorean because we’re gonna spend time in some other times and places—past, present and future. Let’s start with the past.
Back to the Future—1848
We are now set to this city: the year, 1848. Hold on, here we go—whoosh!
Everyone alright? We are here in the Windy City, 1848. Seems a little chillier than when we left—hmm. There’s a group of guys—future boys in their own right—meeting just over there above a feed store on Water Street. These future boys are trying to figure out a way to solve a difficult dilemma in grain markets. You know the story: farm prices are being whipsawed with wild boom and bust cycles. The cash markets usually tank at harvest time. Then when the supply bottoms out some months later, processors and consumers pay dearly for the commodities.
These 25 future boys have come up with what will become the Chicago Board of Trade (CBOT). It will be a place to gather ‘round and haggle about the price of a commodity in the future. And as we know, because we too are all future boys and girls, it all works out. It helped even out prices and provided for some risk transfer.
Back to the Future 2008
Okay, back in our DeLorean. Flux capacitor set to 2008. Hold on, here we go—whoosh!
Here we are in 2008. That DeLorean is great, no? So, what’s changed? Well, there’ve been even more actors in politics than when Doc goofed on Marty about 1985. One was the Governator of Cal-ee-for-knee-a. And then there’s the gifted actor then U.S. Senator, Fred Thompson. He actually played a role as President of the United States, and then he really ran for President. How uncanny is that? He now pitches reverse mortgages. And improbably, Fonzie from Happy Days—Henry Winkler, “Aaaaeeeyyy!” also pitches reverse mortgages. Happy Days was a 70’s and 80’s show about the 1950’s and I’m talking about it today, here in 2008.
It’s tough to keep up with all this time travel, but stick together. Maybe we use the Buddy System. Wanna hold hands with your neighbor? Okay, then we’d better focus.
Here we are in 2008 and the constructs of markets remain pretty much the same. What those 1848 future boys started has expanded. There are still commercial end-users, and speculators. The speculators continue to gamble that they can make money from a futures contract by selling it later if prices change. What’s changed is that there are now energy, metals and financial futures contracts. That original idea really was superb.
What’s also changed is that some of those speculators are using a different trading strategy. Instead of getting in and getting out of markets in days or weeks or months, large shares of them are staying in markets for years. They are using futures markets like investors use the stock markets. That’s causing some issues.
Some of the other speculators, using wham bam technology, are literally in markets for seconds—many times milliseconds. And, these new speculators are impacting markets in ways that nobody envisioned just a short time in the past.
The other thing that has changed is that the markets aren’t just in Chicago. And they aren’t just in New York. Markets are intricate, interrelated and international. They’ve gone where no future boy or girl would have imagined back in the day.
And, all of this is coming to a head right now, in 2008. And there is an even larger issue with regard to trading that is not taking place on exchanges, but is transacted on over-the-counter (OTC) markets. They’re called swaps and they are utterly unregulated. But, it took a special sauce to create what was to come a little later this year. That special sauce was the mixture of laws, rules and regulations that had been tossed aside and allowed the captains of Wall Street to get involved in all sorts of risky bets that ultimately crashed the economy. Folks lost their pensions, homes lost value, people lost their jobs, and taxpayers had to bail out some of the largest financial institutions on earth. Ugh.
Let’s bail from 2008. This part stinks.
Back to the Future 2010
Okay, we are back in the DeLorean, with our flux capacitor setting to 2010. Hold on, here we go—whoosh!
Here we are in 2010. Congress has just passed a financial reform law. At a White House ceremony, President Obama signs into law a measure to address all the causes of that 2008 mess. Incidentally, just a few short weeks ago, the name considered for the new law was the Frank-Dodd Act. Chairman Frank of the House Financial Services Committee explained that folks might think Frank Dodd was one guy, so the law was named Dodd-Frank (true story).
In order to avoid a repeat of 2008, Congress and President Obama want Dodd-Frank to be law implemented a.s.a.p. They set the timetable into the law and give five financial regulators—the SEC, the CFTC, the Fed, the CFPB (Consumer Financial Protection Bureau), and the FDIC—a year to do the job. There are 400 rules that are to be written to fulfill that mandate. Regulators start their work.
Back to the Future 2012
Let’s take a quick hop to 2012, but do a fly by 2011 and see if we can see anything there. We’ll see how regulators did in getting all those 400 rules finished. Back in the DeLorean with the flux capacitor appropriately set. Hold on, here we go—whoosh, whoosh, whoosh! It took a little longer doing the fly by.
Did you future boys and future girls see what I saw in 2011 on our way to 2012? It was quick, but Senator Dodd of Dodd-Frank is now the head of the Motion Picture Association of America. And, not many of those 400 rules and regs have been completed like Congress and President Obama wanted.
So, here we are in 2012, and regulators have only completed 31 percent of those 400 rules. Lobbyists are falling all over themselves to weaken the law. Numerous lawsuits are in various stages of litigation to thwart or roll back Dodd-Frank. Some in Congress are trying to address aspects of the law through legislation, or by decreasing funding to regulators in an effort to slow down the rule writing. This isn’t good.
Back in the car.
Back to the Future 2014
Okay, let’s give it another two years. This time we are going into the future. Flux capacitor set to 2014. Hold on, here we go—whoosh!
Here we are in 2014. This is different, isn’t it? Wow, does it seem warmer in 2014? Seems like, huh?
Oh, wait, wait, wait. Look at this headline. Hold on, just let me read the story from the celebrated financial reporters at The Onion.* Here’s the headline:
Financial Sector Thinks It’s About Ready to Ruin World Again
NEW YORK—Claiming that enough time had surely passed since they last caused a global economic meltdown, top executives from the U.S. financial sector told reporters Monday that they are just about ready to completely destroy the world again.
Representatives from all major banking and investment institutions cited recent increases in consumer spending, rebounding home prices, and a stabilizing unemployment rate as confirmation that the time had once again come to inflict another round of catastrophic financial losses on individuals and businesses worldwide.
According to a recent survey of Wall Street officials, 82 percent said they were “excited to shake off the rust” and send the Dow and NASDAQ into another freefall.
“Now that the public’s efforts to curtail questionable Wall Street trading practices have all but ceased, it’s time for us to bring the world to its knees again.”
* This excerpt actually is from The Onion, which I love, but obviously not from 2014. It is from June 18, 2013.
The full article can be found at this address: http://www.theonion.com/articles/financial-sector-thinks-its-about-ready-to-ruin-wo,32865/
Holy cow! We can’t let that happen. We need to go back.
Back to the Future 2013
Flux capacitor setting back to 2013. Hold on, here we go—whoosh!
Okay, back from our trip. Here’s what we know: regulators have only finished another 6 or 7 percent of the rules from when we visited 2012. Only about 37 percent have been done. They really slowed down. Now that stuff we read about 2014 makes even more sense.
We can’t let all that horrible stuff happen in 2014. We need to disrupt the space-time continuum so that future described in The Onion doesn’t materialize. We’ve gotta stop it. We just gotta!
The problem is we need to get the rest of those 400 rules in place to preserve what those future boys we met back in 1848 originally envisioned. We need to ensure that markets work for end-users and for consumers, and therefore help our economy. We can’t, yet again, be held captive to those that would do us harm for their own profit.
However, interrupting the space-time continuum is a precarious proposition. We aren’t supposed to change things or we risk altering other events that we can’t even imagine. All sorts of things could go wrong. We could mess stuff up more than fix things.
Unfortunately, my time with you is up. That was a quick 15 minutes. However, here’s my promise to you: I’ll go to work on all that. Wish me luck in the endeavor. I’d be pleased to report back to you future boys and future girls as we go forward. Just be careful not to repeat what we saw in 2014. Like I said, it could be dangerous.
Finally, and I’m hesitant to even mention this, but there is one thing I caught on our way back from 2014. It was so quick, I’m sure nobody else caught it. I’ve been doing this longer than you folks. I’m reluctant to share because it does tell the future that you don’t know, and “…not a word I heard…” should “…I relay…” but, “…the story was quite clear.”
Okay, here it is. I’m excited, but don’t tell. It’s just two words: Hawks win! Hawks win! Hawks win!
Thanks a lot.
Last Updated: June 21, 2013