Gensler Fights For Wall Street Risk-Management

Gary Gensler, Chairman, Commodity Futures Trading Commission, is fighting loose risk-management on Wall Street. The industry is huge, and it wants to prevent oversight that Gary Gensler believes is necessary to prevent repeating the same mistakes made in the lead up to the 2008 economic crash:

Banks Criticize Strict Controls for Foreign Bets -…$700 trillion marketplace of the financial instruments known as derivatives….

Mr. Gensler defends his proposals, arguing that too many bad bets in the global derivatives market can be traced to overseas locations — including the $6 billion loss last year by a JPMorgan Chase trader called the London Whale — and threatened markets in the United States.

One form of derivatives, credit-default swaps, helped topple the giant insurer American International Group in 2008, deepening the financial crisis.

Mr. Gensler said his determination to protect the cross-border regulation plan is motivated in part by the memory of a visit in September 1998 — while he was working in the Treasury Department — to the Connecticut headquarters of the hedge fund Long-Term Capital Management, which was collapsing.

The company, he said, was engaged in $1.2 trillion in derivatives transactions, conducted in part through the Cayman Islands, making it harder to trace the origins of its implosion.

“This thing is going down, it is going down,” he recalled telling his boss. “I don’t want to make that call again, and I don’t want to leave it to my successors.” Banks Criticize Strict Controls for Foreign Bets –