The Three Most Evil Emperors You've Never Heard Of

[captainsblog]

Regardless of your politics, you know who your friends and enemies are- Nancy Pelosi. Sarah Palin. Harry Reid. John Boner. That lot.

But I'll bet your bottom petrodollar that you've never heard of Michael Dunn, Jill Sommers or Bart Chilton. No? Well, they're the ones directly responsible for you gagging every time you pass a gas station and the price per gallon is a nickel or dime higher than it was the day before.

Let me explain.

Once upon a time, oil prices were determined by capitalists on a free-market exchange. Then, in the early 2000s, Wall Street traders, and the likes of Enron, figured out how to manipulate the prices of such commodities, by artificially driving up the prices through "futures contracts." These had historically been used to protect actual purchasers of oil and gas from sudden price spikes, but they were suddenly being used  by traders who had no intention of staining their Armani suits with a single drop of actual crude, to speculate on market fears and paranoia, raising the price of oil more in a few years than had occurred in the previous 30.

Amazingly, the government noticed- and tried to stop it. There's an agency called the Commodity Futures Trading Commission, set up to keep such outside influences from rigging the prices of, well, commodities.  As with many quasi-governmental agencies, its members are nominated by whatever President happened to draw the popular vote in a four-year cycle, and so, for most of the early 2000s (when prices went from $1-something a gallon to Katrina's $4-something spike, the majority was picked by a Republican President, and/or was subject to confirmation by a Republican Senate. Despite that influence, in the post-Katrina marketplace, the CFTC started regulating speculators from influencing the prices of oil on markets within (or controlled by) mostly United Statesian traders.

Stay with me here.

Once the CFTC regulated the actual trading in barrels of oil, Wall Street did the same thing it did in the home lending market: it created derivatives. Remember them? Not the first-year college-calculus ones, but the tradeable securities BASED on the alleged value of the underlying (and subject to regulation) asset. In the commodities market, this produced "derivatives" that looked like oil, sounded like oil, quacked like oil, but, because they weren't EXACTLY contracts for the sale of actual oil barrels but, rather, contracts to compel the sale of actual oil barrels, wound up outside the regulatory reach of the CFTC. 

Let's be clear here. The alleged "spike" from the conflicts in Libya is just that- alleged. That country accounts for precisely two percent of our oil imports- and Saudi Arabia has already committed to making up the difference in any lost Libyan production, because they have petrotons of the stuff and they just can. So this is no more than fearmongering, pure and simple- the kind of undue influence on markets that regulators are supposed to, you know, REGULATE.

Even before the current Middle East tensions, as oil prices started sliding upward before and into 2010, the U.S. Congress tried to do something about this undue influence. It passed a regulatory reform bill known as Dodd-Frank, which, among other things, directed the CFTC to regulate oil-future derivatives in the same way that it has regulated actual oil futures.  In response, the five-member CFTC has chosen to pick its nose while the economy of this country burns:

Recognizing the problem of oil speculation, Congress gave the government new powers to protect consumers and help ensure market stability with the Dodd-Frank Wall Street reform law passed last year. The law gives the CFTC the ability to limit "excessive speculation" by limiting the bets speculators can make. The law expanded the CFTC's authority to regulate the entire market for the first time. While futures -- bets on the future prices of commodities like oil and wheat -- were regulated before the law passed, traders could choose to instead purchase "look-alike" futures that were not subject to regulation. Dodd-Frank changes this by allowing the CFTC to "impose a uniform set of rules across exchanges and the over-the-counter market, replacing a patchwork of inconsistent restrictions for different venues and commodities." Curbing regulation could help make these markets more stable and transparent, and help bring down the cost of oil.

DEFENDING WALL STREET: But the CFTC has so far failed to take up this responsibility and write the rules that would rein in oil speculators. The agency missed a January deadline to file new rules because of opposition from the commission's Republican members and one of its Democrats, CFTC commissioner Michael Dunn. The agency's chairman, Gary Gensler -- a Democrat and former Goldman Sachs banker -- has taken a lead in advocating strong new rules on speculation, but the Republican commissioners have been foot dragging to defend Wall Street's profits, making Dunn the swing vote.

Dunn has said he does not have enough information to sign off on new rules, despite the fact that the agency has received hundreds of public comments and held at least 75 meetings with experts, stakeholders, and the public on the matter. But Dunn's term is ending this summer, giving President Obama an opportunity to appoint someone who is willing to follow the law and rein in speculation. But the CFTC faces another threat from Republicans on a different front. H.R.1, the House Republican approved spending plan for the remainder of 2011, includes a nearly one-third cut in the CFTC's budget. Such a draconian cut would require the CFTC to lay off more than 30 percent of its staff. Moreover, House "Republicans are threatening repercussions for regulators that ignore their concerns." "We'd have to have significant curtailment of our staff and resources," CFTC Chairman Gensler said. "We would not be able to police…or ensure transparent markets in futures or swaps." The Republican effort to take cops off the oil trade beat would allow speculators to continue to drive up prices, ensuring even bigger profits for oil companies.
 
Why nobody is reporting on this issue is beyond me. But before you post another BS meme about OMG CELL PHONE NUMBERS ARE ABOUT TO BE RELEASED TO TELEMARKETERS or some similar horseshit, you might want to contact one, or all five, of the commissioners of this agency, just so they know that you know what is going on. Because the light of day has been known to scatter both cockroaches and bureaucrats:

Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581

202-418-5000
202-418-5521, fax
202-418-5514, TTY
questions@cftc.gov

Or, just suck it until gas hits six bucks a gallon. What-everrrrrr.

Comments

[bktheirregular]

And other places have it even worse. Try €1.69 ($2.44) a liter in Greece - over nine dollars a gallon.

(And people wonder why I'm hesitant to get a car.)

[captainsblog.livejournal.com]

That was also the case in the UK when I lived there; $1.50-ish gas back home translated to £2-plus petrol, where the larger Imperial gallon was more than offset by the then 1-1.5 or so exchange rate. And this was long after the North Sea discoveries that made the Brits an effective exporter of the stuff.

I'd always imagined a lot of that was tax, which, despite complaints from teabaggers, is rather ridiculously low in the US compared to other first world countries.

[firynze.livejournal.com]

Not all of the current runup is fearmongering - a lot of it is traders being very concerned about potential collapse in Bahrain, etc., and worries about Saudi Arabia not being able to sustain its social contract without pushing oil prices ever higher.

Valid fears. Just not current issues. So basically it's speculative fearmongering, using Libya as the clear-and-present excuse.

[captainsblog.livejournal.com]

All true, well and good. Also, entirely consistent with the basic premise of securities laws that have been on the books since the '29 Crash sent so many fortunes plunging to their deaths: investors should get to make reasonable decisions after full disclosure and without insider influence on the outcomes. Fair is fair and all that.

These Republican shills are letting these hedge funds make trades (and drain billions from the economy) based, not on disclosure and decision, but on fear and loathing.

[firynze.livejournal.com]

But isn't that what the free market is all about?

[floundah.livejournal.com]

+1