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Stop Excessive Energy Speculation Act of 2008 - Motion to Proceed - Continued

Floor Speech

Location: Washington, DC



Mr. CHAMBLISS. Mr. President, I rise today to express my sincere concern about the manner in which this body is considering energy-related legislation.

My constituents are interested in meaningful policy that will address the extremely high energy costs they are facing today. They know that in order to deliver real results, we must develop legislation designed to address the entire problem--supply, demand, and market oversight.

They are not interested in why one policy proposal is more worthy than another and therefore should be addressed before the other necessary elements of the solution, which is no doubt the debate we will be having today. We need to deal with increased supply from both traditional energy sources and next-generation sources, improve conservation of resources, and ensure greater market transparency and oversight.

I recognize that for meaningful, comprehensive legislation to pass, both Democrats and Republicans are going to need to work together, which means everyone will not get everything they want, and we will all have to accept a few things that do not necessarily appeal to our interests. But that is what it takes to forge a workable compromise. Democrats and Republicans need to come together and determine what we can agree to, rather than bringing legislation to the floor of the Senate that, frankly, is designed to offend one side or the other.

For this reason, I have sought to work with my colleagues on the other side of the aisle, and have found that many within this body want to develop a bipartisan proposal that will yield real results. Unfortunately, the bill before the Senate today seems more intended to divide the Senate rather than unite us in an effort to develop a meaningful solution.

As ranking member of the Senate Committee on Agriculture, Nutrition, and Forestry--the committee with jurisdiction over commodity futures trading--I have an obligation to ensure that legislation dealing with such matters is appropriately analyzed. Unfortunately, the committee of expertise did not have an opportunity to review this legislation before it was brought to the Senate floor, and for that reason many problems exist within this language.

When dealing with issues of such complexity, we cannot afford to ignore the potential unintended consequences that will surely result from this approach. What if we are wrong and we actually drive up the price of crude oil? What if we miscalculate the true burden we are placing on the over-the-counter market and such activities migrate to foreign markets? What if we reduce liquidity in the market so much that our physical market participants have limited hedging opportunities?

As I said, this issue is extremely complicated, and the factual data is lacking, which, unfortunately, allows everyone to paint the picture convenient for their own cause. I am sure you all have heard conflicting reports. For example, some claim that in recent years noncommercial participation, or speculation, in the oil markets has not changed when compared to the proportion of commercial participation by those who actually have a stake in the physical commodity, while others say that speculation in the oil markets has increased from 37 percent to 70 percent in recent years.

This is quite a discrepancy in the facts. The truth is that neither of these claims is proven completely accurate. Why? Because the category used to determine commercial participation includes swap dealers who actually trade on behalf of both commercial operators as well as speculators, and we simply do not have the data to verify which claim is accurate.

The Commodity Futures Trading Commission is now in the process of getting more segregated data from these swaps dealers to determine how much activity is truly speculative in nature. But data separated out in this manner is currently not available. We simply do not know yet how speculation participation may or may not have increased compared to participation by those we would consider physical market stakeholders.

I only mention this as an example of conflicting data upon which some of those proposed policy changes are predicated. I am not claiming that one side or the other is correct. But I do believe we need to have accurate data before we seek to make major modifications in the manner in which these futures markets operate.

I want to be perfectly clear about this: I am not opposed to all aspects of the bill before the Senate today. In fact, I believe many of the components designed to yield more transparency in these markets are necessary and that they could be improved upon and enacted. We must ensure that the information both the regulators and Congress use to ensure proper oversight is accurate to warrant our actions.

However, this language goes far beyond what I consider reasonable, especially absent factually based data to support such radical changes and a thorough review of the potential unintended consequences. I truly believe that a reasonable market oversight component could be developed as part of a bipartisan, comprehensive package, but, unfortunately, this approach is only distracting us from developing more reasonable and balanced legislation.

I have in hand a letter from the U.S. Department of the Treasury, among others, dated July 21, 2008. It is a letter from what is referred to as the President's Working Group on Financial Markets. It is a group made up of the Secretary of the Treasury, the Chairman of the Securities and Exchange Commission, the Chairman of the Board of Governors of the Federal Reserve System, and the Acting Chairman of the Commodity Futures Trading Commission.

We requested that group--which is the group that is viewed in this town as the most expert group on issues related to the financial markets--we asked them to take a look at S. 3268, the bill before the Senate now, seeking to put more restrictions on speculators in the oil commodities market, and to see what they thought about the particular bill--not the issue of speculation, but the bill itself.

First of all, Mr. President, I ask unanimous consent to have the letter printed in the Record.

There being no objection, the material was ordered to be printed in the RECORD, as follows:

July 21, 2008.
U.S. Senate,
Washington, DC.

DEAR SENATOR CHAMBLISS: In response to your July 16 letter, we are providing the views of the President's Working Group on Financial Markets (PWG) concerning S. 3268--legislation addressing regulation of the U.S. energy futures markets.

The PWG is concerned that high commodity prices, including record oil prices, are putting a considerable strain on American families and businesses. Proper regulation of the energy futures markets is necessary to ensure that prices reflect economic factors, rather than manipulative forces. To this end, the PWG worked with Congress to enact, as part of this year's Farm Bill reauthorization, additional regulatory authorities for the CFTC to regulate certain over-the-counter (OTC) energy transactions on electronic exchanges. The PWG also supports the recent steps taken by the CFTC to improve the oversight and transparency of the energy futures markets.

The PWG agencies also are participating in an Interagency Task Force on Commodity Markets that will provide a staff report on the role of economic fundamentals and speculation in the commodity markets in the near future. If this staff report or the analysis of other data the CFTC has recently collected from commodity market participants suggests that changes to futures market regulation are necessary, the PWG stands ready to assist lawmakers in crafting such modifications.

However, the PWG believes that bill S. 3268, as introduced, would significantly harm U.S. energy markets without evidence that it would lower crude oil prices. Among its several provisions, it would require the CFTC to define and promote ``legitimate'' trading and significantly curtail other types of trading in the futures, OTC and overseas markets. Such unprecedented restrictions on market participation could reduce market liquidity, hinder the price discovery process, and limit the ability of market participants to manage and transfer risk. Provisions in the bill also may harm U.S. competitiveness by driving some trading to overseas markets or to more opaque trading systems at a time when policymakers are trying to encourage greater transparency. Should this legislation become law, the chances of significant unintended consequences in the markets would be high.

This legislation would regulate for the first time certain OTC transactions similarly to on-exchange transactions. It has been the long-held view of the PWG that bilateral, OTC derivatives transactions do not require the same degree of regulatory oversight as exchange-traded instruments because they do not raise the investor protection and manipulation concerns associated with exchange-traded instruments. Regulating these OTC instruments could prove costly and difficult to administer by both regulators and the industry given the size and nature of the market, might not provide meaningful regulatory data, and could negatively affect the ability of U.S. firms and markets to compete globally in these types of transactions.

To date, the PWG has not found valid evidence to suggest that high crude oil prices over the long term are a direct result of speculation or systematic market manipulation by traders. Rather, prices appear to be reflecting tight global supplies and the growing world demand for oil, particularly in emerging economies. As a result, Congress should proceed cautiously before drastically changing the regulation of the energy markets.

We look forward to working with Congress on these important energy market issues and appreciate your seeking our views.


Henry M. Paulson, Jr.,

Secretary of the Treasury.

Ben S. Bernanke,

Chairman, Board of Governors of the Federal Reserve System.

Christopher Cox,

Chairman, Securities and Exchange Commission.

Walter L. Lukken,

Acting Chairman, Commodity Futures Trading Commission.

Mr. CHAMBLISS. I want to take a minute to read a couple of statements in the letter. The PWG refers to the bill, talks a little bit about what it will do, and then it says:

..... the PWG believes that [the] bill S. 3268, as introduced, would significantly harm U.S. energy markets without evidence that it would lower crude oil prices.

It goes on to say:

To date, the PWG has not found valid evidence to suggest that high crude oil prices over the long term are a direct result of speculation or systematic market manipulation by traders. Rather, prices appear to be reflecting tight global supplies and the growing world demand for oil, particularly in emerging economies. As a result, Congress should proceed cautiously before drastically changing the regulation of the energy markets.

This mirrors exactly my concern about this particular piece of legislation. If we have a knee-jerk reaction to the issue of speculation in the markets, and we are wrong, what we are going to do is we are not only going to destroy the energy markets in this country, but we are going to take those legitimate operators, those legitimate investors in the energy markets, and we are going to drive them overseas. We are going to have no control whatsoever over their buying and selling of contracts, whether it be oil, and the next thing we know it will be other food products that are dealt with in the commodity world on a daily basis.

So I think we need to listen to the experts. We need to make sure we take the time to develop the right kind of policy, with the right kind of expert information, having input into the legislation, whatever it may be. At the right time, let's have a bill on the floor that encompasses not only the energy markets themselves and any type of additional restrictions or regulations we need to put there, particularly from a transparency standpoint, but also we need to deal with the overall issues of additional domestic exploration. We need to deal with the issue of conservation, whether it be through lessening the use of gasoline, diesel, or whatever.

The PRESIDING OFFICER. The Senator has 1 minute remaining.

Mr. CHAMBLISS. Plus, we need to make sure we are developing the right kinds of incentives in the automobile industry, as well as for consumers to encourage the manufacture and purchase of vehicles that are operated by alternative methods, whether it is electricity or natural gas, or whatever it may be.

So I urge we move cautiously, we not react too quickly, and we be very careful in our approach to this issue and the bill that is on the floor today.

Mr. President, I yield the floor.


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