Keith Addison
Fri, 13 Jan 2012 10:09:06 -0800
<http://www.rollingstone.com/politics/blogs/taibblog/revolving-door-from-top-futures-regulator-to-top-futures-lobbyist-20120111> Revolving Door: From Top Futures Regulator to Top Futures Lobbyist POSTED: JANUARY 11, 2012 While America focused on New Hampshire, a classic example of revolving-door politics took place in Washington, going almost completely unnoticed. It's a move that ranks up there with the hire of Louisiana congressman Billy Tauzin to head the pharmaceutical lobbying conglomerate PhRMA -- at a salary of over $2 million a year -- immediately after Tauzin helped ram through the Medicare Prescription Drug Bill, a huge handout to the pharmaceutical industry. In this case, the hire involves Walter Lukken, who toward the end of the Bush years was the acting head of the Commodity Futures Trading Commission. As the chief regulator of the commodities markets, it was Lukken's job to spot and combat speculative abuses and manipulations that might have led to artificial price hikes and other disruptions. In 2008, the last full year of his tenure, Lukken presided over some of the worst chaos in the commodities markets in recent history, with major disruptions in the markets for food products like wheat, cotton, soybeans, and rice, and energy commodities like oil. Most notoriously, 2008 saw a historic spike in the price of oil futures, an enormously destructive speculative bubble that peaked in July of that year at the lunatic high price of $146 per barrel (Goldman, Sachs at the height of the mania was telling investors oil might go to $200 a barrel). It was Lukken's job to spot the speculative abuses leading to disruptions like that bubble, but he didn't do it. Instead, he repeatedly insisted that there was nothing untoward going on, most notoriously through testimony before the House and the Senate at the height of the oil boom. In testimony that summer, Lukken continually insisted that the price surge was due to normal supply-and-demand forces, ignoring the far more obvious explanation of a massive inflow of cash from commodity index speculators. Despite data showing that the amount of commodity index speculation had grown from $13 billion in 2003 to more than $260 billion as of March 2008 -- in other words, the amount of money betting on a rise in commodity prices had risen by a factor of twenty during that time -- Lukken on May 7, 2008 told the Senate that a more likely explanation for the surge could be found in the growth of industrial demand from places like China, and also, get this, in changes in the weather: These are extraordinary times for our markets with commodity futures prices at unprecedented levels. In the last three months, the agricultural staples of wheat, corn, soybeans, rice and oats have hit all-time highs. We have also witnessed record prices in crude oil, gasoline and other related energy products. Broadly speaking, the falling dollar, strong demand from the emerging world economies, global political unrest, detrimental weather and ethanol mandates have driven up commodity futures prices across-the-board. On top of these trends, the emergence of the sub-prime crisis last summer led investors to increasingly seek portfolio exposure in commodity futures. As the federal regulator of these products, the CFTC is closely monitoring these growing markets to ensure they are working properly for farmers, investors, and consumers. To date, CFTC staff analysis indicates that the current higher futures prices generally are not a result of manipulative forces. By insisting that the spike was "not a result of manipulative forces," Lukken helped Wall Street in its efforts to avoid reforms that might have prevented such abuses, like the closing of a series of loopholes and exemptions that allowed a handful of major speculators to play a lopsided role in the setting of commodity prices. So what was Lukken's reward for helping the financial services industry avoid such reforms? Well, Lukken has just been named to head the Futures Industry Association, or FIA, the chief lobbying arm of futures investors. This follows the Tauzin pattern of revolving-door hires: a government official carries water for a powerful industry, then moves on to take the cushy job with the industry's lobbying arm once he leaves office. Among people who follow these markets for a living, the Lukken hire had an embarrassingly over-the-top quality, like a CEO who goes the appearances-be-damned route and puts his 23 year-old secretary/mistress on the board of directors. Mike Masters is head of the Masters Capital Management hedge fund and also chairman of Better Markets, a new non-profit advocacy group that promotes the public interest in the labyrinthine vagaries of the financial markets, and especially the commodities markets. He describes the hiring of Lukken as an extreme example of revolving-door politics. "It's not the revolving door. It's the express elevator," he says. Masters remembers Lukken because the two men both testified before the Senate in that summer of 2008; he recalls watching the CFTC chief, aghast, when the latter continued to insist that there was nothing abnormal going on in the commodities world, despite a historic series of disruptions. "And it wasn't just oil," Masters says. "There was the debacle in the wheat markets, with cotton, with soybeans and corn, there were riots in the Phillipines over the rice markets. And Lukken was saying everything's okay. It was crazy." It was a see-no-evil, hear-no-evil approach to government oversight, which had far-reaching consequences in that crisis year. The CFTC, remember, also has purview over derivatives, meaning the failure to prevent the disastrous swap positions accumulated by the likes of AIG also falls, in part anyway, at the CFTC's doorstep. A Dow Jones news story contained a hilarious summary of Lukken's blase administrative style, in which he was described as having downplayed the whole being-a-stickler-for-rules aspect of regulation: When Lukken headed the CFTC, he backed a more flexible, "principles-based" approach to regulation, different from what was seen as the prescriptive and "rule-based" methods employed by the Securities and Exchange Commission, which polices stock markets. Obviously this kind of thing has been going on forever in Washington, but some revolving-door hires feel worse and more shameless than others, and this is one of those. But really it's the same old story: regulators keep falling down on the job, and keep getting rewarded for it by Wall Street, and nothing gets done about it. > >However, it was unreining them that was the main cause of the "price >>famines" of recent years, shoving hundreds of millions more people >>into poverty. Reining them in again would be a good place to start. > >There's much more to this, and the deeper you dig the murkier it >gets. Main perp, among many, is former US senator Phil Gramm, >currently top of TIME's list of "25 People to Blame for the Financial >Crisis": ><http://www.time.com/time/specials/packages/article/0,28804,1877351_1877350_1877330,00.html> > >TIME says Gramm has cost the US $150 billion so far. It's much worse >than that. > >>... thanks to Phil "nation of whiners" Gramm-the former Texas >>senator who was until recently John McCain's top economic adviser >>(see "Foreclosure Phil")-futures market regulation went to hell. >>Under the "Enron loophole" pushed through by Gramm in 2000, energy >>futures were allowed to escape all federal and state regulation. >>Gramm embedded that loophole in a surprise 262-page rider, drafted >>at the behest of Wall Street and Enron, in an 11,000-page >>appropriations bill on a Friday evening two days after the Supreme >>Court handed down its Bush v. Gore ruling and as Congress was >>rushing home for Christmas. In a separate bit of absurdity, in >>January 2006, the Intercontinental Exchange (ICE) of Atlanta, which >>trades benchmark US oil futures (West Texas Intermediate or WTI), >>came to be treated by the CFTC as a British market (the "London >>loophole") so that US regulators do not even track what is going on. >>(Even more surreal, the CFTC was going to allow trades of US oil >>futures on terminals located in America to be "regulated" in Dubai; > >political pressure put an end to that idea in July.) >> >>Worse still, Gramm's Commodity Futures Modernization Act of 2000 >>also opened the way for growth in deregulated "credit default >>swaps"-a way in which financial institutions "insured" that bad >>loans would not cause them losses. This, combined with other >>deregulatory moves by the CFTC, broadened the "swaps loophole," an >>enormous backdoor into the commodities markets, basically permitting >>speculators making bets off the commodities exchanges to be treated >>as "commercial interests"-like say, farmers-and hence avoid the >>scrutiny (including limits on the size of their bets) normally >>applied to financial players. Thus today, when officials like >>Treasury Secretary Henry Paulson say that speculation is not a >>factor in the commodity markets, they're not counting hedge funds >>and investment banks as speculators-even though that's what they >>really are. > >-- From "How to Burn the Speculators - Why is the price of oil so >high? Because the Bush administration did to the commodities market >what it did to housing", James K. Galbraith, Mother Jones, >September/October 2008 Issue >http://www.mail-archive.com/biofuel@sustainablelists.org/msg73249.html > >Not just oil, the contagion quickly spread to speculation in food >commodities. By June 2008, food prices had spiked so severely that >"The Economist announced that the real price of food had reached its >highest level since 1845, the year the magazine first calculated the >number," according to Fred Kaufman in "The Food Bubble: How Wall >Street starved millions and got away with it", Harper's Magazine, >July 2010. >http://billtotten.blogspot.com/2010/07/food-bubble.html > >2008 was the year of food riots, a global famine amidst plenty - >there was no shortage of food. It pushed an additional 250 million >people into the ranks of the hungry, swelling the global total to >over a billion. > >"In the last three years, speculators have spent billions of dollars >on commodity indexes, and the financial firms selling those index >instruments have purchased billions of dollars in commodity futures >to offset their financial risks, creating price disruptions for >producers and consumers," said Levin. "In the case of wheat, we found >that index traders purchased huge numbers of wheat contracts on the >Chicago exchange, increased futures prices relative to cash prices, >and created unwarranted costs and risks for wheat farmers, grain >merchants, grain processors, and consumers. It is another case of >speculative money overwhelming a market, and federal regulators >failing to take the steps needed to protect the market. In fact, the >CFTC has allowed some index traders to exceed normal trading limits >for wheat." Levin added, "It is time for the CFTC to change course, >rein in commodity index traders, and clamp down on excessive >speculation that is disrupting commodity prices." >- Investigations Subcommittee Releases Levin-Coburn Report On >Excessive Speculation In The Wheat Market >Report Calls for Clampdown on Index Traders Buying Wheat Futures >June 23, 2009 ><http://hsgac.senate.gov/public/index.cfm?FuseAction=Press.MajorityNews&ContentRecord_id=5a459e69-e9f9-4550-904c-871a5b6c693a&Region_id=&Issue_id=> > >More about Phil and Wendy Gramm's shenanigans, Enron, Kenny-boy Lay and all: > >"... Part of that deregulation involved rulings of the U.S. Commodity >Futures Trading Commission, then chaired by Wendy Gramm, who upon >retiring from that post became a highly compensated member of the >Enron board of directors, serving for eight years. She even was on >the board's audit committee during the time of the corporation's >despicable financial shenanigans. While on the Enron board, Wendy >Gramm also chaired an anti-regulatory think tank that received >funding from Enron and other corporations that benefited directly >from the policies her institute espoused." > >The Real Legacy of the 'Reagan Revolution' >by Robert Scheer, Wednesday, July 16, 2008, TruthDig.org >http://www.commondreams.org/archive/2008/07/16/10401/ > >Yuk, what a stench. > >Regards > >Keith > > >>Hi Dawie >> >>>Much better to abolish the mechanisms which create the space in > >>which speculation happens. Without such mechanisms commodities >>>markets lose their scaleless, abstract character and revert to sales >>>of physical amounts of food at physical local markets - and I don't >>>think the speculators in question are interested in spending actual >>>days schlepping about in muddy boots. Speculation depends on being >>>able to buy and sell in seconds without coming near the goods. >>> >>>In other words, food speculators do not need to be reined in as much >>>as de-rugged. >> >>However, it was unreining them that was the main cause of the "price >>famines" of recent years, shoving hundreds of millions more people >>into poverty. Reining them in again would be a good place to start. >> >>Best >> >>Keith >> >> >>>Pleased to make your acquaintance, by the way, Midori. Keith has >>>told me much about you. >>> >>>Regards >>> >>>Dawie Coetzee >>> >>>>________________________________ >>>> From: Midori Hiraga (JTF) <[EMAIL PROTECTED]> >>>>To: Biofuel@sustainablelists.org >>>>Sent: Saturday, 7 January 2012, 22:11 >>>>Subject: [Biofuel] Petition: Introduce tough rules to rein in food >>>>speculators >>>> >>>>Hi all, >>>> >>>>Let's support EU start regulating food speculation! >>>> >>>>Best wishes, Midori >>>> >>>>***** >>>>Petition: Introduce tough rules to rein in food speculators >>>>http://www.wdm.org.uk/food-speculation/petition-dont-weaken-proposals-regulation-food-speculation >>>> >>>>The European commission has made some proposals to regulate reckless >>>>food speculation. The lead MEP scrutinising the proposals, Markus >>>>Ferber, wants input from 'interested parties' to inform the >>>>discussions in the European parliament. >>>> >>>>It's vital that he hears from the public that we want strong rules to >>>>rein in the speculators. The finance industry will be calling for the >>>>proposals to be weakened. >>>> >>>>We will be delivering the letter on the right to Markus Ferber on >>>>Wednesday 11th January. >>>> >>>>Please sign the petition now so that the voices of ordinary people, >>>>and not just the banking sector, are heard. >>>>What are we asking you to sign? >>>> >>>>As we're writing to a policymaker in Brussels, and referring to very >>>>technical proposals, we've purposefully made the language in the >>>>letter technical too. >>>> >>>>The letter essentially calls for three things. The first is for >>>>commodity trading to be done in public instead of behind closed doors >>>>('over the counter') so regulators and the public, as well as big >>>>financial players, know what's going on. This means contracts will >>>>need to be standardised instead of complex. >>>> >>>>The second is proper reporting by traders of how many contracts they >>>>own and whether they're betting on rising or falling prices - so we >>>>can see what's really going on and regulators can step in when >>>>speculators start creating bubbles. >>>> >>>>And finally limits on how much of the market can be controlled by any >>>>one type of trader (for example hedge funds) with no loopholes. >> >>Regulators should be able to step in when speculators are swamping > > > >markets with their huge bets. _______________________________________________ Biofuel mailing list Biofuel@sustainablelists.org http://sustainablelists.org/mailman/listinfo/sustainablelorgbiofuel Biofuel at Journey to Forever: http://journeytoforever.org/biofuel.html Search the combined Biofuel and Biofuels-biz list archives (70,000 messages): http://www.mail-archive.com/biofuel@sustainablelists.org/