WASHINGTON - Signaling his intention to strengthen regulation of the nation's financial markets, President-elect Barack Obama announced his choice yesterday of two government veterans, including Baltimore native Gary Gensler, to lead what could be a sweeping overhaul.
"If the financial crisis has taught us anything, it's that this failure of oversight and accountability doesn't just harm individuals involved. It has the potential to devastate our entire economy," Obama said in Chicago, where he unveiled his choice of Mary Schapiro as chairman of the Securities and Exchange Commission and Gensler to head the Commodity Futures Trading Commission.
Gensler has been in charge of the Obama transition team reviewing the SEC, and there had been some speculation that he might be put in charge of that agency. His selection as head of the commodities agency came as a surprise.
The SEC regulates most securities, such as stocks and bonds, while the CFTC oversees futures trading in agricultural, energy and financial markets. Criticism of commodities regulation reached a peak last summer when oil futures prices rose above $130 a barrel, with some blaming unchecked speculation for much of the increase.
The U.S. is the only country with separate regulatory agencies for securities and futures, and there have been proposals to merge the two. Schapiro, who currently heads a private organization that oversees securities firms, has served as both an SEC commissioner and head of the commodities agency.
Obama said that he was making the appointments months earlier than new presidents typically do, to underscore his commitment to overhauling the nation's regulatory system, which he called a top legislative priority.
Gensler said he was "thrilled" by his selection. The 51-year-old has worked closely with many top economic officials of the incoming administration, including Lawrence Summers, who will head the White House economic council, and who was a top official at the Treasury Department, with Gensler, under President Bill Clinton.
Gensler has also served as a key adviser to Senate Democrats, including to then-Sen. Paul S. Sarbanes of Maryland in helping draft the Sarbanes-Oxley reform law passed by Congress in 2002 after scandals at Enron and other companies.
Sarbanes, in an interview, called Gensler "a terrific appointment" and noted his close ties to key members of the Obama economic team.
"Gary knows all those people, and they know him, and obviously they recognize his abilities," the former senator said.
Long active in national and Maryland Democratic politics, Gensler was an early supporter of Hillary Clinton for president. He is a former partner at Goldman Sachs, a position that made him wealthy and linked him to Robert E. Rubin, who recruited Gensler for a top Treasury job in 1997.
In remarks at Obama's press conference, Gensler thanked his three daughters, Anna, Lee and Isabel, and expressed regret that his wife, Francesca Danieli, who died of breast cancer in 2006 at age 52, could not be there. Gensler, of Brooklandville, is a Pikesville High graduate who went on to earn degrees at the University of Pennsylvania's Wharton School.
One of his first tasks in his new position, which requires Senate confirmation, could be to work himself out of a job.
There have been numerous calls for a merger of the SEC and the CFTC, including by Bush Treasury Secretary Henry M. Paulson Jr., a former Goldman Sachs chairman.
Obama said yesterday that updating the nation's regulatory apparatus for the 21st century would be among his earliest initiatives. He said it was premature to offer details but raised the possibility of consolidating regulatory agencies "to streamline them, to make clear who's got what mission, so that things aren't falling through the cracks."
He said the recent $50 billion securities fraud scandal involving New York financier Bernard L. Madoff was only the latest reminder of "how badly reform is needed when it comes to the rules and regulations that govern our markets."
Efforts to combine the agencies could be impeded by politics. Each has its own constituency and is overseen by different congressional committees, whose members rely heavily on campaign contributions from the financial industry.
Charles Elson, a specialist in corporate governance at the University of Delaware, said he saw no other reason not to consolidate the agencies.
"Ultimately, the bigger question is: Does consolidation create safer markets in the end, and does increased regulation lead to safer markets, and that's anybody's guess," he said.
Gensler is a past treasurer of the Maryland Democratic Party, and was seeking the chairmanship a few years ago when his wife was diagnosed with breast cancer. Hillary Clinton made sure that his political work for her campaign would not interfere with his ability to rear his daughters before she gave him a senior advisory role. Soon after Clinton's campaign folded last summer, Gensler became an Obama fundraiser and adviser.
A major Democratic donor, he contributed a total of more than $220,000 to party candidates and committees since 2002, including more than $72,000 this year, according to Federal Election Commission records.
Obama also announced his intention to make Dan Tarullo, one of his economic advisers, a governor of the Federal Reserve Board. Another Clinton administration veteran, Tarullo held international economics positions at the State Department and the White House.
GARY GENSLER BIO
Experience Senior adviser, Hillary Clinton for President campaign; senior adviser to Sen. Paul Sarbanes on the Sarbanes-Oxley Act; undersecretary and assistant secretary in Treasury Department; co-head of finance, Goldman Sachs
Education Pikesville Senior High School; B.S. and M.B.A., Wharton School of Business at the University of Pennsylvania
Personal Homes in Brooklandville and Chevy Chase; three daughters; twin brother, Robert, is manager of T. Rowe Price Global Stock Fund