Goldman Sachs, the CFTC and Its "Puny" Fines

We have often wondered whether the CFTC (chaired by former Goldman, Gary Gensler) is doing an adequate job of creating new rules to regulate the financial system.  There are some critics that say that the CFTC should be disbanded and some who say that the CFTC is doing a good job bringing in new, lax rules under Dodd-Frank.  (These, of course, are the speculators.)

Bron Suchecki of GoldChat  concludes that there are "plenty of loopholes for someone to do what they want and have the CFTC running around in circles."  In a referecne to Bart Chilton, a CFTC commissioner, the author says:

"Consider that the CFTC has to deal/manage/politic two types of market participants – producers, who want prices to be high and consumers, who want prices to be low. I have seen the theory that Bart’s role is to play to or appease the consumers, which in the case of PMs means they want high prices. I really don’t know if this is the case or he is just straight up. Either way he is often very careful in what he says, and keep in mind the difference between manipulation and suppression. Bart talks of manipulation, not suppression."

To that I'd add the CFTC has to deal with a complex set of rules and regulations. When regulations get this complex market fairness and transparency is actually harmed, and the only ones who benefit are those big enough to have lawyers able to work out the loopholes.

What the market needs is straightforward commonsense rules that everyone knows in advance, just like Kid Dynamite points out in this post on cancelling trades. Or just drop the pretence and go free-for-all law of the jungle.

Having interest rates this low doesn't help, as speculators have minimal cost in holding a position for a long time (until it blows up) or taking on large positions. This just adds to the volatility.

Time to give up on the CFTC being able to control this, just like Ted Butler did.  (Bron Suchecki of Gold Chat)

If you wonder why the CFTC should be "given up," then read the following article from December 2012 where Bart Chilton describes the fine that Goldman paid the CFTC as "puny" and "a slap on the wrist."  The fine should have been $60 million rather than $1.5 million.  Apparently the CFTC is under funded and lacking in manpower to properly pursue frauds:

A 'puny' fine for GS goof 
Chilton blasts deal
By Kaja Whitehouse and Mark DeCambre - New York Post

An outspoken regulator lashed out at a $1.5 million settlement between Goldman Sachs and the Commodity Futures Trading Commission — calling the deal a steal for the Wall Street bank.

Bart Chilton, a CFTC commissioner, described the cash amount as “puny” and “a slap on the wrist” when compared to the whopping $8.3 billion trade at the center of the case.

In 2007, a Goldman trader hid the outsize trade as the market unraveled.

“This is another example of where puny penalties send the wrong message for these guys who are breaking the law,” Chilton told The Post.

 “It’s not even a sneeze for them,” he said of the fine, which is roughly equivalent to what Goldman’s CEO Lloyd Blankfein would have pocketed in one week in 2007, when he earned $68 million.
Chilton was the sole dissenter on a 3-1 vote to fine Goldman.

CFTC Chairman Gary Gensler, who worked at Goldman Sachs for 18 years, recused himself from the case.

The Goldman case centers on Marshall Taylor, a former Goldman trader who allegedly established an unauthorized series of complex derivative trades totaling roughly $8.3 billion — and hid it from his superiors. 

Read the whole article here