John Huntsman has released a page of info on his Financial Regulatory Reform. We talked about how it looks like he wants to repeal Dodd-Frank but then wants to pass Dodd-Frank’s resolution authority.
Here’s another thing that is interesting in his policy page:
MAXIMIZING DERIVATIVES TRANSPARENCY
As president, Jon Huntsman’s administration will be committed to enhancing transparency in the derivatives markets. An opaque derivatives market was one reason for the systemic impact of the subprime mortgage crisis. Greater transparency will permit greater oversight by both market participants and regulators, and will also allow end-users to negotiate better terms with Wall Street and in turn lower trading costs. We need to encourage the creation of multiple clearinghouses in order to minimize the systemic impact of a problem in any one of them.
Derivatives should include uniform minimum collateral requirements – that is, limits on potential borrowing – from the onset of their trades; such margin requirements would incentivize prudent risk management internally and build up resilience to losses. Commodity derivatives traded on the Chicago Board of Trade are already subject to such measures.
Governor Huntsman believes that Dodd-Frank was an inappropriate regulatory response to the Panic of 2008…
So we need to Repeal Dodd-Frank. Then we need to get serious about derivatives regulation by bringing transparency to the over-the-counter (OTC) derivatives market, with serious collateral requirements.
Let go to Financial Regulatory Reform: A New Foundation, released by Obama’s Treasury Department in June 2009, which became the blueprint for Dodd-Frank.
II. ESTABLISH COMPREHENSIVE REGULATION OF FINANCIAL MARKETS
…B. Create Comprehensive Regulation of All OTC Derivatives, Including Credit Default Swaps (CDS)
All OTC derivatives markets, including CDS markets, should be subject to comprehensive regulation that addresses relevant public policy objectives: (1) preventing activities in those markets from posing risk to the financial system; (2) promoting the efficiency and transparency of those markets; (3) preventing market manipulation, fraud, and other market abuses; and (4) ensuring that OTC derivatives are not marketed inappropriately to unsophisticated parties….
We propose to bring the markets for all OTC derivatives and asset-backed securities into a coherent and coordinated regulatory framework that requires transparency and improves market discipline. Our proposal would impose record keeping and reporting requirements on all OTC derivatives. We also propose to strengthen the prudential regulation of all dealers in the OTC derivative markets and to reduce systemic risk in these markets by requiring all standardized OTC derivative transactions to be executed in regulated and transparent venues and cleared through regulated central counterparties.
So we need to get serious about derivatives regulation by bringing transparency to the over-the-counter derivatives market, with serious collateral requirements. This was turned into law as the Wall Street Transparency and Accountability Act of 2010, or Title VII of Dodd-Frank.
So we need to eliminate Dodd-Frank in order to pass Dodd-Frank’s resolution authority and derivative regulations – two of the biggest parts of the bill – but call it something else.
You can argue that Dodd-Frank’s derivative rules has too many loopholes with too much of the market exempted from the process and too much power staying with the largest banks. But those are arguments that Dodd-Frank doesn’t go far enough, where Huntsman’s critique of Dodd-Frank is that it goes way too far.
Huntsman should be required to explain the issues here – is he against Dodd-Frank before being for it? Is his Too Big To Fail policy and derivatives policy the same as Dodd-Frank, and if not how do they differ? It isn’t clear from the materials he has provided so far how the policies would be different, and if it is a problem with the regulations in practice how he would get stronger ones through Congress.
I do applaud this from Huntsman:
RESTORING RULE OF LAW
President Huntsman’s administration will direct the Department of Justice to take the lead in investigating and brokering an agreement to resolve the widespread legal abuses such as the robo-signing scandal that unfolded in the aftermath of the housing bubble. This is a basic question of rule of law; in this country no one is above the law. There are also serious issues involving potential violations of the securities laws, particularly with regard to fair and accurate disclosure of the underlying loan contracts and property titles in mortgage-backed securities that were sold. If investors’ rights were abused, this needs to be addressed fully. We need a comprehensive settlement that puts all these issues behind us, but any such settlement must include full redress of all legal violations.
And would love to see why the administration is taking this issue less seriously than Huntsman. What we are seeing from places like the LPS lawsuit is that the system of mortgage servicing is so broken that there are serious concerns about “phantom referrals.” This is the idea that late payments are being fined and foreclosures initiated without the actual event having ever happened. These problems include “an ARM that had improperly adjusted up, a failure to properly account for a borrower’s principal and interest payments, and a failure to properly attribute payments between pre-petition and post-petition that led the banks to try to collect pre-petition obligations they were not permitted to pursue.” These have serious consequences for already struggling families.
And I will note that the dog-whistles hidden inside the proposal are towards strong reforms (things like derivatives reform “will also allow end-users to negotiate better terms with Wall Street and in turn lower trading costs” – implicitly arguing that the dealer banks have too much market power and it is the role of the government to create a fair playing field). Someone knows what they are doing. His part on bringing down the GSEs doesn’t mention the hobbyhorse of the Right that the CRA and the GSEs caused the crisis, which is refreshing to see.
The Dodd-Frank bill has had some impact on binary options trading for US residents. One of the principal bottlenecks of the legislation has been the narrowing of eligible brokers for particular futures and commodities transactions. While the hurdles to make option contracts available to traders are not insurmountable some brokerages won’t be able to offer their full suite of products to investors until regulations are finalized.
Nice job of clarifying Huntsman’s stance on this issue. At first he looked quite outstanding on this, but you’ve shown some major weaknesses in his policy here. It appears he is afraid of having a volley slammed in his face at the Republican debates on being pro-regulation, which is what they are certain to do if he supports Dodd—Frank and takes it a step further. His is the typical “cake and eat it too” stance.
Bottom line: Huntsman still comes out better than any Republicans on this issue. That’s not saying much, but still…..
All true, but just to say: I’d be careful about giving Huntsman any publicity at all. He’s the strongest candidate to beat Obama.
Better option fore either a Dem. or Repub. to get behind would be to repeal Dodd-Frank ( a laughable loophole of a bill) and reinstate Glass-Stegal with the Title VII of Dodd-Frank as an addendum. Then you would have a law with real teeth.
Other than your slight misspelling of the name I say “Amen Brother, Amen!!!”
One thing bothers me about Huntsman’s proposal. In his Wall Street Journal editorial he says he wants to repeal the Consumer Financial Protection Bureau. So banks can start a round II subprime crisis? Is that progress???
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