Commissioner Giancarlo Recommends Moving Past ''Old False Narrative'' of CFTC (Energy Metro Desk)
Commentary by Steven Lofchie
In the latest installment of the Energy Metro Desk's "2014-2015 Forecast Update," CFTC Commissioner J. Christopher Giancarlo reflected on the past nine months since he outlined his "wish list for the CFTC for 2015" and said that he is "not sure we've really moved much past the old false narrative covering the actions of the [CFTC]."
Commissioner Giancarlo said that one of the reasons his sentiments have "not really changed all that much" is because "the [mainstream news] coverage of the cross-border application of margin for uncleared swaps just seemed to fall inside the same old line." Nevertheless, Commissioner Giancarlo endorsed the efforts of other members of the CFTC: "I tip my hat to fellow commissioners," he wrote, "including [Commissioner Mark] Wetjen, for taking a far more pragmatic approach. I see much more attention to the data, and what the data actually shows, and what the hard evidence actually reflects."
Commissioner Giancarlo expressed his hope that this "spirit of pragmatism will carry over to the ideological rulemakings," and that the CFTC will continue "looking forward" in the six months. With that in mind, Commissioner Giancarlo outlined three current issues, which he called "mega-trends": (i) cyber-terrorism and its impending threat to the financial, energy and utility sectors, (ii) the rise of digital technology and automated markets, and (iii) the "unprecedented" role changes of national, sovereign governments in domestic and global financial markets.
Commissioner Giancarlo stressed that the third trend has "tremendous implications," and stated that "all over the world, central governments are becoming major actors in the markets, and all other investment decisions are becoming correlated to expected government actions."
Commissioner Giancarlo concluded by saying that "we need to spend less time thinking and working on the last crisis and focus on [the] potential, future crisis."
Commentary
To expand on Commissioner Giancarlo's remarks about government-created "risk": governments create problems for the markets partly because government action can take place on such a grand scale, so suddenly and with so little regard for ordinary economic considerations. One example that is relevant to today's news, regarding increased capital requirements for forex transactions, is the action of the Swiss government with respect to its currency, which precipitated the recent dislocation in the Swiss currency markets and the resulting failure and near-failure of a number of firms. Were these failures the result of carelessness on the part of the firms, or were they due to the fact that no private firm, particularly a small private firm, can hedge adequately against governmental actions on such a colossal scale? There is a further irony as well: when government actions disrupt the markets and cause market failures, such government's response has often been to impose additional burdens on private firms, amplify its own role and increase its market-disruptive power.