As featured on p. 218 of "Bloggers on the Bus," under the name "a MyDD blogger."

Thursday, July 30, 2009

The Rise Of The Commodity Futures Trading Commission

Back in the days before George W. Bush, we had these things called "regulators," who independently sought to enforce the nation's laws and protect the public from waste, fraud, abuse and outright criminal activity. The regulatory agencies have been so gutted that it's going to take a while for them to regain their institutional memory and recall their core mission. In particular, the Commodity Futures Trading Commission is making some serious noise. They are out-and-out blaming the speculators for spiking oil prices in 2008 for their personal benefit. That's a shocking admission for a regulator to make.

The Commodity Futures Trading Commission plans to issue a report next month suggesting speculators played a significant role in driving wild swings in oil prices -- a reversal of an earlier CFTC position that augurs intensifying scrutiny on investors.

In a contentious report last year, the main U.S. futures-market regulator pinned oil-price swings primarily on supply and demand. But that analysis was based on "deeply flawed data," Bart Chilton, one of four CFTC commissioners, said in an interview Monday.

The CFTC's new review, due to be released in August, adds fuel to a growing debate over financial investors who bet on the direction of commodities prices by buying contracts tied to indexes. These speculators have invested hundreds of billions of dollars in contracts that were once dominated by producers and consumers who sought to hedge against oil-market volatility.

The review also reflects shifting political winds. Under Chairman Gary Gensler, appointed by President Barack Obama, the CFTC is departing from the more hands-off approach it took under its previous head, a George W. Bush appointee. The agency is widely expected to adopt new rules to limit the amount of investments in commodities by big institutions betting on their direction purely for financial gain.

Gensler was savaged by liberals when he was nominated by the President, particularly because of his history as a Goldman Sachs partner and a Rubinite crony. Releasing a report like this will not fit the profile. What's more, the CFTC is talking about severely limiting trades in energy futures.

The country’s top regulator of commodity markets said Tuesday that the government should “seriously consider” strict limits on the trading of purely financial investors in the futures markets for oil, natural gas and other energy products.

Opening the first of three hearings on proposals to curb “speculative” trading and reduce volatile price swings in oil and gas, the chairman of the Commodity Futures Trading Commission made it clear that he favored tighter volume limits on “non-commercial” traders — banks, hedge funds and other financial institutions — that account for a big share of trading in energy contracts.

“The C.F.T.C. is in the best position to apply limits across different exchanges, and we are most able to strike a balance between competing interests and the responsibility to protect the American public,” the commission chairman, Gary Gensler, said. “I believe we must seriously consider setting strict position limits in the energy markets.”

Mr. Gensler, who was nominated by President Obama, made it clear that he was sympathetic to complaints from Democratic lawmakers and some industry analysts that purely financial traders, who usually never take delivery of a product, have aggravated the violent swings in energy prices in recent years.

We absolutely need this kind of sensible regulation to end the skimming of wealth off the top of the consumer and into the pockets of financial traders. A robust regulatory apparatus is simply vital to the future of the nation and protecting the middle class.

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