Financial Reform Friday Newsletter

November 8, 2013

JP Morgan Chase: a one-bank crime spree. In a letter to Attorney General Eric Holder, Better Markets urged the Department of Justice to require comprehensive public disclosure of JP Morgan Chase’s illegal conduct connected to a potential settlement agreement. From turning a blind eye to the Madoff Ponzi scheme to rigging electricity markets to selling billions of dollars in toxic mortgage securities, JP Morgan has been accused of massive wrongdoing. As long as negotiations are taking place behind closed doors, the American people will be unable to evaluate if the settlement is just another sweetheart deal for Wall Street or an appropriate punishment for unprecedented and massive illegal and criminal conduct. It is time for the AG and the DOJ to stand firmly on the side of the American people, stand up for justice without fear or favor, and apply the law to Wall Street as it has always done to Main Street.

CFTC proposes new position limits rule. This week, the CFTC issued a new rule to curb speculation in the commodities markets. The rule, if properly finalized and sufficiently strong, should enhance the CFTC’s ability to prevent unscrupulous traders from manipulating commodity prices, which affect every American family from the price of their breakfast cereal to the gas they put in their car. Last week, Better Markets applauded the CFTC for withdrawing its appeal of a court ruling on the original rule, which ends protracted legal wrangling that would have continued for years. While it is a complex rule in many ways, it is vital to properly functioning commodities markets that promote economic growth and protect consumers, producers and purchasers. Better Markets will comment on the substance of the new rule during the comment period.

Chilton to leave CFTC. During the CFTC meeting on the new position limits rule, Commissioner Bart Chilton announced that he will soon leave the agency. It is a significant departure, as Commissioner Chilton’s service, record and values set a high standard for those who follow. He has been essential to CFTC efforts to bring necessary common-sense regulation to dark commodities markets.

OFR study ignores systemic risk. FSOC’s Office of Financial Research is studying whether asset management firms such as BlackRock and Fidelity are systemically important and merit stricter oversight by the Fed. OFR is supposed to be the gold standard for independent, rigorous and unimpeachable analysis of the U.S. financial system. Why is the crown jewel of the U.S. financial reform architecture studying the asset management industry, when it should be targeting the well-known and still-unresolved systemic risks inherent in our overleveraged, undercapitalized and too often unregulated banking system? It seems to confirm some of the worst suspicions that OFR is biased toward the too-big-to-fail banks that dominate Wall Street. Senator Jack Reed, a key architect of the statute that created OFR, voiced his concerns through a spokesperson: “OFR is supposed to be a data driven, thorough research entity. Senator Reed shares the concerns of Better Markets and others, that any OFR report needs to meet the high threshold for quality that was intended by the statute.”

Forex manipulation probe grows. Regulators’ investigation into manipulation of foreign exchange rates expanded this week, as Goldman Sachs acknowledged it is part of the probe. Morgan Stanley is also rumored to be cooperating with regulators. As with the Libor case, currency traders are alleged to have shared information to manipulate benchmark rates. The investigation, which began in June, is also focusing on JP Morgan Chase, Citigroup and HSBC, among other global megabanks.

Derivatives expert and reform advocate joins Better Markets. Caitlin Kline, a former derivatives trader for Credit Suisse, has joined Better Markets as a derivatives specialist to continue the fight to re-regulate Wall Street that she began with Occupy Wall Street and Occupy the SEC. With five years’ experience on a Wall Street derivatives desk and three years working to end the threat the too-big-to-fail banks pose to Main Street, Ms. Kline not only knows how derivatives markets operate but also how the biggest banks dominate, control and manipulate those markets. She will work for strong, common-sense and long-overdue reform of the U.S. and global derivatives markets.