UNCLASSIFIED U.S. Department of State Case No. F-2014-20439 Doc No. C05793501 Date: 11/30/2015

FINANCE

RELEASE IN FULL THE moNEry col2 Gary Gensler got his start on Wall Street. Now he's cleaning it up—and taking on the biggest banking scandal since the financial crisis

BY RANA FOROOHAR

OUR YEARS ON FROM THE FINAN- global banking, is Gary Gensler, chairman tales of the perils and joys of raising three cial crisis, new scandals still of the U.S. Commodity Futures Trading daughters (Anna, 22; Lee, 2i; and Isabel, 16) seem to break out every few Commission (CFTC), who since 2009 has on his own following the death of his wife months. HSBC, the big British become one of Wall Street's toughest cops. of zo years, Francesca, from cancer in 2006. bank, just agreed to a $1.9 bil- That's a long way to have traveled since his Today, Gensler is railing about soiled Flion settlement over money laundering. days in the Clinton Administration, when clothing. "Anna came back home from That was followed by the arrests of sev- he was one of those who advocated loosen- L.A. the other day, and she brings this duf- eral London traders, including one who ing in the first place. fel bag full of dirty clothes!" he says. "Can had worked for Swiss giant UBS and For a man who strikes fear in the hearts you believe it? I end up doing all her laun- Citigroup, on suspicion of interest-rate of brazen bankers, Gensler is a pretty ge- dry." Lounging in a beautiful home filled manipulation—and banks are bracing for nial guy. The 55-year-old single father with photos and paintings done by their more to come. A driving force behind this laughs easily, jokes frequently and tells self- mother, who was an artist, the girls roll latest crackdown tied to , the Lon- deprecating stories about his role in mak- their eyes and later retaliate by mocking don interbank-loan rate that is critical to ing our financial system safer in between Dad for his downtime pleasure, dancing:

Photograph by Reed Young for TIME UNCLASSIFIED U.S. Department of State Case No. F-2014-20439 Doc No. C05793501 Date: 11/30/2015

UNCLASSIFIED U.S. Department of State Case No. F-2014-20439 Doc No. C05793501 Date: 11/30/2015

Profile in courage CFTC chairman Gensler has made Ina%) enemies in high places pursuing financial justice

UNCLASSIFIED U.S. Department of State No F-2014-20439 Doc No C05793501 Date: 11/30/2015 UNCLASSIFIED U.S. Department of State Case No. F-2014-20439 Doc No. C05793501 Date: 11/30/2015

FINANCE REGULATION

"You should see him get down—it's half since banks use it as a benchmark to set oth- it had been rigging the rates it submitted swing, half breakdancing!" When I point er rates. Adjustable-rate mortgages, many for LIBOR for years, paying $450 million in out to Gensler—a former student loans and car payments are pegged fines as a result. Over a dozen other global partner who employs almost no household to LIBOR. So are countless types of complex banks are under investigation by the CFTC help and lives much of the time not in D.C. financial instruments, including 700/0 of and other U.S. and European regulators for but near where he grew up in — the U.S. futures market. In all, LIBOR un- falsely reporting or manipulating LIBOR. that maybe he doesn't need to do his own derlies some $350 trillion worth of deriva- A number of those banks have been setting laundry, he sighs and says, "I know, I tives contracts and $10 trillion in loans. aside massive reserves to deal with poten- know." Living outside the Beltway and be- So the notion that someone has played tial fines. UBS, which may end up paying ing Mr. Mom are part of Gensler's effort to games with LIBOR doesn't sit well with even bigger penalties than Barclays, has keep a healthy distance—geographically enforcers like Gensler, who think the very socked away some Oro million to deal and existentially—from both Washing- viability of the world financial system de- with possible regulatory issues. ton and Wall Street, where the dirty laun- pends on transparency and a level playing dry is a lot nastier than anything his kids field. From pro investors making giant bets A Motive for Fraud can throw at him. to homeowners considering a refinance, THE CLEANUP IS LARGELY DUE TO GENSLER, As chairman of the CFTC, he stands practically everyone in the market relies who has been leading the charge to un- watch over some of the most exotic—and on the assumption that the LIBOR bench- cover LIBOR fraud since he took over the risky—financial transactions. Since sum- mark reflects reality. "These rates are at the CFTC in wog. mer, Gensler has been a central figure in absolute core of our global financial sys- exposing the biggest banking scandal since tem," he says. If they are falsely reported, the financial crisis: the LIBOR interest-rate- "that goes to the integrity of markets and manipulation investigations. LIBOR, the how much trust the public has in them." London interbank offered rate, is an arcane It turns out that public trust was indeed Seeing what sticks Gensler term for a simple concept: the misplaced. On June 27, after four years of in- with daughters Isabel, Anna that a bank might charge another bank. It vestigation by the CFTC, Barclays became and Lee in the kitchen of their plays a huge role in lots of everyday loans, the first major bank to publicly admit that Baltimore home

38 UNCLASSIFIED U.S. Department of State Case No. F-2014-20439 Doc No. C05793501 Date: 11/30/2015 UNCLASSIFIED U.S. Department of State Case No. F-2014-20439 Doc No. C05793501 Date: 11/30/2015

OINANDE. [ REGULATION:

A year earlier, there had been hints Staying rooted in worked as an adviser to that something was off with LIBOR, during her 2008 campaign.) But in 1998, which is unusually vulnerable to ma- Baltimore and being Gensler's wife had a flare-up of cancer, nipulation since it's not based on actual Mr. Mom are part which had plagued her since they met. By lending transactions. Instead, it's calcu- 2005 the family was taking their last vaca- lated through guesstimates submitted by of Gensler's effort tion together, to London, with Francesca a panel of 20 global banks. In some ways, to keep a healthy in a wheelchair. The next year, as she lay LIBOR is a measure of banks' trust in one dying in hospice in a medication-induced another's solvency. After all, you will offer distance from both haze, Gensler says, "I took her hand and a better deal on a loan to a borrower you Washington and talked about all the vacations we had taken feel confident can easily repay you than to Wall Street together, and I was laughing and saying, someone whose seem weaker. 'Wasn't this great?' and 'Remember that?'" In 2008, as the financial crisis was build- He pauses, his face softening, and then he ing, that trust was manifestly declining— smiles. "She opened one eye and gave me yet LIBOR wasn't rising. In those dark days, this wry little smile. That was her goodbye." banks had a powerful motive to report rates done more [to protect] the derivatives The family is still very tight-knit—and lower than the real ones: the first banks that markets," says Gensler. And unlike others somewhat competitive. Gensler's book admitted having to paymore to borrow from on the team, he was brave enough to make The Great Mutual Fund Trap took aim at fellow institutions would be effectively ad- a public mea culpa and also fight back his brother Rob's industry, which he felt vertising the worries about their stability— when it seemed the Obama Administra- was overcharging people. "It's like, Do you admitting that they, and perhaps the entire tion wanted to return to the status quo. He really need that much of a spread for the financial system, were vulnerable. wrote a letter to Congress in 2009 urging middleman? There are a lot of bad prac- Authorities knew something was up. that new derivatives rules be strengthened; tices out there in finance." (In 2008, Mervyn King, governor of the critics claimed that more regulation would When 2013 kicks off, Gensler can notch Bank of England, joked that LIBOR "is in raise the cost of capital and add red tape. the end of another bad practice as an ac- many ways the rate at which banks do not Even some opponents of Clinton-era complishment. On Dec. 32, the U.S. will lend to each other.") Yet regulators—some deregulation offer praise for Gensler. "I become the only nation to require domes- of whom may have feared market panic if think he's done an impressive job," says tic and international dealers of swaps who LIBOR was exposed as unreliable—didn't Joseph Stiglitz, former chairman of the are conducting business in America to jump on the case. Council of Economic Advisers. "He's some- register with regulators. The new report- Except for Gensler. Working alone at first one who doesn't just say, 'Trading is good: ing rules might have allowed regulators and then with other U.S. and international but who really thinks about the social to see that a company like AIG—which agencies, the CFTC trolled through thou- value of finance." had to be bailed out with $18o billion in sands of e-mails, coming up with damn- As the son of a vending-machine small- taxpayer money—was taking risky bets in ing evidence. "Dude, I owe you big time," business owner who grew up in a middle- the derivatives markets. "Would that have reads one e-mail from a trader to a Barclays class Jewish family, Gensler had early prevented AIG from taking those bets?" staffer involved in fixing rates. "I'm open- exposure to the real-world side of finance. asks Gensler. "Maybe not. But at least we ing a bottle of Bollinger." The Champagne His father would draft Gary and everyone would have known. You always feel safer may not have cost consumers anything— else in the family to "go around to the bars on a lit street rather than a dark one." indeed, to the extent that LIBOR was kept of Baltimore with this nickel-counting ma- Shining a light in the darkest corners of artificially low, it's possible that people with chine" so he could make the weekly payroll. finance hasn't won Gensler many friends. loans pegged to that rate saved some money. Gensler turned out to be a math whiz "He's dealt with a lot of very uncoopera- But the LIBOR fixing illuminated a culture and went on to earn both his under- tive people," says Congressman Barney in which bankers routinely commit fraud graduate degree and his M.B.A. from the Frank. Among them: a Congress that has while regulators turn the other way. University of Pennsylvania's Wharton underfunded the CFTC (which has only School. (He was an undergrad alongside Da% more staff than it did in the 1990s, A Born-Again Regulator his twin Robert, now a fund manager.) Af- when markets were much smaller) and THE FACT THAT GENSLER DIDN'T IGNORE ter Wharton, Gensler began a successful banking-industry lobbying groups that are the LIBOR problems may in some ways be 18-year career at Goldman Sachs, eventu- continually suing the agency. Indeed, some an atonement for the earlier role he played ally working under Rubin, who was a part- insiders speculate that if Gensler hadn't in the deregulation of financial markets. ner running a trading desk and starting made so many enemies in finance in the In the Clinton Administration he worked up the risk-arbitrage unit. While the two past few years, he might be a contender for with Treasury Secretary and weren't personally tight ("It was always a a bigger gig, like head of the SEC or Trea- later was an Under Secretary to Rubin's business relationship," says Gensler, ever sury. He shrugs at the idea. "It's a privilege successor, Larry Summers, who passed the tactful), Rubin was a good judge of talent, to see this job through. These rules [we are Commodity Futures Modernization Act. eventually exploiting Gensler's quantita- enforcing] really can help shift advantage That law exempted credit-default swaps— tive thinking on trading as the firm's focus from Wall Street to the rest of the econo- those exotic securities that exploded our shifted further and further to that more my." In a country still rife with financial economy in 2008—from regulation. profitable—and risky—area of business. scandal, where people have come to believe "Knowing what we know now, those Rubin then brought Gensler into the that the system is rigged against the little of us who served in the 1990s should have Clinton Administration. (Gensler later guy, that's as important a job as any. • 40 TIME December 24, 2012

UNCLASSIFIED U.S. Department of State Case No. F-2014-20439 Doc No. C05793501 Date: 11/30/2015