Senators Call for Action on Wall Street Speculation
Eight U.S. senators today called on regulators to reject lobbying by Wall Street and the financial industry aimed at watering down strict new rules against excessive speculation by investors in oil and food. Such is said by many economic experts to be responsible for sudden price hikes in gasoline and other essential consumer goods including certain foods.
Last year Congress passed legislation directing the Commodity Futures Trading Commission (CFTC) to impose limits on the amount of speculative investment in oil, wheat and other physical commodities.
The commission has yet to do so. And in recent months, Wall Street firms have reached into their deep pockets and mobilized their lobbying resources to try to kill the new rules before they ever get off the ground. The CFTC will be meeting again tomorrow to discuss how and when to implement so-called position limits on commodities speculators.
"It has become increasingly clear that Wall Street seeks to use the rulemaking process to eviscerate the new position limits," the lawmakers wrote in a letter to the CFTC today. "We urge you to reject calls to delay the new rules."
Excessive speculation in commodity markets has become a major contributor to the dramatic volatility and periodic price spikes in the cost of oil and basic food staples. An influx of speculative investment helped drive the price of oil to $145.31 in June 2008, and it hit low of $30.28 just six months later.
Today, with oil and food prices again on the rise, U.S. Sens. Bill Nelson (D-FL) and Maria Cantwell (D-WA) want to ensure federal regulators act quickly to rein in Wall Street excesses and prevent another speculative bubble that threatens to drive up gas and food prices even further for working Americans. Their letter to CFTC Chairman Gary Gensler and other members of the commission was cosigned by six of their Senate colleagues: Bernie Sanders (I-VT) Patty Murray (D-WA), Carl Levin (D-MI), Sheldon Whitehouse (D-RI), Robert Menendez (D-NJ) and Ron Wyden (D-OR).
In recent years, Nelson and Cantwell have offered several measures intended to prevent manipulation and reduce excessive speculation in commodity markets. Nelson previously filed legislation to close the so-called "Enron loophole," which allowed energy derivative trading firms such as Enron to operate without transparency or regulatory oversight. And Cantwell proposed a bill to enable regulators to prevent and combat manipulation in commodity markets.
Some of the changes advocated by the senators were included in the financial reform legislation Congress passed last year, called the Dodd-Frank Act. Following is the text of their letter:
January 12, 2011
Dear Chairman Gensler,
We are extremely concerned by the recent efforts of Wall Street and the financial industry to undermine new limits on speculation in oil andcommodity markets. We urge you to quickly and aggressively implement the position limits imposed on speculators in oil, food, and other commodities by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The growing role of hedge funds, financial traders, and long-term passive investors in energy and other commodity markets has had devastating consequences for the average American. These speculators have contributed to rising volatility and periodic price spikes in the cost of gasoline and food. These concerns informed our efforts to reform the Commodity Exchange Act in the Dodd-Frank legislation. It is critical that the Commodity Futures Trading Commission fully execute these changes.
As you know, section 737 of the Dodd-Frank Act directs the Commission to "establish limits on the amount of positions, as appropriate, other than bona fide hedge positions, that may be held by any person." The legislation further directs that the limits be set "to diminish, eliminate, or prevent excessive speculation." In addition to position limits on specific persons, the Dodd-Frank Act also directed the Commission to establish limits on the aggregate number or amount of positions in contracts based upon the same underlying commodity that may be held by any group or class of traders.
In short, to combat excessive speculation in oil and other commodities, Congress directed the Commission to enact new and meaningful restrictions on the size of investors' commodity holdings. And by directing the Commission to establish aggregate limits on the positions held by any group or class of traders, Congress intended for the Commission to act aggressively to prevent the harmful and damaging effects of excessive, broad-based speculation in commodity markets.
It has become increasingly clear that Wall Street seeks to use the rulemaking process to eviscerate the new position limits. We urge you to reject calls to delay the new rules. We also urge you to reject requests to exempt broad categories of derivatives, or to broaden the definition of bona fide hedging to include investment-related hedging. Moreover, firms and investors should not be able to circumvent the limits by "disaggregating" the investments they make through different funds. These requests are little more than an effort to open a back door to the commodity markets for Wall Street insiders.
We appreciate the steps you have taken in implementing the far-reaching reforms enacted in the Dodd-Frank Act. We believe the individual and aggregate position limits are a critical tool for reining in excessive speculation in commodity markets. We urge you to move boldly to protect the interests of middle class Americans by putting in place strong new position limits, and we ask that you brief us as soon as possible on the status of these efforts.