Bernie Sanders didn’t have it.
Just months after President Barack Obamas’ first term in office, the young senator from Vermont appeared on the leftist television news Democracy Now to express his displeasure with Obamas being chosen to head the Commodity Futures Trading Commission (CFTC).
I don’t believe we need more of the same old same old, said Senator Sanders Democracy Now welcomes Amy Goodman. The philosophy that [Gary] Gensler married when he worked for Bill Clinton in the Treasury Department was heavily deregulated.
Two months later, Sanders and a few other Liberal Democratic senators voted against the nomination of Genslers. It didn’t matter much: Gensler sailed to easy confirmation.
What a difference 12 years makes. President Joe Biden called on Gensler to head the Securities and Exchange Commission (SEC), and neither Sanders nor anyone on the left flank of the Democratic Party made a big deal. When the Senate Banking Committee put forward the Genslers appointment on March 10, left-wing stalwarts including Senators Elizabeth Warren (D-MA) and Sherrod Brown (D-OH) gave Ginsler a thumbs up.
Why the change? One of the reasons is that Sanders’ particular concerns turned out to be false after Gensler used his position by leading the CFTC to attack the banks as aggressively as anyone in the Obama administration.
From Goldman Partner to Goldman Persecutor
In 2009, Sanders had his dander as Genslers track record suggested he could go easy on regulation of the derivatives market, which played a key role in the economic collapse of the Great Recession.
After all, Gensler had been a senior treasury official in a Clinton administration, which ushered in an era of financial deregulation. Prior to that, he spent nearly two decades as a partner at Goldman Sachs.
Recall that when Genslers 2009 was appointed, Goldman Sachs was accused of committing serious misconduct by falsely assuring investors that the securities it was selling were backed by solid mortgages, when it knew that they were full of mortgages likely to fail, according to the Ministry of Justice. Goldman ultimately paid a fine of $ 5 billion.
Much to the surprise of critics, Gensler will prove to be a very demanding regulator as the country slowly recovers from the housing crisis.
He pushed Congress to implement more transparency and stricter rules for the derivatives market, which was a big section of the Dodd-Frank banking reform bill. He later helped lead the charge against Libor, the lending benchmark that was manipulated by bankers between 2005 and 2009.
After a year on the job, Gensler is still being criticized, but not by the usual suspects, according to a June 2010 story in Institutional Investor. The banker-turned-regulator has won over most of his congressional skeptics with his staunch advocate of tighter regulation.
The big problems the SEC faces today
The SEC is the main federal regulator in charge of protect investors, control securities markets and facilitate capital formation. Basically, it comes down to making sure shareholders aren’t cheated, markets run smoothly, and companies are able to raise cash from investors.
Here are some of the more high-profile issues that Gensler, if her candidacy was approved, would focus on at the SEC over the coming years:
The Meme Stock experience
During his confirmation hearings, Gensler spoke about the recent explosion in popularity of day trading on apps like Robinhood, exemplified by the recent kerfuffle GameStop. The SEC will be the agency that seeks to contain the potential damage this trend could cause to investors.
I think the technology has enabled better access, but also raises some interesting questions, Gensler said during Senate hearings. What does it mean when balloons and confetti are falling and you have behavioral prompts to get investors to make more trades on what appears to be a free trading app, but there is also this payout in? behind the scenes?
This behind the scenes part refers to a practice known as payment for order flow, a controversial but legal practice whereby a brokerage like Robinhood auctions its clients in the market for orders to high traders. frequency. It’s a great source of income for a start-up like Robinhood, but it’s bad for users because the winner who fills an order may not always get the best possible price for an investor.
Genslers SEC will take a close look at some of Robinhood’s more aggressive tactics to induce trading activity. Also, it will probably go after online chat rooms, like the famous WallStreetBets Reddit forum, with the aim of controlling the hype of memes stocks.
Diversity of the conference room
Another point of contention at the Genslers Senate grills centered on a proposal from Nasdaq, the tech-driven exchange, which would require each of the thousands of companies listed on it to have a board that isn’t made up exclusively of straight white males.
This decision would require at least one position to be held by a woman and another headed by someone who is a racial minority or who identifies as gay, lesbian, bisexual, transgender or queer. Three-quarters of publicly traded companies currently do not meet this standard and could potentially be delisted. If a company does not have a sufficiently diverse boardroom, it will have to explain itself to the Nasdaq.
When Senators asked Gensler whether the SEC should require companies to disclose information about workforce diversity, he was rather vague on the matter. I think human capital is a very important part of the value proposition in so many companies, Gensler said.
Environmental, social and governance issues
Along with the diversity of boards of directors, Genslers SEC is expected to push companies to disclose more information on environmental, social and governance (ESG) matters. The amount and type of information that should be disclosed is the subject of debate.
The key is that investors need to have enough information to make informed decisions about their money. In his testimony, Gensler noted that Americans are increasingly interested in these issues and want more information. He believes the SEC has a role to play in ensuring that ESG information is consistent so that the investing public can easily make comparisons.
A Gensler-SEC will likely enact rules that make climate change disclosures mandatory, according to comment by the law firm Jones Day.
Back in the days when Gensler was running the CFTC, cryptocurrency was a tech show that most mainstream finance kept at bay. Today, a single Bitcoin is worth over $ 55,000, and some of the world’s biggest companies, including Tesla and Fidelity, have jumped into the action.
After leaving the Obama White House, Gensler taught at MIT’s Sloan School of Management, focusing on issues such as cryptocurrencies and government policy. At MIT, Gensler warned that virtual currency projects like Facebook Diem, formerly Libraw, face a possible account with regulators.
Markets and technology are constantly changing, Gensler said in her opening remarks. Our rules must change with them. In my current role as a professor at MIT, I research and teach at the intersection of technology and finance. I believe financial technology can be a powerful force for good, but only if we continue to harness the core values of the SEC in the service of investors, issuers and the public.
Back at the end of 2019, Gensler wrote an article for Coindesk examining the potential of cryptocurrencies to become agents of change that could turn the world of finance upside down. As in other forums, he was unbiased in considering the costs and benefits of virtual currencies like Bitcoin.
While literally thousands of projects have yet to result in widely adopted use cases, I remain intrigued by the potential of Satoshis’ innovations to spur change, either directly or indirectly as a catalyst, he said. written. What his SEC leadership might mean for the future of crypto remains to be seen, but it’s clear Gensler isn’t a Luddite.
Best interest in regulation
For a decade, federal and state regulators have been discussing how best to ensure that financial advisers always have their clients’ best interests in mind when offering them investment advice. Some advisers are already bound by a fiduciary duty, but other categories of advisers are held to a lower level and earn commissions from large financial companies for recommending certain products.
The SEC has repeatedly attempted the so-called best interest standard, under the Obama and Trump administrations, and passed a compromise best interest rule in 2019. Gensler could back up the new standard with a more robust definition or via enforcement measures.
What the SEC means for your investments
You might hear about the SEC every now and then in the newspapers or maybe you’ve come across the three letter acronym as a plot on the Billions show. But for the most part Gary Gensler won’t take up space in your day-to-day life, just as you probably didn’t know the SEC was run by someone named Jay Clayton during the Trump administration or by Mary Jo White. before that.
In fact, if you have a well-diversified portfolio of stocks and bonds that matches your investment schedule and tolerance for risk, you don’t have to pay attention to any of the machinations in Washington. It’s just another little reward for investing your money well.
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