was ending with a whimper. The CFTC staff had folded their tent on the flawed SEF rules. My white paper had served its purpose. I could not take credit, however, for a good outcome that no one wanted to admit had taken place. We had arrived at the right outcome but through the wrong means. The right means would have been for the commission to openly acknowledge that economic freedom, never having been abridged by Congress, could not be abridged by an unelected regulatory body like the CFTC.
The situation was not satisfactory in the long term. What the staff permitted today, it might not permit tomorrow. The only right thing to do would be to change CFTC rules. I would keep my mouth shut for now. But I made up my mind to try to change the rules in the unlikely event I ever got the chance.
Position Limits
Buoyed by the success of the white paper, I returned to the fray on another contentious issue: position limits. Position limits are pre-set restrictions on the amount of futures contracts that may be held by traders. They had been put in place and managed by the exchanges and the CFTC for decades. The purpose of position limits is to prevent market participants, especially large traders, or groups of traders, from manipulating large positions to unduly affect market prices or exert control over markets.
The renewed debate on position limits began before I joined the commission and, as it would turn out, continued after my departure. Dodd–Frank required the CFTC to establish a new and broader set of position limits as necessary to prevent “the burdens associated with excessive speculation causing sudden or unreasonable fluctuations or unwarranted changes in price.” It was one of the few Dodd–Frank mandates the agency had still not successfully implemented when I arrived.
The CFTC had actually adopted a comprehensive position limits rule back in 2011 amidst a huge behind-the-scenes dogfight. But a year later a federal court struck it down, ruling that the CFTC had not, as required by the language of the Dodd–Frank Act, made a formal finding that the limits it sought to impose were necessary to prevent burdens on interstate commerce.
In December 2013, the agency put out a revised position limits proposal, expressly finding that its limits were “necessary.” But market participants—especially agriculture and energy producers—heavily criticized the proposal as overly restrictive, which it was.
Now, in 2015, the commission was getting ready to revise that 2013 proposal. I wanted to make sure we got it right.
Years before, as a practicing lawyer, I always made a point of visiting new clients at their places of business to learn what they did and how they did it. I couldn't really help a client, I felt, until I understood how the client made a living.
When I joined the CFTC, I knew better than most people in Washington how Wall Street banks used swaps and other derivatives to make a living. Still, I knew little about how American farmers, ranchers, oilmen, and manufacturers used derivatives to make their livings. Now, as a commissioner, I decided to find out. I would go visit them.
Over my five years at the CFTC, I would travel across well over half the country to meet with thousands of Americans who depended on CFTC-regulated derivatives in their livelihoods. I eventually visited 22 states that depended on CFTC regulated products to hedge the prices of agriculture, mineral, or energy that they produced. In the course of those travels, I descended 900 feet underground in a Kentucky coal mine, climbed 90 feet in the air on a North Dakota natural gas rig and went even higher in an Arkansas crop duster. I walked factory floors in Illinois, oil refineries in Texas, grain elevators in Indiana, and power plants in Ohio. I milked dairy cows with family farmers in Melrose, Minnesota. I met with grain and livestock producers in New York, Montana, Iowa, and Louisiana. In Kansas, I met Mary and Pat Ross at their feedlot in Lawrence, traveled to Ken McCauley's corn farm in White Cloud, and visited Pat O'Trimble's soybean fields in Perry. In Michigan, I toured the Ford Rouge automobile manufacturing plant, visited a grain mill in Frankenmuth, and met with farmers and agricultural product suppliers at a fertilizer depot in Henderson.
In the first-ever, bipartisan, CFTC agriculture tour, Commissioner Wetjen and I flew to Iowa to visit the John Deere combine factory in Moline, the World Food Prize Foundation in Des Moines, and the corn and soybean fields just north of Clear Lake. (While there, we walked far out into a cornfield to pay homage at the site of the plane crash that killed rock ‘n’ roll pioneers Buddy Holly, Ritchie Valens, and J. P. “The Big Bopper” Richardson.5)
While these visits were delightful in their own right, they made me a better-informed regulator of American commodity futures markets. In corn fields and pole barns, I spoke directly with participants in CFTC regulated markets. These conversations gave me essential credibility back in Washington to address the impact of CFTC rules on the everyday people who depended on futures markets to hedge their production risks. They taught me that the number one concern of corn, soybeans, pork, and dairy producers is the fairness of the price they will get paid at harvest. That's what puts food on their tables.
I was not opposed to a position limits rule that would curb excessive speculation, especially by large financial traders. At the same time, it was essential that those limits not become so wooden or inflexible that they distorted the markets or harmed American agriculture or energy producers. That's what would happen if the rules interfered with those producers' ability to protect themselves against the vast declines in commodity prices that could occur—and were, in fact, occurring. If the prolonged collapse in commodity prices continued, and the position limits rule was not made workable, we would be burdening hedging activity at precisely the worst time.
My principal qualms regarding earlier position-limits proposals had been just that. I feared they would restrict bona fide hedging activity or harm America's farmers and energy producers. Both had been sorely affected by plummeting commodity prices and service provider consolidation. I was not willing to support a poorly designed rule that had to be continually tweaked through no-action letters and other ad hoc staff interpretations and advisories. That approach had become too common at the CFTC in prior years. We had to carefully consider the impact of any new proposal on America's almost 9,000 grain elevators, 2 million family farms, and 147 million electric utility customers.6
The position limits proposals that I reviewed during my time as a minority commissioner were very detailed and complex, hundreds of pages in length, with thousands of footnotes. In too many cases, the proposals would have imposed additional paperwork, compliance costs, and burdens that would have done little to limit excessive speculation. I expressed my concern that they would likely result in higher costs for consumers of food and energy, which would be felt most heavily by low-income Americans.
I called for the CFTC to take better account of the costs and benefits of its rulemaking. This was especially urgent given the slow growth of the Obama economy and the administration's philosophy of attacking seemingly every issue with still more regulations.7 The job participation rate—the percentage of Americans in the workforce—had not been this low in over 35 years.8 During the Obama years, one in three Americans between the age of 18 and 31 were living with their parents.9 And in one out of five American families, no one had a job.10
Overregulation was not making things any easier. Under President Obama, business regulation cost the United States more than 12% of GDP or $2 trillion annually.11 The average manufacturing firm spent almost $20,000 per employee per year on complying with federal
