Thursday, June 5, 2008

The CTFC & Oil Prices: A Barrel Full O' Monkeys, Pt. 2

Picking up on this story where we left off, two US Commodity Futures Trading Commission Commissioners(!) played a major role in the development, drafting and passage of the Commodity Futures Modernization Act (H.R. 5660)." This legislation, drafted by Enron lobbyists and John McCain's current top economic advisor Phil Gramm, created the "Enron loophole." It also ended an 18-year prohibition on trading single-stock futures. In doing so this act set up the oil futures mess many economist-types believe is in a large part responsible for our rapidly rising gas prices.

As the value of the dollar has plummeted, investors large and small have been steadily pouring cash into crude oil futures. Reminiscent of the investment surge in gold back in the early-to-mid '80s, oil futures now fill a similar role as a hedge against both inflation and a weak dollar.

This year alone oil futures prices have already risen 40 fucking percent. Senator Carl Levin (D-MI) estimates that oil futures speculation has added about $35 to a barrel of oil. Thankfully, Senate Democrats have been working aggressively to end this speculation.

The Commodity Futures Trading Commission is the government agency charged with monitoring the futures market in order to anticipate and thus prevent exactly this kind of mess. But thus far it has been completely ineffective. Under Bush, the CFTC is a typically dysfunctional agency.

George W. Bush's
CFTC has had an unusually high turnover rate. It's designed to have 5 commissioners with no more than 3 Commissioners from one political at any given time. Currently, for whatever reason (hey, I tried really hard to figure out why), this CFTC seats only 4 Commissioners. When votes are cast purely on party lines, there is no tie-breaking vote. The last two Commissioners were only sworn in last August. While this turmoil certainly hasn't helped the CFTC's effectiveness, the résumé of the Republican Commission members holds perhaps a bigger clue.

Before joining the CTFC, acting Chairman Walter Lukken (R) was counsel to the Dick Lugar (R-IN)-run U.S. Senate Agriculture Committee. From Lukken's CFTC bio:

In this capacity, he was prominently involved in the development, drafting and passage of the CFMA (H.R. 5660).
Not something I'd be particularly proud of Commissioner. Lukken is also Chairman of the CFTC's Energy Markets Advisory Committee:
...created by the Commission in February 2008 to address the timely and critical regulatory issues connected to the role of the futures markets for discovering prices and managing energy price risks.
Fat lot of good that's going to do. There are no records that this committee has ever met.

Acting Chairman Walter Lukken isn't the only CFTC member with an oil futures skeleton in their closet. Straight outta Commissioner Jill Sommers' (R) CFTC bio:
Ms. Sommers worked for the Chicago Mercantile Exchange, including overseeing regulatory and legislative affairs for the exchange. During her tenure with the exchange, she had the opportunity to work closely with congressional staff drafting the Commodity Futures Modernization Act of 2000.
Commisioners Lukken and Sommers were both personally and intimately involved in drafting the very law, The Commodity Futures Modernization Act, that allowed oil futures to drive up gas prices. Yet President Bush finds it completely appropriate to place these people at the Commission charged with protecting "market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets." WTF?!? It's par for the course. In Bush's Federal government, foxes are always assigned to guard the hen house.

All eyes are on the CFTC next week as it throws an International Energy Market Manipulation Conference.

Stay tuned...