Public Statements & Remarks

“Polls, Pols and Poltergeists”

Speech of Commissioner Bart Chilton Before the Regulatory Compliance Association, New York City

    October 31, 2013

We Just Don’t Care Polling

“One ringy dingy…two ringy dingies. Goodness gracious (snort) hello, I’m from We Just Don’t Care…Polling. We Just Don’t Care Polling, that’s us.”

Happy Halloween! I’m so jacked up for the opportunity to spend some time with you. We are going to talk about some cha cha changes and imagine—imagine—some neat stuff. Part of that will be through our polling. All of your answers will be kept strictly confidential. The lawyers ask me to say that—your answers will be kept confidential—but in reality, we just don’t care—We Just Don’t Care Polling.

This is a large crowd, I'm told around 1,000 people. That affords us a few “pretty, pretty, pretty good” polling opportunities; things we can't accomplish in smaller focus groups. We’re going to use our size to surmise what we think about a few things.


Ready go. Let's start with this: the Rock and Roll Hall of Fame will be inducting new members in December. I’m going to give you three of the nominees and ask for a round of applause for each. The loudest response will be our Halloweeener.

Let’s test our applause meter so that our results won’t be skewed. I’d rather not say, “You can do better than that.” Let’s get it right the first time, shall we? Try it now, applause, applause, applause. See, we don’t even need an “applause” sign like the talk show hosts.

I’ll let you know who they, the nominees, are first, and then we’ll find out what our survey says. Here they are: Linda Ronstadt, Yes, or Hall and Oates. Here we go, by applause, who should be inducted into the Rock and Roll Hall of Fame: Linda Ronstadt? Yes? Hall and Oates? Let’s say Yes we have a winner—a Halloweeener, in a Roundabout way.

About now, you might be asking what this has to do with the financial sector or markets, well—“Absolutely nothing, Say it again y'all. War, huh, good God, What is it good for, absolutely nothing.” I’ll say it again, We Just Don’t Care Polling.

Pols: War of Words

Actually, as long as we stumbled upon war, let’s move to the war of words that we’ve been hearing from the Washington “pols”—the politicians. Many seem to think that in order to get a leg up they’ve go to tear others down. We’ve heard that war of words despite a lot of efforts to tune it out—nah, nah, nah, I can’t hear you. But a bit of that made it through to most of us.

Some of the pols have made linguistic gymnastics an art form. For example, many who voted for the government shutdown are now spinning that they didn’t do so. It’s one thing to have a difference of opinion and to stand up for one’s beliefs, but to run from the previous post, claim they fought to keep government open, point their fingers in the opposite direction claiming, “He did it. She did it. Wasn’t me!” To rewrite the facts afterward, treating the people who bankroll government paychecks as dummies? That doesn’t clear even the lowest integrity bar.

This war of words is fueled and fouled by 24/7/365 television, and the inflated rhetoric that seems part and parcel to contemporary programming. The lines between being a policy advocate and a thespian (much less those between news and entertainment) have been so badly blurred, average Americans can’t see through the fuzz. It has turned people off and tuned people out.

Many of those sticking with it, those still tuned in and watching their one-sided network of choice, find themselves altogether intolerant of others. Some see wimpy weasels weakening the fiber and fortitude of the founding fathers. Others see swine swigging from 80 proof bottles of patriotism and behaving badly. Here’s what many have in common: they can’t stand; they can’t stand people on the other side of an issue. It’s a sad shame that so many Americans have zero tolerance for those with differing points of view.

The result of the current circumstance, including the war of words, is that Washington can’t complete the most basic of responsibilities—such as passing an annual budget or paying our bills. Its dysfunction junction and it can’t function.

The American people understand that much. An NBC News/Wall Street Journal poll a few weeks ago found that 60 percent of Americans say every Member of Congress should be fired. Who said we don’t need Donald Trump? “You’re fired!”

Tip, Gipper & Nixon

By the way, if you want to know how things should work, get the new Chris Matthews book, Tip and the Gipper: When Politics Worked. Those gentlemen leaders, Speaker O’Neill and President Reagan, got along even though they disagreed on more than they agreed. I’ve been fortunate to witness a lot of great bipartisan work over the last few decades. During the Clinton Administration, landmark bipartisan legislative collaboration produced accomplishments, like on welfare reform. Despite the impeachment proceedings, some modicum of bipartisanship carried on into the first few years of the Bush Administration, but since then, well…not so much.

Let’s do a lightning round pol poll for the heck of it. Which US president signed the Endangered Species Act into law—Kennedy, Nixon or LBJ? Kennedy? Nixon? LBJ? Ah, President Nixon. Despite the intense times and political divide, Nixon was able to work with Democrats on that and several other initiatives. It was good for the country, and very good for some Livin’ On The Edge critters, including the snail darters! We need that sort of attitude again in DC (the working together attitude, not the creepy impeachable stuff).

Pickers & Ethics

Back to polling. How about a reality television question? Three choices for which reality television show you like most: American Pickers, you know with Mike and Frank searching for rusty gold; Storage Wars, the original; or Duck Dynasty…happy, happy, happy. Let’s go: American Pickers? Storage Wars? Duck Dynasty? And, Duck Dynasty is the number one show on television.

Most of the people on those reality shows seem to have fairly decent standards and above average ethics. I recall Mike Wolf on American Pickers giving a fellow twice what the guy had asked for on an item because it was worth more than the seller knew. Trustworthy. That’s integrity. He often times pays a bit more than he’d like to on a first buy, just to break the ice and get the negotiations going. Fair. Honest. Smart. Successful.

So, let’s move on to ethics. Which profession has the highest ethics? Three choices: politicians, the pols we just spoke about; those working on Wall Street like many of you, or…wait for it: sanitation? Let’s go. Politicians? Okay, how about Wall Streeters? And, finally, sanitation workers?

Ah, “my, my, hey, hey” sanitation workers win the day.

Wall Streeters

So let’s move to the other also-rans, the Wall Streeters.

First, “OMG”, we are blasted almost daily with this firm or that individual doing something illegal. Here’s a data point for you that gives an idea of how bad it is out there: the CFTC collected about $1.5 billion in civil monetary penalties from those who broke the law last year. Our annual budget is roughly $200 million. Who knew? We are a profit center!

Another survey question: Which profession has generated more profits than all others since the fall of 2008: food services, internet technology, or the financial sector? Here we go: Food services? Internet technology? The financial sector?

Yep, it’s the financial sector. They’ve been killing it, but good, for a good long time.

“And isn’t it ironic…don’t you think” that those who helped create the economic calamity have made more than all others. At the same time, we’ve seen unprecedented malfeasance by the same lot. “Who would’ve thought…it figures.” (Alanis [Morissette] isn’t eligible for the Rock and Roll Hall of Fame until 2016.)

The Remedy

The remedy to all the malfeasance in the financial sector is three-fold. First, we need serious and significant penalties that aren’t just considered a cost of doing business. Next, if folks do the crime, they should do the time, not just pay the fine. And third, this is going to take a culture shift which starts with the firm executives and boards of directors.

The first thing firms should do, and perhaps some of you can help in this regard, if they or you haven’t already, is take a step back and look at it from the average person’s viewpoint; from the perspective of all stakeholders, not only financial investors and shareholders.

The scandals and greed driven improprieties have been plastered on the pages of the papers and our screens. I spoke with someone last week who said one of their colleagues couldn’t “look her relatives in the eye and tell them she worked for the financial sector.” Wow. That’s tough stuff.

Terry Duffy, the Chairman at the CME Group wrote an excellent opinion editorial a few weeks ago in the Wall Street Journal. He worried about the decrease in the number of college students turning to the financial sector and how he’s concerned that trend will continue. Here’s just a little bit of what he wrote:

“…Wall Street has suffered reputational damage, thanks to a few bad actors, that can't be undone simply by waiting for memories to fade and an economic boom to kick in. I'm concerned that those of us in financial services have forgotten who we serve—and that the public knows it…For instance, no matter how much you hear about ‘institutional money,’ there is no such thing. Those funds belong to individuals, and regardless of how many zeros are on the ledger, it is money that real people have entrusted to others for savings, retirement or education. That is a reality too often ignored, and when it is ignored, some Wall Streeters can too easily slip into regarding their work as a kind of money-making game divorced from the concerns of Main Street.”

It is vital for Mr. Duffy’s message to be heard and to be acted upon.

With regard to what else can be done at the firms, instead of rewarding the aggressive “Hey! Hey! Hey, hey, hey! Macho, macho men” traders (many of whom have perverse bonus incentives) how about incentivizing credit and risk managers? How about making those credit and risk professionals a top recruitment priority?

The bottom line is that the financial sector has been somewhat of a scary hot mess for the last few several years. Fortunately, that seems to be on the verge of changing.

Scary Movies—The Blob

Okay, speaking of scary, since it’s Halloween we have a polling question on the scariest movie. Three choices: Carrie (the new or the old one, “If I concentrate hard enough, I can move things.”); Poltergeist (“Carol Anne…Do not go into the light.”); or The Shining (“Here’s Johnny”). Ready? Here we go: Carrie? Poltergeist? The Shining? We have another Halloweeener?

There’s another scary movie. Its way old, so many of you may not have seen it. Anyone remember The Blob?

The Blob was made in 1958 and starred Steve McQueen. A meteorite crashes near a small town and when it’s examined, there’s this oozing jello-like substance, the Blob, which starts coming out. It gets larger and larger and begins to goo through the town. When touched, it’s agonizingly painful and it kills people. As it kills, the Blob keeps getting bigger and bigger and starts to devour the entire populace.

The point here—and I actually have one—is that we’ve seen a few threatening Blob-like changes going on in markets for the last few years.

Markets have morphed from what they once were. We’ve seen institutional investors diversify their portfolios into derivatives and park money in markets like never before. I term these folks Massive Passives because they are very large and fairly price-insensitive in their strategy. I’m not suggesting the Massive Passives are ghouls or anything. They have every right to be in markets and they provide liquidity.

So, what’s the prob, Bob? Well, at times, the Massive Passives have helped put a kind of thumb on the scale when they get in and go long. Generally, they aren’t getting into the crude oil market for a few days or even the summer driving season. They are getting in for a few years. Again, nothing wrong with that, but it has impacted prices. Like the Blob, the Massive Passives are oozing into different markets and when they touch things, it can be painful. (I’m not saying it’s always painful. They aren’t exactly like a 1958 movie, but you guys get the concept.)


The other Blob-like morphing of markets has taken place with technology. Another quick lightening round polling question: Which has more glitches, financial market exchanges, your laptop, or the ObamaCare website? Okay, that’s rhetorical. We aren’t going to poll that one.

Technology in markets has been a great thing, but not always so. We’ve seen dozens of tech glitches. Even the Geek Squad is awed at how flawed these systems have become.

Then we have our fine furry friends, the high frequency trading Cheetahs. Just like the cheetahs in the wild, these HFT Cheetahs are junglizing markets. Wait, but they are also Blob-like. Let’s just say they are really scary due to how they feed and they are fast.

How fast are they? Let’s find out what the survey says. How many milliseconds are there in a second: 10, 100, or 1,000? Here we go: 10? I’m a French model, bonjour.)

Next question: There is a fiber cable that runs from Chicago to here, to New York City. It takes how long for a trading message to travel the entire length. Is it 1.45 seconds; 145 milliseconds; or 14.5 milliseconds? Here we go: 1.45 seconds? 145 milliseconds? How about 14.5 milliseconds? Yes, it’s the last one. It takes 14.5 milliseconds.

Now, this is how valuable that speed is in today’s Blob-like jungle-whatever trading environment. There’s a new fiber being run from Chicago to New York, but this one is traveling a more direct route. It’s costing tens of millions. This new cable will cut the time down from those 14.5 milliseconds to 13.1 milliseconds. It is going to save only 1.4 milliseconds. We are talking about a thousand parts of a second here. It’s hard to even conceive.

What that means is while the Cheetahs may make more money if they are faster (and they do and they will), there are far more opportunities for bad things to happen at lightning speed. Hmm, there’s a frog or a Blob or something caught in my throat…pardon me, um, Flash Crash, um, Knight Capital. Not that there are any examples of that occurring, but theoretically, like in a move, it might be that we could see a technology glitch or even an intentional cyber-attack that could bring a market down and shred investors. (There are other issues with the Cheetahs, but we’ll leave it at that for today.)


In the movie, in The Blob, how they ultimately took care of the thing was to freeze it. I think they took a bunch of fire extinguishers, perhaps from the high school, and froze it. The military put it onto a plane (not sure how, since it was so big, but they did) and flew the Blob to the North Pole or someplace cold, maybe near Governor Palin’s place. That was the end of the Blob (until the remake in 1988).

Well, hold on. That was the end of the Blob at least until Vice President Gore gets a hold of the thing given global warming. It could thaw! Uh oh. The Blob, Part II, maybe coming to a theatre near you! The meltdown begins…boom, boom, boom. And then, in the dark with the screen all black, you’d hear that gross slurping sort of sound the Blob made…in Dolby surround-sound. I’m creeping myself out. Don’t do, Mr. Vice President!

But I digress. I am all for innovation. I don’t think we should freeze the HFT Cheetahs, they should be able to continue to operate; but they do need some fairly pedestrian requirements.

First, let’s ensure that they are registered with the CFTC. Not all of them are, and if the Agency needs information, there shouldn’t be a wait for lawyers to get a judge to provide a subpoena. Registration is a very basic, and needed first step.

They should be required to test their programs, and ensure that they have operating kill switches.

Some in the European Union have suggested, and are putting forth legislation to slow the Cheetahs down. I’m not sure that’s the right answer, but it is worthy of consideration. At this point, we need more information.

These two Blob-like market morphing matters—the Massive Passives and the Cheetahs—are things we need to not only be cognizant of, but things that deserve thoughtful policy provisions which ensure that traders, markets and consumers are protected as best we can, without inhibiting legitimate trading.


It’s that legitimate trading and our financial sector as a whole with which I want to conclude.

Oscar Wilde, the flamboyant and quick-witted cultural commentator said, “To expect the unexpected shows a thoroughly modern intellect”. He made the statement in the late 1800’s. Back then, people tooled around in buggies and homes didn’t have electricity. At the same time, there were some things being invented that really caught people by surprise: typewriters, seismographs, escalators, contact lenses, dishwashers and washing machines, cash registers, and even radars and metal detectors.

Just think for a moment what it must have been like with all of these changes! Think about computers and smart phones and the internet and how we have been dealing with our own technology change. Then think about all those changes from the late 1800s. It was a whirlwind and a blur then as well.

It was within that context and timeframe that Wilde made his comment about the thoroughly modern intellect. Expect the unexpected.

Expecting the unexpected readies us for adapting to change, whether it’s a change in government funding through a shutdown, a change in political office holders and administrations, a change in product offerings or players, like the Cheetahs and the Massive Passives, a change in regulations or business environments like those emerging from Dodd-Frank and related financial regulations around the world.

Change is challenging and most of us resist it in one way or another. Some of the naysayers complained that Dodd-Frank would slow the economic recovery. Guess what? The reverse is happening: new businesses are being created. New market products are being offered. New technologies are being used. Take for example Swaps Execution Facilities, SEFs, they are just up and running now, earlier this month. These are the regulated venues where previously unregulated swaps are being traded. They are doing gangbusters. They are taking off.

To effectively drive change requires more than merely “expecting the unexpected”. It requires arguably more than adaptation and change management…though shared goals and expectations among all stakeholders—lawmakers, regulators, business, investors and consumers—would be a great starting point.

In today’s global economy—and I will spare you the Halloween headless horseman analogies—the world, not simply your employers and the United States, but the world, is looking for leadership. Character. Ethics. Trust. Creativity coupled with solutions.

I deeply believe that the financial sector, if it can respond to the best and most noble in us, can and will do more than expect the unexpected. You can be Imagineers.

It’s an interesting word, isn’t it? Imagineers. Growing our isolated local economies dependent on wagons, buggies and telegraphs to a global one utilizing high speed rail and iPhones required thousands of Imagineers—people who combined imagination with engineering. It’s a phrase popularized not in the 1950s and 60s by Walt Disney, but a decade earlier in the 40’s by Alcoa to describe their own innovation process. Alcoa described is as “letting your imagination soar, and then engineering it down to earth”; Letting our imaginations soar, and then engineering them down to earth. Reengineering the way we move forward, and redefining the markets and the way in which we function in them. Driving change.

(Incidentally, I met with Klaus Kleinfeld, the Chairman and CEO of Alcoa earlier this month. We didn’t discuss the word, but they are still Imagineering. He said when they look at building a plant; they look at it over 50 years and 100 years. Wow, that’s visionary.)


So, no polling question, contemplate this one. Ask yourself this: Is your professional field—the financial sector—and each of you as individual professionals within it—on the cusp of imagining the markets as they can be? Or, are you waiting to find what will come your way? Are you thinking about engineering the products, the services and parameters of the marketplace in a way that energizes your firm, our nation and the global economy?

Here’s why that’s an important to consider, and why I’m so high on the future. The financial sector has always been a change agent our economy needed throughout history. Some say the railroads built the nation, and there is no denying they played a pivotal role. But the banks and the financial sector built the businesses, the homes and the communities on those rail lines and everywhere else in the nation. They helped fuel the economic engine of our democracy.

It’s not like a few very bad years with some horrible consequences are going to take away the need for a vibrant financial sector. We need it. We want it. We gotta have it. As change agents and Imagineers, you are each in a position to step up and help get us back to where we need to be.

Five Years and the Future

The next five years will set the stage for how the financial sector operates for the next 20 or 30 years. That’s because the entire world is going through regulatory reforms. We in the United States are ahead of others in this endeavor. That’s a competitive advantage for you. Take it!

I head our Global Markets Advisory Committee for the CFTC. Last week in Chicago I met with a group of international regulators to talk about how to harmonize rules and regulations. The work is going on now and it will be done over the next few years. Once those are in place, and harmonized to the greatest extent practicable, those will be the rules.

What that means is the changes that are taking place now, just like in the 1800s and in the post-war 1940s, will have a monumental impact upon our financial sector and upon markets. Instead of being scared or spooked by the changes, let’s embrace the change, define and drive the change for the better. Let’s be Imagineers.

What that means for individual firms is that you need more than a compliance officer reacting to final rules, “expecting the expected.” You need visionary folks expecting Oscar Wilde’s unexpected, helping to manage the change in a way that makes and takes that competitive advantage of the rules and regulations here and around the globe. You need corporate cultures, like those of Alcoa in the 1940s and Disney back as early as the 1950s and still today, that encourage ethics, trust, integrity, interdisciplinary collaboration, social responsibility and Imagineering.

Final Question

So, here’s our final polling question: who thinks American’s best days are ahead of us and who thinks they are behind us. Only two choices. Ready, go: America’s best days ahead of us? And, behind us? Bravo for the optimists, the Imagineers!

In a Rasmussen Reports national telephone survey two weeks ago, only 31 percent of U.S. voters think American’s best days are still to come, down from a high of 47 percent a year ago September. I think you guys, newly enlisted Imagineers, are actually more positive than average Americans, and props to you.

So, keep on being positive. I love it.

The Analysis

Alright, after all of this polling I’ve come to a conclusion that I wouldn’t normally share, since we just don’t care, but here’s the two part takeaway, the thoughtful analysis. One, it’s clear from our research that we’re all here, but we’re not always all there. Let’s blame it on Halloween. Two, for those who do dare to care, the Imagineers, there are a lot of positive opportunities out there. We just need to be nimble and quick and keep looking around the corner.

The financial sector is on the threshold of a very, very exciting change. I encourage each of you here to be there, to expect the unexpected, and dare to create stronger, more ethical, more sustainable markets and a flourishing financial sector for the future. You easily can transcend the war of words of the pol, as well as the pitiful polls. You can manage the occasional poltergeist, Blob and Cheetah. You can Imagineer and help grow healthier economies around the globe. Why would you not?

I thank you for those efforts that you are, and will be, making. I appreciate your time, attention and your participation in our polls. I’m told we have some lovely parting gifts. Oh, what? We don’t? Sorry, forget that. You have my appreciation.

It’s been a scream. Thanks all y’all.

Last Updated: October 31, 2013