PRESS CONFERENCE WITH REP.S BART STUPAK (D-MI) AND JOHN LARSON (D-CT)
SUBJECT: ENERGY SPECULATION LEGISLATION
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REP. STUPAK: Well, thanks for joining us. I'm Bart Stupak from Michigan. I'm pleased to be here with our caucus chair, Mr. Larson from Connecticut. And it seems to me we've been holding these conferences, for about three years now, on the PUMP Act. But today, I'm here. And I'm optimistic that we're poised to make some progress, towards reining in the excessive energy speculation we see in our markets.
I first want to applaud President Obama and his administration for the leadership they've shown, in the last week, in encouraging Congress to pass regulatory controls that really crack down on excessive speculation and market manipulation. It's a welcome change to have an administration that not only recognizes the problem but is willing to do something about it.
I know myself and Mr. Larson and many of our colleagues, who would have been here but, as you know, we don't have votes today, so many of them went back to their districts, but Mr. Larson and many of our colleagues want to help the administration in accomplishing this important task.
That's why yesterday, we introduced the Prevent the Unfair Manipulation of Prices Act or the PUMP Act of 2009, as I call it. The legislation, as I said, is not new.
I've worked on this for the last three-four years in my role on Oversight and Investigations in the Energy and Commerce Committee. And so I've introduced this bill, one form or another, for the last three years.
But new weaknesses in our regulatory system, brought to light by the financial crisis and loopholes we see, in the energy market, illustrated by last year's unrestrained increase in oil prices, are addressed in the 2009 PUMP Act.
We need the 2009 PUMP Act for two reasons. Number one, we've seen a dramatic increase in the price of oil and natural gas since the beginning of the year. Secondly, the carbon-derivative trading market that's being proposed under the ACES, the American Clean Energy and Security bill, which we'll be marking up next week in the Energy and Commerce Committee, is creating a whole new market that really needs a strong regulatory framework.
So addressing excessive energy speculation should be part of any new energy policy that we are pursuing, because another dramatic rise in oil prices, such as the one we saw last year, would further devastate our already-weakening economy.
If you look -- just what's happened in this year, here's our stock of crude oil. Here's our supply. We got the highest available supply in the last 20 years in oil. And then if you take a look to right here, here's our consumption. This is the lowest consumption in the last 10 years. So we got the highest stock over 20 years, lowest consumption rate. So high supply, low demand should mean decreased prices.
But look what's happened since the 1st of the year. January, we saw oil all the way down -- January 8th -- about $35 a barrel. We're up right now to almost 60 (dollars). In fact, I think it did close the other day at $60 a barrel. That's a 70-percent increase in about four months.
And what does that mean to the consumer? As one of the constituents wrote to me this week from Gladstone, Michigan, said, "Is there something that's caused gas to rise in Gladstone 30 cents in the last week?" Nationwide, I -- we've seen an average of a 16-cent increase per gallon in the last week.
The answer is yes. Speculators are once again driving up the price of our energy, especially oil, and reaping huge profits. So the price of oil and gas are really -- if they were based on supply and demand, how do you explain this? Decreased demand, increased supply, and yet 70-percent increase in prices.
And according to NYMEX, you know, as they tell us, less than one- tenth of 1 percent of all the futures traded in oil has ever taken physical delivery. So 99.9 percent of all the trades occurring is for one goal and one goal only. It's for profit: not to produce a product, but for profit. So when speculators increase their investment, physical hedge-funders like airlines, trucking companies, or other industries where they're actually using energy are being pushed out of their market. They're being squeezed out. They're being priced out.
So as a growing majority of the oil market is controlled by speculators, not physical users, crude oil has morphed from a commodity into a financial asset, traded for its financial value, not its energy value. As a result, excessive speculation by index speculators is a significant factor in the rise of energy that we all pay that -- for heating our homes, running our vehicles, producing power or even growing -- planting the spring crops this year. The feed stock has just gone sky-high.
For too long, through loopholes, exceptions and poor enforcement by the Commodities Future Trade Commission (sic), energy speculators have been -- been able to avoid position limits. As a result, excessive speculation has exploded.
The main changes in the PUMP Act that we've done -- we've said, look. We make the Commodities Future Trade Commission (sic) regulate all over-the-counter trades that are currently not regulated. So every trade would now have to be regulated.
We regulate the foreign boards-of-trade transactions that trade for delivery -- for delivery of oil in the United States or on a computer terminal here in the United States. These boards would be subject to the same regulations as the current markets, including large trader reporting, record-keeping, transparency and prohibitions against fraud and market manipulation.
We close the swaps loophole, no longer allowing energy transactions to be excluded from the requirements of the Commodity Exchange Act.
This would require the CFTC to provide greater oversight over swap transactions. And we've banned the naked default swap. The naked default swaps were one -- is one where the holder has no risk of obligation on the swap. Really, it creates a moral hazard by incentivizing economic loss, ensuring and incentivizing economic loss.
We set aggregate position limits for energy speculators across all markets. So every market they're going to play in, you're going to have a position limit, and an aggregate position limit. And this includes a bona fide hedging advisory committee to advise the CFTC on what the energy position limit should be, and limiting the role of index speculators. We include the CFTC inspector general, that Mr. Larson is going to speak more about. He is the champion of this idea for some time, and I'm sure Congressman Larson will mention more about it in his remarks.
We also make sure that all swaps -- through a designated clearing organization. So therefore, we take off the dark market -- we take them out of the dark market, bring the transparency to this market.
The bill allows the CFTC to collect fees and create an independent funding stream for oversight and enforcement of commodity markets. And more importantly, I think, it also includes a carbon derivative as a regulated entity under the authority of the CFTC. This incorporates all greenhouse gases emissions, offsets and financial products derived from carbon credits. So all greenhouse gases emissions, offsets and financial products derived from carbon credits.
So as the Energy and Commerce Committee works on the American Clean Energy and Security Bill, ACES, it's very important that the carbon trading, the carbon derivative trading, not lead to a speculative bubble as we saw in oil in 2008. Congress needs to pass legislation that sets strong position limits, and ensure excessive speculation does not allow speculators to detach carbon or energy prices from the fundamentals of supply and demand.
I'm committed to working with all my colleagues. We dropped this bill very late last night. We finalized it, especially the carbon derivative part, over the last few days. We already have 12 cosponsors on the legislation, without even seeking it. As members know, whether it's been at the White House when I was there or in committee, I repeatedly said we have to have a strong regulatory framework when we deal with these carbon derivatives -- carbon credits, whatever you want to call them. And I'm pleased so many of my members and colleagues have responded and said, we'll join you in this legislation. And it's a good, strong framework from which we can regulate this carbon derivatives.
With that, let me ask Mr. Larson, from Connecticut, to say a few words. He's really been a champion on this. And in many of the leadership meetings that they have that I may not be included, Mr. Larson's always been there, saying we must have strong regulatory controls in this area. He's really been a champion. I'd like to thank him for his help and support, have him say a few words.
REP. LARSON: Thanks, Bart.
Well, thank you, Bart, and congratulations to you. Bart Stupak has been the foremost advocate on behalf of the American people for regulating of the so-called dark markets and making sure that we shine the full light of day or, as Ferdinand Pecora would say, "the fierce light of public scrutiny."
Let me join with him in commending the Obama administration, who reported, I believe, just yesterday their desire as well to make sure that they regulate the unregulated areas of the market.
You may recall that "60 Minutes" earlier this year has done a -- did a report with respect to credit default swaps and derivatives, saying that there were as much as $40 (trillion) to $60 trillion in transactions that took place -- $40 (trillion) to $60 trillion of transactions, in an unregulated area.
It is part and parcel of the economic problem that we find ourselves in today. It needs to be regulated. I would say also -- I dare say that it also needs to be looked at, to be taxed in terms to revenue that it can produce. That was $40 (trillion) to $60 trillion unregulated in the dark market.
And as Bart said, when you look at the statistics and the charts there, is there any notion that speculation doesn't play a hand in this? I had a visit with the small mom-and-pop dealers and distributors yesterday, who still echo the same sentiments of Bart Stupak. The laws of supply and demand have been suspended. When we found in New England that Morgan Stanley owns more oil than any of our distributors, it should give you reason to pause, and certainly it has. And Bart has been a champion there.
He mentioned the independent inspector general. And I am -- have legislation on this, and I commend Bart for including a portion of that legislation in his work, which I support.
But what we found is this. We have two levels of inspector generals, Category 3 and Category 8. One set of inspector generals is hired by, works for and by the entity, the governing entity. So in the case of the CFT (sic), the SEC, the FDIC, the Federal Reserve and the Pension Benefit Guaranteed Fund (sic), those inspector generals are hired and work for them.
We have another category that are independent inspector generals. It might surprise you to know that over the same time period, the independent inspector generals -- appointed by the president, approved and ratified by the Senate -- have conducted 117 audits and investigations. The others in the aforementioned areas, all of which have to deal with our financial security, have conducted 11.
We need an independent inspector general, with full power, in all of those entities, all of them -- the CFTC, the SEC, the pension benefit guaranteed fund, the Federal Reserve and the FDIC -- so that we're assured, and the American people are assured, that there is a watchdog.
So much of this problem, as you have heard, has come from the fact that people were either asleep at the switch or they just simply did not audit or investigate. And they just looked the other way. So this is an outstanding piece of legislation. We hope to have the inspector general bill on the floor next week.
I will continue in leadership to push Bart Stupak's bill, which I think is the most comprehensive approach to dealing with this issue of speculation. And I think he's thought this through.
As I said, he's been Congress's most steadfast advocate, in making sure that this happens, along with our colleagues, both Rosa DeLauro and Chris Van Hollen. And with that, I'll turn it back to Bart and open it up to questions.
Q Congressman Stupak, do you have assurances from Congressman Waxman or Congressman Boehner?
REP. STUPAK: No.
Q Is your vote dependent on it getting included? (Off mike.)
REP. STUPAK: I would not vote for ACES unless I think there's a strong regulatory framework available, to deal with these carbon derivatives.
I'm in good discussions with Chairman Waxman on this issue. There are some jurisdictional issues we have to -- this is the PUMP Act broadened out. And if you take a look at it -- copies over there -- the last couple pages brings in the carbon derivatives.
And so we're trying to work it. But I want to see a strong framework. It would be very difficult for me to vote for a piece of legislation that does not have a strong framework or I do not have an opportunity to present it on the floor, a piece of legislation.
So I want to see a climate bill. But I also want to see a strong regulatory framework in place to monitor this. I'm just not going to let speculators once again drive -- create a new economy for us that looks real good for a few years and then totally busts us.
Q (Off mike.)
REP. STUPAK: In the draft -- again I think the draft was a good place to start. But it left all these discussions to the president, who would create a task force, who would report back. When is that going to be?
And again you've seen signs this week from the Obama administration. Let me compliment then again, as John has. They came out and they said, look, we need regulatory reform.
And Secretary Geithner and Secretary Summers and others have come forward and said, yes, we need regulatory reform in this area. I don't think they went far enough, but it sure is nice to have an administration saying, yes, we have to do something.
The bill is sort of a placeholder for that, and allowing the administration a little bit more time to make some decisions -- should it go between the SEC, the CFTC? Who's going to do the regulating? Who's going to be responsible?
I am -- like I said, we've worked on this, my third bill, since 2006. I'm tired of waiting. We should get it done. And I don't want to create a market and try to fix the market once it's functioning. Let's fix it -- let's get a framework before the market begins.
Q Yes, I was wondering if we could have a list of the -- (off mike) -- mentioned in our --
REP. STUPAK: Yeah. It's already filed. The bill number is 2448. If you go online, I'm sure they'll all be there.
Q Are there -- any of them, by the way, Energy and Commerce Committee members?
REP. STUPAK: Yes.
Q Some of them are?
REP. STUPAK: Yes. Gene Green, Jay Inslee, Mike Doyle, myself. So at least four of us.
Q And just in terms of the OTC issue and carbon market, there's some worry -- (off mike) -- the advisory committee meeting that they really see the need for exchange trading and OTC trading. And they don't want to -- (off mike) -- trading squelched at all, and -- or supposed to go through exchanges. Are you aware of that issue? And are you -- how are you -- (inaudible)?
REP. STUPAK: I -- I'm -- I saw the press report yesterday about that. But look, we got to have transparency here. We got to have oversight. We're not going to let them go on a dark market. Let's -- I -- we've allowed that too long. What'd you say -- 40 and 60 trillion (dollars)?
REP. LARSON: Yeah.
REP. STUPAK: I mean, why -- why, on something like this, allow them to do that? I mean, let's regulate it. Everyone's calling for regulation.
REP. LARSON: Think about the vast amount of money that's going -- that's being -- the transactions that are occurring here, in the dark, unknown. And isn't that part of the reason that all these large banks -- because of the way that the market and these things were bundled and then later sold and then later also resold as credit- default swaps?
Isn't that part of the reason why they still have been reticent to lend money and have been holding back, because they're not sure whether or not the other shoe has fallen? I think so.
And it's long overdue that we take a serious look at this, which what -- is what Mr. Stupak's legislation does, and also that they have, overseeing them, inspector generals (sic) who are completely independent, appointed by the president, ratified by the Senate, with full, independent powers so nobody does fall asleep at the switch.
Q Well, do you think the market'll be truly -- (off mike) -- OTC markets or -- (off mike) -- as vibrant as -- (off mike) -- could be?
REP. LARSON: Well, why wouldn't it be vibrant?
REP. STUPAK: Yeah.
Q Well, because of the exchange they would -- people would have to go through exchanges -- (off mike) --
REP. LARSON: That's what --
REP. STUPAK: It has to be honest and transparent and tell you what is --
Q It wouldn't -- (off mike).
REP. LARSON: It wouldn't be vibrant if they were honest and it was transparent? Or would it --
Q Well, I think it's the variety of transactions. I think some folks claim that they need to be OTC because they're --
REP. LARSON: No, we're not going to stop them from --
REP. STUPAK: They want to -- they want to continue to create a new instrument that no one understands so they can continue to trade it.
And every time you trade it, you take profit out of it. Just take oil. I mean, look what happens: 99.9 percent of the people trading oil have no intent of ever taking a barrel of oil into their physical control -- 99.9 percent. So there's only 1 (sic) percent of the people there who are sort of legitimate, who's looking for a contract to produce a product.
Every time you trade, you're creating a false floor, if you will -- a false ceiling, a false price. And what are you doing? You're taking profit out of it. But this is carbon. We know there's a finite amount of carbon, right? What is it, 6.4 billion, they say we're going to be allowed? And every year underneath ACES, that amount of carbon that's available is going to go down. Therefore, these credits could be of great value.
So why not be honest? If we know how much we've got to reduce, why not say, okay, here's what the price is going to be. We know right now it's trading -- where? You're at 22 (dollars) to $40 a ton, is basically the price? So, you know, figure that out. That's 6.4 billion, times $25. You know, you've got quite a little market going here.
Q On a different front, obviously, the speaker is taking a lot of incoming right now, and I'd like to know whether you guys, both -- either of you, agree with her assertion that the CIA misled Congress, and whether what she knows should be part of any sort of truth commission?
REP. LARSON: Well, first of all, the speaker has said repeatedly that she favors a truth commission. At the end of the day, let me say this, this is subterfuge, you know, trying to create an argument over here, when the real focus should be on the policy itself, on torture, and how we go forward, number one.
Number two, Nancy Pelosi has more integrity in her pinkie than Karl Rove and Dick Cheney possess in their entire body. This ultimately, if they want to go down this path -- and she favors the truth commission, along with Pat Leahy and Dianne Feinstein -- if they want to go down this path, let it be. I don't know whether that's in the best interest of the country, but I know this. Any time you want to shine the bright light of character on the aforementioned individuals with respect to the integrity, both on the committee and in the respective offices they've held, we'll welcome that test: Nancy Pelosi, versus Karl Rove or Dick Cheney.
Q Still, her assertion about the CIA.
REP. LARSON: Just like Senator Graham said as well, the CIA -- she said they misrepresented that information. I believe that was her quote. I don't have it exactly in front of me. Graham has said the same thing. He said there's been problems that have taken place in the Intelligence Committee with respect to that. So that's why the call for a truth commission. I think a truth commission makes sense, personally. And some would argue that, you know, is this the place where we should be airing out the nation's intelligence laundry?
When you start attacking people's character and use this as subterfuge, then perhaps maybe it is time for the truth through the commission.
REP. STUPAK: The only thing I'd say on CIA, I'm here because it's carbon intense assets that I'm concerned about.
Q You have nothing to say on --
REP. STUPAK: No, I have nothing to say on it.
Q (Off mike)
REP. LARSON: Yes.
Q Mr. Larson, I wanted to ask you about this concept in regards to your thoughts on carbon tax versus having a carbon market. I'm wondering if you're still -- you know, this bill has come, you know, pretty far in the -- (off mike) -- committee. I'm wondering, do you think that the debate is still to come on carbon tax versus having this, you know, new exchange, and --
REP. LARSON: I think there's still --
Q And are you --
REP. LARSON: Listen. I think that the Commerce Committee has done a remarkable job. I think that the Commerce and Ways and Means Committee, and Charlie Rangel and Henry Waxman and Ed Markey continue to talk on a regular basis.
At the end of the day, after the fine work that the Commerce Committee has done, we're going to have to come together on how you both collect the revenue and distribute that revenue. That is a Ways and Means position.
I have long held the position that I believe that a carbon tax is the most simple and direct way to do this. But as the speaker always says to us, that's great, and there's a lot of people who would agree with you, John, including Al Gore and, you know, Mr. Hansen, the founder of the movement. But do we have the votes?
The goal here is to make sure that the nation is energy independent. And you are going to see us talking about the energy independence that needs to be achieved by way of creating clean jobs for this country. And in doing so, how then are we going to distribute the monies that we're able to derive. And whether that's through a tax, whether that's through an auction, whatever particular proposal, we're going to come together on this. We know the importance of it; the administration knows the importance of it; we know that it's a national security issue; we know that it's a jobs issue; and we know that it's going to help us in the economy, because we're going to be able to distribute abroad new technologies that will be an economic boon to us.
And the benefactor will be the environment, both by taking pollution out of the air and also, hopefully, before we reach that critical tipping point, have altered events that could create catastrophic climate change that scientists are concerned about.
Q Is your concern, though, about speculation at the level of Mr. Stupak's, where it'd be very difficult for you to vote for something that had created this market that did not have something like the -- (off mike)?
REP. LARSON: Before this bill was ever before us, I was very concerned about speculation and remain concerned about speculation, because that is -- that is a problem.
Look. Now, Roosevelt pointed out there is a place for the invisible hand. And back in 1935, they recognized the fact that -- what they said back then is that what you have to do is limit the positions. Bart has given you the data and the examples. You know, when ninety -- when only 1 percent is going to people who actually take receipt of the product, well, there is a problem.
Does that mean that there isn't a place for speculation? Of course not. Speculation, you know, should take place. But it comes down to limiting the position. And starting with taking receipt of a product is a pretty good place to start. But, you know, everyone recognizes that role.
Bart has called for a board to take a look and supervise and take a look at it. They ought to be able to come up with reasons, positions as to how this happens.
But frankly, we've got to get rid of the very wild, wild West road show that's over the counter, unregulated, unwatched, and has caused a lot of the problems that have emanated in this current economic downturn.
MR. STUPAK: One or two more and we're going to get going. Yes?
Q Yes. Congressman Stupak, I was wondering, are you planing to introduce this entire bill in the next -- (off mike) -- markup next week, or are you going to offer --
REP. STUPAK: We are discussing that with Chairman Waxman now, how we can do it and still keep the jurisdiction within our committee. I mean, there's no doubt some of this bleeds over into the Commodities Exchange Act, which is really Ag's jurisdiction, even though we're talking about carbon-based products in Energy and Commerce. We feel it rightly belongs in Energy and Commerce, but when the commodities act was created in the '30s, as Mr. Larson indicated, it was agriculture products. We've progressed beyond that. So we're working those issues out.
Q Does Chairman Peterson's recent statements that he doesn't want to do any sort of climate bill -- I mean, is that contributing to your -- (off mike) -- ag based?
REP. STUPAK: No. Mr. Peterson and I have talked. We've talked before I introduced this legislation. He's well aware of what I've done. Mr. Peterson himself in his own bill had tried to put position limits in, with the makeup of the committee could not. Mr. Peterson has always encouraged me, not discouraged me from continuing my work in this area.
Q How are the overall talks going? (Off mike) -- updates on that legislation.
REP. STUPAK: They're going good. Our staff, and maybe we don't give them enough credit, but they've worked long and hard -- (thanks, John ?) -- late into the night last night, and first thing this morning at 8:00 we're on the phone again. We're trying to find some common ground. There are still differences in the bill that members have. And Chairman Waxman and Chairman Markey have been working very, very hard to address concerns of members. They're not all resolved yet.
Q (Off mike.)
REP. STUPAK: Well, those are two tracks that we've been discussing. You know, if it came to the floor, I'd have to have assurances I'm going to have a clean vote on my legislation.
Again I'm here for two reasons. Number one, the dramatic increase in prices we've seen, which is once again starting to hurt our hopefully recovering economy. That's killing us. Secondly we're creating a new market. If we're going to create a new market, let's have some regulation before we create it, not after the horse is out of the barn. It's pretty hard to put it back.
So that's my concern. And this legislation certainly gives me an opportunity to do the pump act that I've been working on, for three years, and have put forth different versions of the legislation, to address the concerns that we find, as we look closer at these markets, whether it's the housing market, the oil market or the credit markets.
One more and then I'm going to wrap it up.
Q (Off mike.)
REP. STUPAK: Peterson marked his up.
Q How is yours different than his? And then also Ed Markey -- (off mike).
REP. STUPAK: Right.
Q What's your view there? (Off mike.)
REP. STUPAK: That will be decided later. But first of all, we eliminate the swaps loophole, which Peterson still has some. We include Mr. Larson's CFTC inspector general, completely independent. We include a bona fide hedging advisory committee, to give advice to the CFTC on, say, those energy positions.
Probably the biggest thing is, we repeal the authority for CFTC to have -- for OTC swaps regulation. We clear all swaps through a designated clearing organization.
Probably the biggest one is, we do include position limits and aggregate position limits, something Mr. Peterson does not. And I'm not saying -- like I said, Mr. Peterson, I think, overall sees the value in position limits. But that was something he could not put through his committee.
We talked about it all the way through the process. Mr. Peterson and I have talked constantly, probably since last fall, when he returned from taking a look at what's happening, in Europe, on trading. And I think him and I compared a lot of notes since then. So we talk all the time on this legislation. So thank you.