Political Discussions
Finally, some futures market regulation
Posted by satijournal • 7/14/09 • Subscribe to this Discussion [RSS] • Report This Topic
Topics: Economy, politics
This week the Commodity Futures Exchange Commission (CFTC), responding to a national and international outcry that enough is enough, and in keeping with the Obama administration's goal of tougher oversight, has finally decided to act. Reacting to Congressional pressures, a struggling industrial landscape and a beleaguered public, the CFTC announced that a series of restrictions on energy trading would be set forth. And here the CFTC and the American public's outrage is not alone. Earlier this week the Wall Street Journal printed an Op-ed Essay (July 8,2009) jointly written by Prime Minister Gordon Brown of Great Britain and President Nicolas Sarkozy of France calling for "transparency and supervision of the oil futures market in order to reduce damaging speculation" (The WSJ, signaling its take on the issue placed the piece at the bottom of its pg.15 Opinion column).
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The CFTC has announced it was ready to place volume limits on energy futures by pure financial traders/investors, tougher information requirements to identify the role of hedge funds and traders who swap contracts on the barely regulated nor visible over the counter markets.
Thereupon, almost immediately, the New York Times ("U.S. Weighs Curbs..." 07.08.09) cautioned "...proposals could encounter fierce opposition from big banks and Wall Street firms, which each are big traders in the commodity markets"
Who are these "big traders in the commodity markets"? They include Morgan Stanley and Goldman Sachs, both colossi in the field. And both, once "Investment Banks" are now "Bank Holding Companies" having turned themselves into Bank Holding Companies with the Fed's blessing on September 22, 2008 in the wake of the chaos in the financial world following Lehman's demise.
www.huffingtonpost.com/raymond-j-learsy/wall-street-stampedes-to_b_230260.h...
User Comments
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This is unconstitutional! We need to keep unprovokedly invading oil producing nations instead! -
say hello to higher interest rates, lower lines of credit, higher charges on services..
When you artificially limit how the banks make their money, you force them to balance it elsewhere. They'll do this by charging more for everythign else, and reducing their risks by requiring higher levels of security. Lower lines and higher percentages in downpayments will be the main impact on the consumer.-
What has that got to do with futures markets? And if there is a link, it might be that now these people can't take the economy down with them when they get silly. -
Say hello to lower gas prices.
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what has that got to do with futures markets? are you sh-tting me?
That is part of the banks income structure, they make money doing this. When you tell them how much money they will be allowed to make, and that amount is going to be less because you are limiting their trades, you force them to recoup profits somewhere else.
This is not rocket science...
And no, lower gas prices will not ensue from this. Quite possibly the opposite. Large quantity buys all but always lower prices, Limit the quantity and you raise the average price.
Think costco for something more close to home. -
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Looks like Goldman Sachs has found a way to make money in recession and under a "socialist" president: www.nytimes.com/2009/07/15/business/15goldman.html?_r=1&ref=global-home
The declaration of the end of capitalism as we know it is perhaps premature. [/sarcasm] And I doubt these new regulations will cut into that particular bottom line, though I suppose you'd have to actually look at balance sheets to determine what portion relates to this kind of trading.
Sati, do you really think there will be lower gas prices? On balance, I don't expect much change in prices, not as you state it and not as CSI states it. I'm thinking more along the lines of less risk to the system as a whole. Even Greenspan realizes that he was wrong to think capitalism would responsibly regulate itself. Seems to me the Obama administration is just making good on this need to keep dreams of major profits from taking us all down, instead of just those doing the dreaming and taking the risks.-
Since Goldman Sachs is partially responsible for determining the price of oil by trading in commodities futures as a purely profit making activity, the price of gas could very well come down to where it should be. There was regulation in place after the Great Depression to prevent commodities price manipulation by traders such as Goldman Sachs, but that all went away during the deregulation of the 90s.
In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission — the very same body that would later try and fail to regulate credit swaps — to place limits on speculative trades in commodities. As a result of the CFTC's oversight, peace and harmony reigned in the commodities markets for more than 50 years.
All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldmanowned commoditiestrading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren't the only ones who needed to hedge their risk against future price drops — Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.
www.rollingstone.com/politics/story/29127316/the_great_american_bubble_mach... -
Isn't it amazing how these issues have entered the mainstream? I mean, who'd have thought that Rolling Stone would do an article on this?
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next they'll make an Eddie Murphy movie about the futures market...
oh, wait... -
Funny how Rolling Stone Magazine and the Daily Show are making waves with their reporting. Guess someone has to step up to the plate when the big media outlets won't.
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yeah. When did comedians and pop-culture periodicals become the hard hitters of our press
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@Agit8r: I loved that movie!
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one of his best
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