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.

Prioritize The Populism

Out of nowhere, the Obama Administration and its federal agencies have started to crack down on speculation and monopolies, while improving individual safety. These populist positions deserve pride of place from the White House; they should talk a lot more about them.

Hold a press event about stopping oil speculation:

In a big departure from the hands-off approach to market regulation of the last two decades, the chairman of the Commodity Futures Trading Commission, Gary Gensler, said his agency would consider new limits on the volume of energy futures contracts that purely financial investors would be allowed to hold.

The agency also announced that it would pull back part of the veil on the oil and gas markets, publishing more detailed information about the aggregate activity of hedge funds and traders who arbitrage between domestic and foreign energy prices.

....Oil prices have swung wildly in the last year, hitting about $145 a barrel last summer, then plunging to $33 in December before rising to about $70.

....A growing number of critics have blamed some of the extreme volatility on the role of purely financial investors — those who are simply betting on the direction of energy prices, as opposed to those who actually use such products, like airlines....Non-commercial traders accounted for almost a fifth of the activity in several major oil and gas products for the week that ended June 30, according to data compiled by the commodities agency.

Matt Taibbi, in his great story on Goldman Sachs, writes about how last year, "a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed." That's just unconscionable, and the CFTC has a role to play in dialing that back.

Furthermore, the President should deliver a live speech on telecom monopolies:

The U.S. Justice Department has begun looking at big telecom companies to try to determine if they have abused their market power, the Wall Street Journal reported in its online edition Monday.

The journal, which cited people familiar with the matter, said that the Antitrust Division's review was in its very early stages and was not official.

Lawmakers have recently raised questions about whether large wireless carriers were hurting smaller rivals by entering exclusive agreements with the makers of popular phones.

I think they could reel in a lot of people by telling them they shouldn't have to change carriers to use an iPhone.

Finally, rather than a fact sheet and a webcast, how about a prime-time special on food safety?

The Food and Drug Administration (FDA) is issuing a final rule to control Salmonella contamination of eggs during production. This rule is estimated to reduce the number of foodborne illnesses associated with consumption of raw or undercooked contaminated shell eggs by approximately 60%, or 79,000 illnesses every year, and will generate annual savings of over $1 billion [...]

Stepped Up Enforcement in Beef Facilities: FSIS is issuing improved instructions to its workforce on how to verify that establishments handling beef are acting to reduce the presence of E. coli. Also, FSIS is increasing its sampling to find this pathogen, focusing largely on the components that go into making ground beef.

Preventing Contamination of Leafy Greens, Melons, and Tomatoes: By the end of the month, FDA will issue commodity-specific draft guidance on preventive controls that industry can implement to reduce the risk of microbial contamination in the production and distribution of tomatoes, melons, and leafy greens. These proposals will help the Federal government establish a minimum standard for production across the country. Over the next two years, FDA will seek public comment and work to require adoption of these approaches through regulation [...]

Building a National Traceback and Response System: A system that permits rapid traceback to the source of foodborne illness will protect consumers and help industry recover faster. Yet despite the dedicated efforts of food safety officials across the country, our current capacity to traceback the sources of illness suffers from serious limitations [...]

Improving Organization of Federal Food Safety Responsibilities: Building a more effective safety system requires federal agencies to improve management of their food safety responsibilities and coordinate more effectively with each other.

I hear that the President's approval rating is sinking in Ohio. They are experiencing a terrible economy like the rest of the country, but they also see bank bailouts without the same attention paid to the auto industry, and think they're getting the shaft. Maybe if they knew that their government was trying to stop oil speculation to lower the price of their gas, stop the phone companies from ripping them off, and stop food manufacturers from making them sick, they'd have a little more comfort that their President is on their side.

Republicans Vote Against Lowering Gas Prices

Even though I don't think it's the entire story, there's certainly SOME speculation in the oil futures market that is driving up the price. Ian Welsh has a pretty good explanation of this. And so to see the Senate block consideration on a bill that would rein in speculation in the market, a few days after voting 94-0 to move it forward, is just embarrassing, and really shows where the loyalties of the Republicans lie - with the speculators and with the oil companies that benefit from the speculation.

The DSCC puts it all together in a press release:

Senate Minority Leader Mitch McConnell voted against a bill today to lower gas prices by curbing excessive speculation in energy markets. Experts have noted that speculation is driving up the price of a barrel of oil, and a recent House committee report revealed that speculators – institutional investors buying contracts with no intention of taking delivery of oil – now account for 73% of all trading of crude oil contracts on the New York Mercantile Exchange, up from 37% in 2000.

"Mitch McConnell had an opportunity to lower the price of gas today, but instead he voted with the speculators who are profiting from Kentuckians' pain at the pump," DSCC spokesman Matthew Miller said. "Mitch McConnell's constituents deserve better than a politician who sides with Wall Street speculators over Kentucky families."

McConnell voted against legislation to guard against price manipulation just one day after the Commodity Futures Trading Commission announced its first case against a trading fund in the agency's probe of crude oil market manipulation. The bill will eliminate so-called "dark markets" to increase transparency and accountability in commodities trading, strengthen the CFTC's enforcement capacity, and close the "London Loophole" so all U.S.-based trading of American commodities is subject to American regulation.

And the only action the Republicans want to take to relieve the burden of high gas prices is more drilling and spilling, and they'll lie through their teeth to do so, that the wildlife "wouldn't care" about giant oil rigs going up in their backyard (in that case, let's put one behind John Boehner's house). Of course, that drilling and spilling will only advantage- you guessed it, giant oil companies.

It's all so transparent...