Nick Benton's Corner: Silence Protects the Speculators

posted with permission of Nicholas Benton, editor/owner of the Falls Church News Press.

Silence Protects the Speculators

by Nicholas Benton

John McCain has once against thrust the burden for solving the energy crisis on individual families in the U.S. "It has to start at home," he said yesterday, ignoring the overwhelming evidence that it is deep ideological opposition to any regulation of speculative investment by leaders in his party which has led not only to the explosive rise in food, oil and gas prices, but to the housing mortgage crisis, as well.

Some congressional Democrats are just beginning to scratch the surface of what could become one of the biggest scandals of a scandal-ridden decade, something Republicans and the media have so far chosen to completely ignore.

The scandal dates to back December 2000, when McCain economic advisor, former Sen. Phil Graham, then chair of the Senate Finance Committee, slipped in a loophole, attached to an 11,000-page appropriations bill in the wee hours of the morning during the Christmas recess.

The loophole deregulated oversight by the Federal Reserve of the commodity indexes and commodity futures markets, and the result led immediately to the worst excesses of the Enron scandal.

But it has now spilled over to the current housing bubble collapse, financed by sub-prime mortgages that were repackaged and marketed by unregulated hedge funds, and onto current exploding oil, gas and food prices.

As reported in this column three weeks ago, at a June 3 Senate Commerce Committee hearing, Michael Greenberger, former head of the Commodity Futures Trading Commission, laid out this entire unraveling of events, and insisted that if new regulations were placed onto the commodities futures markets, oil and gas prices would drop precipitously, virtually overnight.

But the major media and Republicans, alike, ignored the hearing. In ensuing weeks, however, some Democrats have begun to take up the case more aggressively. Last week, the first case of a major political campaign energy policy including reference to reigning in speculation on commodities futures came from Virginia U.S. Senate candidate Mark Warner.

Then this week, presumptive Democratic presidential nominee Sen. Barack Obama issued a four-point proposal that called explicitly for rolling back the infamous so-called "Enron loophole" slipped into law by Sen. Gramm.
"There's too much speculation in the oil markets, and a lot of it flows directly from that particular loophole," Obama supporter New Jersey Gov. Jon Corzine said in a conference call.

But the scandal lies not only in the secretive move to slip the loophole into the 2000 bill, but the knowing resistance to closing the loophole by Republican-led Washington ever since.

Silence, including media complicity, has been the main tactic. Beyond that, there is the unfounded threat that any re-regulation will drive investors to unregulated markets overseas. They simply won't. They may bluff, but there's simply too much that's preferable in the U.S. markets, and investors know it.

It is symptomatic, in the media case, to the run-up to the war in Iraq. With his retirement announcement this week, Washington Post executive editor Leonard Downie Jr. was quoted in the Post trying to explain his failure to give more credence to critics of the invasion of Iraq prior to its occurrence. "That antenna I normally had just didn't function well enough," he shrugged, despite the fact that reporters "pursued some skeptical reporting about the rationale for invading Iraq." Right.

Maybe it had more to do with Post Chief Executive Donald Graham being flanked shamelessly by top Bush administration military brass at White House Correspondents Dinners, and ordering pro-invasion editorials.
The same is true for many other crimes and scandals perpetrated by a Republican administration that has treated its tenure more like unlocking the candy store for its elitist friends than serving the public interest.

Allowing speculators to feast off of commodity futures at the expense of the average Joe trying to drive to work, keep his job and feed his family is one of the greatest abuses of power imaginable, and for the press to remain complicit by its silence is equally inexcusable.

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Here is the statement referenced by Benton. It was issued by the Obama Campaign on June 22.


Senator Barack Obama today announced his plan to crack down on excessive energy speculation and fully close the "Enron Loophole" to ease the impact skyrocketing gas prices.

Barack Obama: Cracking Down on Excessive Energy Speculation to Ease the Impact of Record Oil Price Increases
Our economy is reeling from a historic run-up in oil prices. The price of crude oil has climbed from under $50 a barrel to an all-time high of nearly $140 in less than 18 months. American consumers are feeling the impact of these record prices at the gas pump, the grocery store, and in everyday purchases as well. At a time when families are already struggling with soaring healthcare costs, stagnant wages and record declines in housing values, these record energy prices are turning the middle-class squeeze into a devastating vice-grip for millions of families.

Barack Obama understands that while many factors are contributing to record oil prices, we must do everything we can to help ease the burden on struggling families in the near term while putting in place policies like conservation, development of alternative fuels and investments in new technologies to reduce our dependence on foreign oil and reduce oil consumption by 35 percent, or 10 million barrels, by 2030. He is particularly concerned that unregulated energy speculators may be distorting the market by making excessive bets on the future price of oil.

Independent experts across the political spectrum have argued that excessive speculation in oil futures is contributing to high energy and food prices. Barack Obama understands importance of a vibrant oil futures market to help producers and buyers hedge against swings in the price of oil. But he believes that when an absence of common sense rules allows a few energy lobbyists and speculators to undermine the public confidence in the integrity of the market , we need common sense changes to restore market fundamentals so they work for working families.

Today, he called for stepped-up oversight of energy markets to help stabilize oil prices and ease the burden of high energy prices for American families.

The Obama Plan to Crack Down on Excessive Energy Speculation

Fully Close the "Enron Loophole": One of the reasons our energy market is particularly vulnerable to excessive speculation is the so-called "Enron Loophole." This provision was slipped into law by Senator Phil Gramm in late 2000 at the behest of Enron lobbyists to exempt some energy traders from the regulations and public protections applicable to exchange-traded commodities. As a result, the Commodity Futures Trading Commission (CFTC) is unable to fully oversee the oil futures market and investigate cases where excessive speculation may be driving up oil prices.

This regulatory gap is dangerous because: 1) the absence of government oversight has the potential to facilitate abusive trading or price manipulation. And 2) the failure of a large derivatives dealer could trigger disruptions of supplies and prices in energy markets.

As President, Barack Obama will go beyond the changes included in the recently-passed Farm Bill and fully close the Enron loophole by requiring that U.S. energy futures trade on regulated exchanges. He will call for new, disaggregated data on index fund and other passive investments to increase transparency and oversight of the growing number of institutional investors participating in commodities futures markets. And he will support legislation directing the CFTC to investigate whether additional regulation is necessary to eliminate excessive speculation in U.S. commodities markets, including higher margin requirements and position limits for institutional investors.

Ensure That U.S. Energy Futures Cannot be Traded on Unregulated Offshore Exchanges: CFTC oversight of oil market speculation is also limited by rules that allow energy traders to engage in unregulated transactions through foreign subsidiaries of U.S. exchanges. Currently, about 30 percent of U.S. oil futures trades fly below the regulatory radar because they are transacted on a U.S. exchange that works through a subsidiary in London. Similar arrangements are being pursued by U.S. exchanges in partnership with Dubai as well. Barack Obama would limit the price impacts of excessive speculation by preventing traders of U.S. crude oil from routing their transactions through off-shore markets in order to evade speculation limits and also impose reporting requirements.
Ø Work with Other Countries to Coordinate Regulation of Oil Futures Markets: As the global energy market expands and trading for oil futures increases, Barack Obama believes we must work with our other countries to establish uniform approaches to avoiding excessive speculation in commodities futures markets. As President, he would work through the International Organization of Securities Commissioners (IOSCO) and other international organization to harmonize regulations across countries. This effort will help to ensure that as the U.S. strengthens oversight and transparency in U.S. exchanges, these efforts are not undermined by overseas trading subject to lax regulations.

Call on the Federal Trade Commission and Department of Justice to Vigorously Investigate Market Manipulation in Oil Futures. In 2007, Senator Obama supported legislation that gave the Federal Trade Commission (FTC) new authority to investigate and pursue price manipulation in oil markets. However, even in the face of record oil prices and growing concerns about excessive speculation, the Bush Administration has failed to utilize these new powers.

Barack Obama does not believe we cannot afford to wait weeks and months more to vigorously investigate whether energy traders and oil companies manipulating the market at the expense of consumers. He is calling on the FTC to immediately expedite its investigation into market manipulation, including in the oil futures markets. He is also calling on the Department of Justice to open an investigation into whether energy traders have been engaged in illegal activities that have helped drive up the price of oil and food.


What about the accounting loophole.

Since double entry accounting is 700 years old and computers more powerful than corporations could buy in the 70's can be had for a little dumpster diving, why shouldn't everybody know accounting?

When have you heard our brilliant educators suggest such a thing?

When are we going to close the accounting loophole so lots of people can better understand what is really going on?

Kill an economist for Karl