Speculators and investment banks can game the energy trading markets, using loopholes in commodities law to drive up the cost of energy and reap record profits… at the expense of American families and small businesses!
One of the biggest factors in high oil prices, according to many experts, is that investors, such as hedge funds and investment bankers, can use loopholes in commodities law to manipulate the market and drive crude oil, heating oil, gasoline and diesel fuel prices to new heights.
Congress is aware of the problem and lawmakers recently passed legislation to address the “Enron Loophole,” one of the major loopholes that opens the door to abusive trading practices, but the law didn’t go far enough.
Unfortunately, other loopholes exist that allow energy trading on completely “dark” exchanges. For example, the “Foreign Markets Loophole” allows American energy commodities to be traded overseas – exempt from U.S. oversight.
These so-called “Dark Markets” – commodities markets that are not policed by U.S. authorities provide for an open the door to manipulation, even outright control of the markets.
For example, speculative investors can buy and sell millions of barrels of U.S. destined oil and other energy products every day in the United Kingdom and even in Dubai… but are not made subject to the transparency and accountability laws that govern exchanges here in the United States!
Additionally, through the so-called “swaps loophole,” financial investors can “game the markets” for pure profit by buying up positions in the energy markets, without any limitation on the size of the positions they can take. One recent estimate suggested that they now control one third of the commodities markets, or $150 billion – a 1,000% increase in less than five years!
Some experts believe that as much as 60 percent of the cost of a gallon of gasoline or heating oil can be attributed to pure speculation and abusive –even manipulative – trading practices, yet most trading is “dark” and federal authorities can neither fully police or see the data in the majority of the trading markets.
The energy trading markets were originally set up to provide energy producers and distributors with an environment to manage risk and produce the best possible price for their customers. But they are clearly no longer the driving force in the market. Profiteering speculators and investment banks care little about establishing a price for energy based on supply and demand fundamentals – they care about turning a PROFIT.
Congress and the President Need to Act.
In order to restore a sense of order to the commodities market, Congress and the administration need to go back and make sure that all energy trading and all energy exchanges are fully transparent and subject to the rule of law. It’s only fair.
The policymakers in Washington can help reduce the price of oil by shutting down all the loopholes, including the foreign markets and swaps loopholes, and by getting tough on speculative investors and profiteering energy trades and swaps. The United States economy depends upon a reliable supply of energy available at a fair price in a free market. You can help restore the principles of the free market by calling your Congressional representatives and the White House, urging them to pass legislation ensuring that all energy trading is fully transparent, accountable to the rule of law, and based on supply and demand principles.
It’s Only Fair.
House OKs sweeping bank rules; Senate vote awaits
By JIM KUHNHENN (AP) – 3 days ago
WASHINGTON — Nearly two years after a Wall Street meltdown left the economy reeling, the House on Wednesday passed a massive overhaul of financial regulations that would extend the government’s reach from storefront thrifts to the executive suites of Manhattan.
Senate support for the far-reaching bill remained in flux, however. The Senate was forced to delay its vote to mid-July, denying President Barack Obama a victory before Independence Day. Democrats struggled to secure the votes of a handful of Republican senators even after meeting their demands and backing down on a $19 billion tax on big banks and hedge funds.
The legislation, swelling to more than 2,000 pages, would rewrite the nation’s regulatory books. Simple supermarket purchases and exotic derivatives trades would be subject to new laws. And the entire financial system would be placed on a risk watch in hopes of thwarting the next threat of a financial crisis.
Obama hailed the vote as “a victory for every American who has been affected by the recklessness and irresponsibility that led to the loss of millions of jobs and trillions in wealth.”
The 237-192 House tally broke largely along party lines but attracted more support than in December when no Republicans voted for the House version of the bill. The new legislation combines the House bill with one passed by the Senate last month.
“Today, I rise with a clear message that the party is over,” House Speaker Nancy Pelosi declared. “No longer again will recklessness on Wall Street cause joblessness on Main Street. No longer will the risky behavior of the few threaten the financial stability of our families, our businesses and our economy as a whole.”
Republicans portrayed the bill as a vast overreach of government power that would do little to prevent future bailouts of failing financial institutions. They complained that it failed to place tighter restrictions on Fannie Mae and Freddie Mac, the mortgage giants forced into huge federal bailouts after their questionable lending helped trigger the housing and economic meltdowns.
“This legislation is a clear attack on capital formation in America,” said Rep. Eric Cantor of Virginia, the second-ranking House Republican. “It purports to prevent the next financial crisis, but it does so by vastly expanding the power of the same regulators who failed to stop the last one.”
Only three Republicans voted for the bill: Joseph Cao of Louisiana, Mike Castle of Delaware and Walter Jones of North Carolina. Nineteen Democrats voted against it, eight fewer than in December.
As predictable as the House vote may have been, the Senate was a study in unpredictability.
House and Senate negotiators were forced to reconvene Tuesday to remove a $19 billion tax on large banks and hedge funds, hoping to overcome objections from Sens. Scott Brown, Susan Collins and Olympia Snowe, all Republicans who voted for the Senate version last month.
Democrats inserted the tax late last week as they assembled a combined House-Senate bill, catching big banks by surprise. Brown was the first to complain and threatened to vote against the bill if the tax remained in the final measure.
Desperate to hold at least 60 votes to beat back procedural hurdles, House Financial Services Committee Chairman Barney Frank, Senate Banking Committee Chairman Chris Dodd and Obama administration officials scrambled to drop the tax and devise another means of financing the bill’s cost.
In the end, House and Senate negotiators, voting along party lines, agreed to pay for the bill with $11 billion generated by ending the unpopular Troubled Asset Relief Program — the $700 billion bank bailout created in the fall of 2008 at the height of the financial scare.
They also agreed to increase premium rates paid by commercial banks to the Federal Deposit Insurance Corp. to insure bank deposits. The increase would not affect banks with assets under $10 billion.
On Wednesday, Collins issued a statement saying she was now inclined to vote for the bill.
But Brown remained uncommitted, saying he needed Congress’ weeklong July 4 recess to examine the details of the bill. He did credit Dodd for “thinking outside the box” in finding an alternative.
Snowe late Wednesday said she, too, wanted to review the bill, but said that the last-minute change put the bill “in a much better position.”
The American Bankers Association denounced the bill, and its president and CEO, Edward Yingling, vowed to continue to make the industry’s case to the Senate.
“Many small banks are telling us they will simply have to sell out to larger institutions that have the staff to deal with the massive volume of new reports and rules,” Yingling said in a statement.
The administration and House and Senate lawmakers have worked for more than a year to forge a bill. It has prompted a backlash from the financial industry and a populist cry from Congress to punish banks for the freewheeling practices that contributed to the 2008 meltdown.
The easy margin of victory in the House belied Frank’s need to navigate the bill through the competing interests of New Yorkers, moderates and liberals. Frank, who will share the bill’s official title with Dodd, credited Pelosi and the Democratic leadership for being “therapists, counselors, advisers — muscle when I needed it.”
The legislation creates a new federal agency to police consumer lending, it sets up a warning system for financial risks, forces failing firms to liquidate and maps new rules for instruments that have been largely uncontrolled.
The legislation requires bank holding companies to spin off their derivatives business into self-funded subsidiaries. Banks would be allowed to keep less risky derivatives operations.
It sets new standards for what banks must keep in reserve to protect against losses, though lobbyists carved out a grandfather exception for banks with assets of less than $15 billion.
Commercial banks would not be permitted to trade in speculative investments, but they could invest no more than 3 percent of their capital in hedge funds and private equity funds.
At a consumer level, lenders would have to disclose more information and require proof that borrowers have the ability to pay off their mortgages. Even retail purchases would be affected — merchants could end up paying lower fees to banks for debit card purchases by their customers.
Crude Oil Speculation Comes Under Scrutiny as Mainers Face Another Heating Season
06/16/2010 Reported By: Anne Mostue
As Mainers begin to consider next year’s heating season, the United States House and Senate are working on a financial reform package that might include an effort to end speculation in crude oil futures markets. Still, the price of oil continues to fluctuate, making it difficult to decide whether to lock-in a rate right now.
Democratic Congresswoman Chellie Pingree says ending oil speculation should be part of comprehensive financial reform. The House and Senate have passed different versions of a reform bill, and negotiators are working on a compromise.
Speculation hits Maine homeowners hard, since more than 80 percent of Maine homes are heated with oil. Experts say speculation can add up to as much as $1 a gallon and makes prices unstable.
“Prices are primarily driven, as we all are now aware, by the crude oil price, which directly relates to all other products off of that, like gasoline and heating fuel and diesel fuel,” says Jamie Py is president of Maine Energy Marketers Association.
Py also supports ending speculation. “In 2008 the price went to $147 dollars a barrel then dropped back down to $39, now it’s creeping back up. We still have the issue before Congress today talking about financial reform, these elements that would prevent this kind of speculative trading rather than trading for people who actually use the product. We hope they get passed.”
Py praised the efforts of Pingree and the rest of Maine’s congressional delegation to include oil speculation language in the financial reform package. Senator Susan Collins has introduced separate legislation to prevent excessive speculation.
Crude oil has just risen to a one-month high of $77 dollars a barrel, after a report that U.S. refineries have reduced operations.
As for home heating oil, Maine oil dealers are encouraging homeowners to join cap programs that are currently offering prices of about $2.50 per gallon, up about 40 cents from last year.
Congratulations! Congressional negotiators included our proposals to stop oil speculation in the final version of the financial-reform bill.
Written by Staff and Wire Reports Alerts, World News Jun 25, 2010
This is a great victory, and takes us one step closer to reining in Wall Street speculators.
Early this morning, members from the U.S. House and Senate finalized the language for the financial-reform legislation. This final version of the bill includes measures to close loopholes, increase transparency and establish position limits in the oil markets – virtually everything that we hoped to accomplish.
The financial-reform bill includes strict rules that prevent big banks from placing reckless bets on oil prices. It also will prevent greedy speculators from secretly buying and selling oil before it reaches consumers. This will mean the end of casino-style trading, and limit the ability of speculators to act as expensive middlemen in the oil markets.
Now that Congress has determined the final language of financial reform, we expect both the House and Senate to vote on the bill next week. If both chambers approve the bill, it will head to the President’s desk to become law. These final two Congressional votes could be very close, especially in the Senate. We will stay on top of Congress’ actions and, if necessary, we will let you know what assistance you can provide. In the meantime, we will continue to make sure that your elected officials are aware of your concerns regarding oil speculation.
Thank you for repeatedly asking Congress to help lower fuel, transportation and food prices by stopping oil speculation now. The nearly two million activist e-mails sent to elected officials by you and other supporters around the country have had an enormous effect in convincing Congress to stop the Wall Street manipulation of energy prices. By next week, it is very possible that we will have the final victory we need to stop rampant speculation once and for all.