CFTC Puts Gun to Congress' Head: Hand Over More Money or It's 2008 All Over Again

Despite running on budgetary fumes, the CFTC is proceeding at a blistering pace in its effort to rewrite the rule books and avoid another 2008-style meltdown in the multi-trillion global derivatives market. Taking his cues from Hank "Terminator" Paulson, CFTC Commissioner Bart Chilton doesn't hesitate to pull out the tried and true gun metaphor. From Bloomberg (emph. ours):

The Commodity Futures Trading Commission may have to impose “user fees” on traders if Congress doesn’t give the agency enough money to police the newly regulated $583 trillion derivatives market, said Commissioner Bart Chilton.

The CFTC has asked Congress for a budget increase to $261 million from $169 million to implement the Dodd-Frank financial overhaul. The law expanded the commission’s jurisdiction to the over-the-counter swaps market for the first time since the products emerged 30 years ago.

The agency’s request for more money has been delayed as the newly empowered Republican House majority promises to slash spending and Democrats warn that cuts will undermine consumer protections. Lawmakers agreed last month to fund the government at current levels through March 4.

“It’s not my preference, but if the choice is no regulation of these markets or a user fee, then we will have to pull the trigger,” said Chilton, one of three Democrats on the five-member commission, in an interview.

Chilton said a fee would be a “last resort” to pay for staff and technology needed to prevent a recurrence of the 2008 financial crisis. The agency may need authority from Congress to levy such a fee, he said.

Looks like [ex-Goldmanite] CFTC Chairman, Gary Gensler, will be going to Congress hat in hand either way. However, we're sure he'll get his budget money and finally upgrade the Win98 box used to run the position limits calculator. From Reuters (emph. ours):

In a pointed letter, Representatives Frank Lucas and Michael Conaway urged the Commodity Futures Trading Commission to slow down, reorganize its rule-making process, and make sure it knows how much it will cost businesses to comply with its regulations.

"By prioritizing speed over deliberation in writing rules, the CFTC has created an irrational sequence of rule proposals that prevents stakeholders and the public from providing meaningful comments," said Lucas, chairman of the House Agriculture Committee, and Conaway, head of a key subcommittee.

The Agriculture Committee has oversight of the CFTC, and the letter, sent on Wednesday, was a signal that it intends to pay close attention to the details of the system the CFTC is developing to police the over-the-counter derivatives market, worth $600 trillion globally.

The pleas of Congressman Lucas are in fact irrelevant, as the purpose of the CFTC's reg-writing profligacy is to get as many arbitrary rules and regulations on the books as possible to be able to arbitrarily enforce them and protect its most favored players' hegemony. C'mon, did you really think the CFTC was going to clamp down on the Morgue's silver shorts? Not to mention, the ability to engage in price fixing of commodities and, yes, even breaking individual trades on a purely discretionary basis.

Higher fees, irrational regulations...sounds like the folks at the CFTC are creating a perfect storm to drive derivatives trading elsewhere. Already, one major derivatives player, a unit of the IntercontinentalExchange, has withdrawn its swaps-clearing application. Expect more to follow.

The Bernank/Gense tag team hereby gets our new "B4F" designation (Best Friends in Financial Fraud Forever).

[The Gense: Can't we make QE2 a bit bigger?]