When President Obama announced his proposal last week to provide a desperately needed funding boost for the Commodity Futures Trading Commission (CFTC) and to pay for $117 million of that funding through user fees, the securities industry issued a predictable and predictably hypocritical statement of opposition. "We do not know how such a fee could affect the markets nor the extent to which such a fee could harm investors, who would likely bear the ultimate burden of this fee," Kenneth Bentsen Jr., executive vice president of the Securities Industry and Financial Markets Association, reportedly told the Wall Street Journal.
So, let me get this straight: SIFMA is concerned that $117 million in industry fees to help support effective oversight of a $337 trillion U.S. futures and swaps market could impose excessive costs on investors. I'm left to wonder, what is the source of SIFMA's sudden cost-consciousness? Because I don't seem to recall ever having heard the association express similar alarm over the costs to investors of the $20 billion or so Wall Street manages to scrape together for bonuses each year. Apparently, that's just the price we all pay to make sure Wall Street workers can afford to maintain their multiple homes and the occasional nice dinner out for their girlfriends.
But Wall Street bonuses are too easy a target. What if we compare the user fees to a more directly relevant measure: the fees that Wall Street itself views as reasonable? When Jefferson County, Alabama, was trying to exit the swaps contracts that ultimately drove the county into bankruptcy, J.P. Morgan proposed to charge the county $647 million in penalty fees to unwind the transactions. That's right: A single investment bank charged a single customer a penalty fee that is roughly five and a half times the user fees the president is proposing to spread across the entire industry to help fund regulatory oversight.
In the Jefferson County case, the Securities and Exchange Commission forced J.P. Morgan to relinquish the $647 million fee as part of its settlement of charges that it had violated pay-to-play rules. But plenty of other school districts and municipalities throughout the nation are facing similarly burdensome penalties with no relief in sight. And, when the CFTC was considering business conduct rules that could have helped to rein in such excessive fees, SIFMA pulled out all the stops to ensure that the rules ended up as weak and ineffective as possible.
So forgive me if I suspect that SIFMA's opposition to user fees is prompted by something other than genuine concern over investor costs. After all, when weighed against the size and risks of the market -- not to mention the $60 trillion estimated cost to the global economy of the recent financial crisis -- $117 million in user fees is a real bargain. Congress should recognize SIFMA's expression of "concern" for the self-interested claptrap it is and adopt the president's proposed funding increase for the CFTC along with the user fees to pay for it. Then it will be up to the CFTC to show that it can put the added funding to good use.
CORRECTION: The President's proposed 2013 budget for the CFTC would offset the entire $308 million proposed agency budget user fees. This is still a miniscule amount when compared to the size and risk of the market, the fees industry members impose on their customers, and the bonuses Wall Street funds without similar concern for the potential cost to investors.