I am usually reluctant to join in any rising chorus of criticism of our nation's financial regulators. In general, I think the SEC, the CFTC, and other regulatory bodies do a decent job of policing our capital markets despite being chronically underfunded, structurally at risk of capture, and frequently used as a political football. (My general principle: Any regulatory agency that has to take Megabus on a business trip deserves our prayers.)
But this Bloomberg article detailing the lengths to which a team of CFTC investigators went to in order to prove that Gary Gensler, their chairman, was wrong in claiming that he had a conflict of interest in investigating the collapse of MF Global, is simply breathtaking.
The issue under investigation was whether Gensler, a former Goldman Sachs executive, was too close for comfort with Jon Corzine, the former Goldman CEO who ran MF Global into the ground last year.
Gensler had recused himself from the investigation into MF Global's collapse on the basis of his decades-long relationship with Corzine. But the CFTC's crackerjack legal squad has now, we're told, probed the links between the men to figure out if Gensler's conflict of interest was genuine, and found that their commissioner was just trying to avoid a bunch of long nights in the office.
The Keystone Kops left no stone unturned:
Aside from crossing paths at such professional gatherings, Corzine and Gensler haven’t socialized in more than 14 years, according to the memo. Gensler doesn’t have Corzine’s personal number among his cell phone contacts, and Gensler couldn’t remember exchanging e-mails with Corzine for at least a decade.
“Chairman Gensler and Mr. Corzine have never attended any of each other’s major non-professional life-events,” the lawyers wrote. Corzine didn’t attend Gensler’s wedding which occurred while Gensler was at Goldman Sachs; Corzine didn’t attend the bat-mitzvahs of Gensler’s three daughters. And Gensler didn’t attend Corzine’s wedding in 2010.
So, basically, the CFTC's lawyers concluded in a fifteen-page memo that Corzine and Gensler weren't BFFs on account of Corzine having missed the Gensler girls' bat mitzvahs, despite having attended dinners and fund-raisers together for years, having worked together at Goldman, having donated to each other's political causes, and having been close enough for Gensler to borrow Corzine's number in the 1991 New York Marathon. Therefore, it was poor judgement for Gensler to recuse himself from an investigation targeting Corzine.
As a CFTC-employed Johnnie Cochran would have said: "If the Electric Slide you didn't do, you must pursue."
Nevermind the fact that Gensler would have no real upside, political or social, to recusing himself from the MF Global case if he didn't truly believe he had a conflict of interest. (In fact, as one of the many regulators who is judged on the number of high-profile investigations he leads, Gensler would have been incentivized to pursue MF Global and Corzine as doggedly as possible.) And nevermind the complete lack of evidence that Gensler's participation in the probe would have resulted in a quicker resolution of the search for the brokerage's $1.6 billion in missing customer money.
Gensler's self-recusal from the MF Global matter, the CFTC's lawyers say, was an abdication of duty, plain and simple.
But why, a fair-minded skeptic might ask, was it so bad to have Jill E. Sommers, the agency's No. 2 in command and someone with no ostensible Corzine ties, lead the probe instead? Wouldn't that head off all kinds of Goldman conspiracy theories in the event that a Gensler-led probe found nothing wrong with Corzine's conduct?
Bloomberg seems to have a theory:
Some in Congress have complained that Gensler’s recusal made it harder for them to monitor the agency’s actions.
“From our standpoint, we want a person to come before us and answer the hard questions,” Senator Mike Johanns, a Nebraska Republican, told Gensler at a Senate Banking Committee hearing Dec. 6. “That’s what your job is about. And it just feels to me like you’re not discharging the responsibilities of that job.”
Oh, so it was just bad because Gensler recusing himself made it less fun for Congress to yell at him.
No wonder the American public thinks the regulatory regime is broken.