Four years on from the financial crisis, new scandals still seem to break out every few months. HSBC, the big British bank, just agreed to a $1.9 billion settlement over money laundering. That was followed by the arrests of several London traders, including one who had worked for Swiss giant UBS and Citigroup, on suspicion of interest-rate manipulation--and banks are bracing for more to come. A driving force behind this latest crackdown tied to LIBOR, the London interbank-loan rate that is critical to global banking, is Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission (CFTC), who since 2009 has become one of Wall Street's toughest cops. That's a long way to have traveled since his days in the Clinton Administration, when he was one of those who advocated loosening financial regulation in the first place.
For a man who strikes fear in the hearts of brazen bankers, Gensler is a pretty genial guy. The 55-year-old single father laughs easily, jokes frequently and tells self-deprecating stories about his role in making our financial system safer in between tales of the perils and joys of raising three daughters (Anna, 22; Lee, 21; and Isabel, 16) on his own following the death of his wife of 20 years, Francesca, from cancer in 2006.
Today, Gensler is railing about soiled clothing. "Anna came back home from L.A. the other day, and she brings this duffel bag full of dirty clothes!" he says. "Can you believe it? I end up doing all her laundry." Lounging in a beautiful home filled with photos and paintings done by their mother, who was an artist, the girls roll their eyes and later retaliate by mocking Dad for his downtime pleasure, dancing: "You should see him get down--it's half swing, half breakdancing!" When I point out to Gensler--a former Goldman Sachs partner who employs almost no household help and lives much of the time not in D.C. but near where he grew up in Baltimore--that maybe he doesn't need to do his own laundry, he sighs and says, "I know, I know." Living outside the Beltway and being Mr. Mom are part of Gensler's effort to keep a healthy distance--geographically and existentially--from both Washington and Wall Street, where the dirty laundry is a lot nastier than anything his kids can throw at him.
As chairman of the CFTC, he stands watch over some of the most exotic--and risky--financial transactions. Since summer, Gensler has been a central figure in exposing the biggest banking scandal since the financial crisis: the LIBOR interest-rate-manipulation investigations. LIBOR, the London interbank offered rate, is an arcane term for a simple concept: the interest rate that a bank might charge another bank. It plays a huge role in lots of everyday loans, since banks use it as a benchmark to set other rates. Adjustable-rate mortgages, many student loans and car payments are pegged to LIBOR. So are countless types of complex financial instruments, including 70% of the U.S. futures market. In all, LIBOR underlies some $350 trillion worth of derivatives contracts and $10 trillion in loans.