Experts were pitted against one another and friction between speakers kept audience members on the edge of their seats.
The Futures Industry Association (FIA) held their annual Boca conference last week in Boca Raton, Florida. While most panels saw smooth sailing, the conference was not without some strong opinions. Experts were pitted against one another and friction between speakers kept audience members on the edge of their seats.
On Wednesday, Walt Lukken, CEO of FIA, moderated a panel looking at the days and months leading up to the 2008 financial crisis. The panel included Barney Frank, Former U.S. Congressman and co-author of the Dodd-Frank legislation, Paul Atkins, former Commissioner of the Securities Exchange Commission, Craig Donohue, current Executive Chairman and CEO of OCC and former CEO of the CME Group; as well as Thomas Russo, Former Executive Vice President & General Counsel of American International Group (AIG). The heated discussion brought out clashes between Frank and Atkins.
Frank set the scene by describing how in the beginning he worked with Hank Paulson, former U.S. Secretary of the Treasury, to save Fannie Mae and Freddie Mac in 2007.
“(Ben) Bernanke (former head of the Federal Reserve Bank of Chicago) and Paulson saw trouble coming in the summer of 2008 when looking at margin institutions.”
Atkins pinpointed the start of the financial crisis when Bear Stearns failed, and then AIG followed.
“The White House and the Federal Reserve came out saying they were solid,” he said. “But then AIG failed and we lost trust in the government.”
Craig Donohue sat in between Frank and Atkins on stage.
“Nobody knew where they stood in 2008 but it’s worth noting that the futures industry was working beautifully,” said Donohue. “CME was holding more collateral from Lehman than was needed, broker dealers and FCMs were operating efficiently, people were still trading – it was a crazy week but the derivatives industry was trading in an orderly fashion.”
The conversation got heated when Frank mentioned the Troubled Asset Relief Program (TARP), a government program that involved purchasing toxic assets and equity from financial institutions to address the subprime mortgage crisis. Frank reminded the audience that TARP money was used to bailout the banks and said it was paid back with a profit.
Atkins vehemently disagreed that the TARP money was paid back in full and told Frank to "take accounting classes."
Donohue jumped in and said that he would be more “hospitable” to Frank and pivoted the conversation to how the financial crisis highlighted the need for centrally cleared markets.
But Clearing Counterparties (CCP’s) were not without their controversy either at this year’s Boca conference.
Later that day, Commodity Futures Trading Commission (CFTC) Commissioner Brian Quintenz gave a passionate keynote when introducing a panel looking at what regulators are doing across the pond.
Quintenz spoke strongly about the European Commission and said that he believes they are violating a 2016 agreement between EU authorities and the CFTC by putting forth a new proposal that would extend ESMA’s oversight of CCPs in America.
“It is common knowledge that the proposal was a response to Brexit, and while Brexit does present challenges, it is irrelevant to the U.S. and no justification to renege on the earlier agreement,” he said.
The panel following Commissioner Quintenz’s remarks included Patrick Pearson from the European Commission (EC).
Pearson felt the heat from Quintenz’s earlier remarks. He said that the EC started reviewing regulations three years before Brexit and felt there were unintended consequences in the swaps market.
“The European Commission only received six pages of information on the biggest clearing facility in the U.S. but the smallest European facility provides 600 pages,” he said. “We need more information on those large clearinghouses that are systemically important.”
Where there were usually calm waters, this year’s Boca conference made some waves. However, at the end of the day, the derivatives industry is a community of friends and colleagues that will always find a way to work together. Hopefully this passion has a purpose and these intensive discussions drive market participants to continuously work to improve the industry.
However, with all of the discussion of regulatory matters, clearing, Brexit and the 10 year anniversary of the financial crisis, the biggest issue on everyone's mind was by far...the new asset class, cryptocurrencies.