'He Who Makes the Rules'

On the run today so I haven't had time to do more than skim this quickly (it's relatively long), but this article on how financial regulation is quietly being watered down comes highly recommended:

He Who Makes the Rules, by Haley Sweetland Edwards, Washington Monthly: In late 2010, Bart Chilton, one of three Democratic commissioners at the U.S. Commodity Futures Trading Commission (CFTC), walked into an upper-floor suite of an executive office building to meet with four top muckety-mucks at one of the biggest financial institutions in the world. ...

The main topic ... was the CFTC’s pending rule on what are known as “position limits.” If implemented properly, position limits would put a leash on speculation in the commodities market by making it harder for heavyweight traders at places like Goldman Sachs and JPMorgan Chase to corner a market, make a killing for themselves, and screw up prices for the rest of us. Position limits are also one of many ways to tamp down the amount of risk big institutions can take on, which ... minimizes the chance taxpayers will have to bail them out. ...

The passage ... Dodd-Frank ... explicitly directs the CFTC to establish position limits... “The Commission shall by rule, regulation or order establish limits on the amount of positions, as appropriate,” it reads.

Still, even with the strength of the law behind him, Chilton waited until the end of the meeting to broach what he knew would be a tense subject. ... They deferred ... to their top lawyer, who explained that the ... CFTC was not required to establish position limits at all. ... Their lawyer quietly referred Chilton to the end of the sentence in question: as appropriate..., the statute can be interpreted as saying that the commission shall—but only if appropriate—establish position limits, he explained. ...

But it’s still, rather obviously, just that: a linguistic sleight of hand. The words “as appropriate” have appeared in statutes governing the CFTC’s authority to implement position limits for at least forty years without challenge. ...

The meeting ended abruptly... One of the muckety-mucks from the meeting walked with him to the elevator. ... Chilton turned to his host. “You guys have got to be kidding about this ‘as appropriate’ stuff, right?” he said. “I know,” the muckety-muck replied, admitting it was a stretch. He let out a little chuckle—“but that’s what we’re going with.” “He laughed,” Chilton told me recently, remembering that day. “He was laughing about how ludicrous it was.”

A couple of months after that inauspicious meeting, the CFTC released a proposed rule establishing position limits on oil, gas, coffee, and twenty-five other commodities markets. ... Finally, in October 2011, the CFTC issued a final rule. It was a victory, but a short-lived one. Two months later, two powerful industry groups ... hired Eugene Scalia, the son of Supreme Court Justice Antonin Scalia, as their lead counsel, and launched a lawsuit against the CFTC. ...

House Democrats and nineteen senators, some of whom had drafted Dodd-Frank, petitioned the court to rule in favor of the CFTC, a handful of op-eds beseeched judges to do the right thing, and financial reform advocates called foul. None of it made a difference. In September 2012, the U.S. Court for the District of Columbia Circuit overturned the CFTC’s rule. ...[more]...