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PAUL JAY: Welcome back to The Real News Network. We're continuing our discussion with Bart
Chilton. Bart is a commissioner at the Commodity Futures Trading Commission in Washington.
Thanks for joining us again.
BART CHILTON: Sure.
JAY: So Section 737 of the Dodd-Frank bill says you are--you and your commission are
supposed to control excessive speculation. So how are you doing? And what's stopping
you from doing better?
CHILTON: Well, we've got to have the political will to do it. We were supposed to have this
done earlier this year, to put limits on what traders could have in any given market. And
we've seen, Paul, in the last couple of years traders having upwards of 20, even 30 percent
of individual markets. To say that they couldn't potentially manipulate, I think, begs question.
So we're supposed to have that in place. Hopefully, we're going to do it sometime in the next
several months, I'm hopeful by the end of September.
JAY: This is what they call position limits.
CHILTON: This is position limits. And that would limit the amount of positions--that's
what you hold in the futures market.
JAY: So how close are you to that? 'Cause that's been a big bone of lobbying contention.
So what efforts are being done to slow you down? And is it realistic that you're going
to have this by the end of the year? And do you think you'll have a high enough number--or,
I should say, a low enough number on position limits that's going to be effective, number
one? Number two, what about all the exemptions? Are you concerned that there's going to be
so many possible exemptions that it renders the position limits ineffective?
CHILTON: Absolutely. So I'll take them one at a time. The level we have suggested would
be roughly 10 percent of a market. That's a level that I think is fair. There's been
a few people that have--a few traders who've said it's a little too low, but by and large
we've got over 10,000 comments on this proposal, and by and large people think that that 10
percent is a good number. I think it'll work. I think it'll have some sort of impact on
ensuring that the excessive speculation is out of the market, while allowing the appropriate
speculation to discover prices that affect the prices people pay at the gas pump and
at the grocery store.
JAY: So "appropriate" speculation meaning it has some real connection with supply and
demand and what a farmer might need or what an airline might need in terms of oil and--.
CHILTON: Yes. And it doesn't mean that speculators that don't have anything to do with that can't
get into the market, but you just don't want somebody to get into the market that has such
a big footprint--just like getting into a bathtub--that they create waves and volatility.
These markets were designed for two reasons: one, to help businesses like you referred
to, whether or not you're a farmer or an oil company, to help avoid their large swings
in prices, a risk management tool; and the second reason was to ensure that prices were
fairly stable for consumers. And with some of the market changes, like excessive speculation,
like the massive passives we've talked about in the past, like these cheetah high-frequency
traders, I get worried that the volatility in markets and the price swings that the consumers
are paying is too much. And so that's why the law is important.
JAY: And is the position limit--in relationship to hedges, to buying future contracts, it
doesn't have anything to do with physical hoarding, does it?
CHILTON: You know, people can, you know, have what they want, hoard what they want.
JAY: But the reason I'm using the word "hoarding" is 'cause I think--and you can read in the
press every day that--if you're reading The Financial Times, anyway, that companies like
Glencore and Goldman Sachs are renting massive warehouse facilities and loading up aluminum
to sit on the aluminum. And I guess one--I mean here I'm speculating, but my speculation
would be they've obviously bought--gone long on a futures bet, and they're going to hoard
aluminum and make their prophecy come true. Is there anything you can do about that?
CHILTON: Well, I'll leave you to your theories, but I'll tell you what we can do under the
law. You can't charge anybody with manipulation or other violations of our law, which is the
Commodity Exchange Act, unless you would link the physical supply and price movements to
what they're doing in the futures markets. So you've got to show how somebody made money.
There's nothing wrong with stockpiling or warehousing or hoarding physical materials,
but it's that interaction with the futures markets that we need to do a better job [incompr.]
JAY: And the position limit would slow them down, 'cause if they could only have 10 percent,
they wouldn't be able to control more than that in the markets.
CHILTON: That's correct.
JAY: So that, in a sense, reduces the manipulation potential.
CHILTON: Absolutely. But you raised another good point earlier about exemptions. And I
often talk about--you know, we have meetings every day with people coming in and talking
to us, and these are primarily market participants. There's not a whole lot of consumer representatives
coming and meeting with us, unfortunately. I encourage them to. But by and large, these
folks are coming in to us, scores of them, and it's sort of like--I don't know if you
remember Dana Carvey back on Saturday Night Live as Church Lady. She could say, "Isn't
that special?" Well, they all come in and tell us how they are special and why they
deserve not to have to comply with the law. Now, I don't want to paint them all with one
brush. There are some exceptions that they really are special. But I've heard some very
contorted reasoning for why people should be exempt. And so far we haven't allowed that.
So I feel confident that ultimately on position limits we're not going to allow sort of sporadic,
willy-nilly exceptions. I think it's going to be a good law and I think it's going to
be good for consumers and good for markets, I think.
JAY: Well, one of the arguments is is that allowing exceptions allows lobbying, allows
pressure, allows, well, you gave it to them, why don't you give it to us, and it's a kind
of domino effect. Wouldn't it be better just to say no exceptions?
CHILTON: By and large. But, you know, there are certain circumstances that you want to
look at and you don't want to be haphazard or cavalier in you approach. If we were like
that, we'd probably have the regulations done. But we're trying to put our nose to grindstone
and look at these things in a detailed fashion. These are very complicated markets, and there
are things, quite frankly, that we don't know, we still don't know. And for us to make sort
of a haphazard, blanket decision about no exemptions, never, ever, ever, I think, wouldn't
be responsible to the job I'm supposed to be doing. But I'm going to be very judicious
about it, because I think in the past too many exemptions have been written, have been
allowed, and we shouldn't allow that in the future.
JAY: Because when you get to the potential for exemptions, then so much winds up being
who's on the commission, 'cause we know under the Bush administration, you know, in terms
of regulatory authority, I mean, some of these areas were regulated, but, you know, if you
have someone running the SEC who doesn't enforce the rules of the SEC, then, you know, the
rules aren't so effective. So once you open the door to exemptions, and then if you start--you
know, if one of the parties (and I don't know if it matters which one) wound up controlling
all the houses and really controlling--you know, and I think you can't have more than
three commissioners from a single party, but they wind up getting three that are very pro-exemption,
you've got a problem.
CHILTON: Well, by and large, I think, you know, government operates better than most
people think. That doesn't mean that there aren't nefarious things that happen. I've
not seen anything at the CFTC. It doesn't mean that before I got there there wasn't
something going on. But I think, by and large, people who serve in government are dedicated
public servants and, you know, they're not being bought off for a lunch or a drink after
work. You know, I think public servants by and large take their jobs seriously. I certainly
do. I've got one goal in mind, and that's to ensure that these are justifiable markets
that operate efficiently and effectively, that they're devoid of fraud, abuse, and manipulation
and they're not just good for consumers, that they're good for markets, too, and good for
our country.
JAY: One of the things that was always been discussed as being one of the key factors
that led to the meltdown in '08 was proprietary trading, that banks were in such a conflict
of interest they're even making proprietary big bets against their own customers that
they're supposed to be representing. Now, if I understand it correctly, that is under
the realm of your commission. What's being done on proprietary trading? Or does it come
down to the same other issue, you need the resources and the people and you don't have
it?
CHILTON: It's a double-edged sword. We do need the resources. But, you know, they passed--in
the Dodd-Frank law, the new financial regulation law, it said that banks can and other traders
can trade for themselves, but they've got to separate that from what they do for their
customers. And so there will be limits on what they can do. So if you're Bank X, you
can trade for your customers, and that might be trading above, say, a position limit, but
you can't trade for yourself above that level. So that's a new change, and I think it's a
good change to avoid this excessive concentration by just a few traders.
JAY: One of the big issues about the collapse in 2008 was the idea that some of these banks
were too big to fail. What's been done, if anything, to change that? The big banks are
still the big banks. If anything, in fact, they're bigger, 'cause there's been some collapses
and there's been even more concentration of ownership.
CHILTON: Right. Well, the entire financial reform law was geared at putting sideboards
on what they can and can't do. So the goal is is that they won't be so systemically important,
and that there will be certain rules and regulations that will prohibit them from doing risky behaviors,
and that we won't have such a bailout like we did. A matter of fact, the law said we
will not have another bailout, the government will no longer bail out these large institutions.
So we'd better do our job, and we better have the resources to do our job.
JAY: But they are still--as I said, they're not as big; they're bigger. In terms of executive
compensation, nothing's been done. I mean, one of the problems of the 2008 business is
that it actually--for some of the individuals involved, it didn't matter if they failed.
They had cashed out or had made so much money individually that in some ways it didn't matter
what happened to their bank or their trading company. None of that's changed. I mean, does--the
systemic risk is still there, isn't it?
CHILTON: There's some systemic risk now, but, again, we're putting sideboards on the rules
and regulations to ensure that there's procedures and policies in place. But you're right: there
are still large institutions out there that you wouldn't want to see collapse, although
the government said they're not going to do any bailouts. But the point you raised just
a moment ago is a good one. I mean, a lot of the bonuses that these CEOs were receiving
were based upon performance, which rewarded risky behavior in the markets. I found it
the height of hypocrisy that the government would actually spend billions of dollars to
bail out some of these companies, and then you would see the CEOs get million-dollar
bonuses. I don't know what world they're living in. Now, the Securities and Exchange Commission,
not my agency, has the authority to deal with executive compensation, and I sure hope they
do. Taxpayers should demand it.
JAY: In the next segment of the interview, let's talk about what happens if you don't
get the resources, you don't get the people, or there isn't the political will. What stops
2008 from happening all over again? Please join us for the next segment of our interview
with Bart Chilton.