We know that Wall Street speculation shoulders part of the blame for rising gas prices, and that the Commodity Futures Trading Commission has done little to stop it. But I didn’t know that even the weak CFTC rules established last year were being challenged in federal court. And the outcome of that court case could lead to speculation running rampant without a check from federal regulators.
A federal judge on Monday refused to halt efforts by a key regulator to limit excessive speculation in the trading of oil contracts — which is driving up oil and gasoline prices — but hinted that he might soon rule in favor of Wall Street and let speculation go unchecked.
Robert Wilkins, a judge on the U.S. District Court for the District of Columbia, declined a request for a preliminary injunction to halt the Commodity Futures Trading Commission from implementing a congressional mandate to limit how many oil contracts any single financial speculator or company can control.
However, Wilkins told both the CFTC and lawyers for the Securities Industry and Financial Markets Association and the International Swap and Derivatives Association that he expected to make a ruling soon on whether to hear the case. His line of questioning left both sides with the impression that he was concerned about how the regulatory agency has proceeded.
The position limits sought by the CFTC aren’t even all that stringent, as Bernie Sanders and Maria Cantwell said at the time that they were announced. CFTC waited ten months after their deadline to announce the rules, and under them, a single speculator could still hold as much as 25% of all deliverable oil supply in any given month. Natural gas traders can hold, under the rule, five times the deliverable supply. Cantwell said that “Today’s overly broad rule is like setting the speed limit at 125 miles per hour.” Moreover, the rule cannot be implemented until the CFTC defines the meaning of a “swap,” which has yet to be accomplished but is scheduled for April.
And yet the bank lobbyists and trade groups are still fighting. And apparently winning.
Incidentally, this is an Obama-nominated judge who’s about to blow away the oil position limits. The trade lobbies, in a poetic move, hired Antonin Scalia’s son Eugene to argue their case. He argued that there was no need for a position limit at all, citing burdensome costs to the financial industry.
Speculators currently control about 2/3 of the oil futures market, more than double the historical average.




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The commodities bubble is a direct consequence of the near-zero interest rate world that has been inflicted on us by the Fed. With inflation at 2.0 – 3.5% (depending on who you believe), real interest rates are negative, which makes it attractive to borrow money to speculate. As was the case for gold in the late 1970′s – interest rates were high but inflation was higher – and has been true again in the current mess. And now we also have the Iran hawks adding eye-of-Newt to the cauldron.
Rich and corporate owned Congress, Presidency, and courts – all protecting the rich and corporate from any “burdensome costs” – like taxes.
So how does voting change this?
I once saw an adult moose that had been killed by thousands of ticks that it was covered with. they bled it to death.
Wasn’t there once a requirement to ‘demonstrate the ability to take delivery’ in commodity speculation? I remember seeing a piece on this ages ago, and the before-and-after price curves, demonstrating the huge increase in price volatility that followed its repeal.
Very well put.
But, I get confiused, is that a metaphor or an analogy?
Can I get back to you on that????
Yes, there was. Commodity trading wasn’t quite limited to traders who could actually take delivery, but it was restricted to parties who had an actual interest in the underlying asset. The Commodity Futures Modernization Act changed all that. Now anyone with a computer and a margin account can buy and sell as much oil or gas or copper that their credit limit will allow. Look at some long term charts for oil, base metals, industrial metals, agricultural commodities, whatever. It’s easy to see when the market was turned into a casino.
The good news is that if some hedge fund tries to corner the market and fail, it will be bailed out as TBTF. Isn’t American capitalism wonderful?
Ahh, the bubble dejour. This isn’t a national security issue? Time to clear out the speculators.
These criminals on Wall Street & elsewhere won’t be satisfied until they can operate complete without restraint.
And Obama’s folks are close to letting them have their wish. [See the foreclosure fraud "settlement."]
“Isn’t American capitalism wonderful?”
——–
I used to think so. Here lately, I thknk we have a few biugs we need to work out. Fortunately I voeted for a new president in 2008 who promised us “Hope and Change”. I’ve been out of the country the past three years, in Botswana, how’s that working out????? /s
“And Obama’s folks are close to letting them have their wish”
—–
I see our posts must have crossed in the blogosphere. So, regards to m,y question, you’re saying “not so well”?????
This is what happens when “capitalism” is allowed to work its magic of concentration and monopoly, rigged speculation is the only venue left for profit.
It changes the faces of the corporate puppets. Won’t that be a satisfactory change? Now you know what Obama”s campaign slogan meant.
Difficult to believe that Bill Clinton, and Phil and Wendy Gramm didn’t include a clause in the Commodities Futures Modernization Act prohibiting any impediments to rampant speculation by Wall Street. Not to worry, the Obamaligarchy will fix that.
As a general rule if legislation has “Modernization Act” in it’s title be afraid.
That phrase has become synonymous with deregulation.
And of course, if capitalism is not so allowed, any competitive disadvantage is blamed on government.
Oops, I guess the conditional is irrelevant.
So if this gets argues in front of the SCOTUS, will A. Scalia recuse himself?
anapor?
metalogy?
If there were the proper ‘position’ regulations the CFTC couldn’t be a playground for speculators.
Any idea what legal position might lead the judge to rule against Congress having the authority to regulate commerce?
When The Market becomes a rigged casino, one can be assured that the looters are running out of assets to steal.