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Obama's "Strongest Advocate for Reform" Is an Ex-Goldman Sachs Partner


The Securities and Exchange Commission, organized in the wake of the 1929 Crash, was first headed up by Joseph P. Kennedy. Kennedy was a famously effective regulator because he was an ex-fox, and knew all the secrets the foxes used to pick off unsuspecting investor hens. When President Obama nominated Mary Shapiro to head the SEC, reformers seeking transformational change in the wake of another Wall Street-driven economic meltdown lamented that she was no Joseph P. Kennedy.But as Business Week details, President Obama may have his insider-turned-enforcer in Gary Gensler, head of the Commodity Futures Trading Commission (CFTC). And because of the role that derivatives, such as mortgage-backed securities, played in triggering the Great Recession, a Kennedy-esque head of the CFTC is probably much more important. Unlike the securities regulated by the SEC, derivatives are currently unregulated and the scope and content of future regulation is a key issue in financial system reform. Knowing exactly how the game is played is most helpful when writing the rules in the first place.

Gensler, a 30-year veteran of Goldman Sachs (GS), has been challenging during agency discussions on firm practices, rebutting claims that no regulation is needed because firms can't do certain things with: "That's crazy, I used to do it all the time." He's guided Congress through lobbyist-laid pitfalls in bill language, pointing out what needs to be in the bill to get real reform done.

Gensler has made powerful enemies; his attempts to make the derivatives market more competitive threaten profits at five big derivatives players: Goldman, JP Morgan Chase (JPM), Bank of America (BAC), Morgan Stanley (MS), and Citigroup (C). Perhaps a testament to the power of his opposition, Gensler's efforts weren't enough to make the financial regulation overhaul bill passed by the House of Representatives as strong as he'd like -- and given that the Senate is having trouble getting financial reform legislation going, it's hard to see him achieving more there. But at least he's fighting for us.

Gensler's efforts to police Wall Street are deeply ironic given the perception that the Goldman alumni in the Obama administration make the U.S. Government far more sympathetic to Wall Street, and Goldman in particular, than Main Street. Perhaps he's just the exception that proves the rule.

Credit Card Reform Aftermath Shows Industry Lobbying Claims Specious

When Congress considered passing much-needed credit card reform, the industry warned legislators that potent constituents -- rich people with good credit -- would be angry because they would be unfairly punished, losing their rewards to subsidize people with poor credit. Luckily this was not enough to prevent reform from being passed, because as Bloomberg reports, the claim was totally bogus. In the post-reform marketplace, people with poor credit are finding it harder to get credit, and credit's expensive when they do find it. People who have great credit are more heavily courted with juicy rewards than ever. Isn't that how the market's supposed to work? The fact that that's the change resulting from reform highlights how crazy the credit card industry's past practices were.

Think the Person Selling You Investments Has Your Best Interests at Heart? Think Again

The New York Times reports that yet another financial reform regulation in play is the duty you're owed by the person selling you investment products. The rule would require stock and insurance brokers to act in their customers' best interests, and is being fought most viciously by the insurance industry. It seems that, among other things, the rule would prevent insurance brokers from "mis-sell[ing]" personally lucrative variable annuities.

And in the Legal Industry...

Profits are up at Shearman & Sterling and at Irell & Manella; small firms are (relatively) thriving; venerable Cravath, Swaine & Moore is caught up in an ever-jucier reputation-attacking conflicts case; and the jury is an unexpected casualty of the Great Recession.

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