Posted on 06/01/2008 5:59:33 AM PDT by John W
The U.S. commodity markets' chief regulator will unveil policy changes next week meant to address public and political concerns that market malfunctions may be contributing to rising food and energy prices, The New York Times reported on Saturday.
Citing people who have been briefed about the agency's plans, the Times said that the new measures would be announced by the Commodity Futures Trading Commission, which oversees exchanges central to the establishment of prices for commodities ranging from corn to crude oil worldwide.
Facing mounting political pressure and farm industry demands, the CFTC is expected to outline measures to address the role played by new financial investors in the futures markets, the Times said, in particular those who invest through commodity index funds, which have grown from a $13 billion stake in 2003 to some $250 billion this year, it said.
(Excerpt) Read more at news.yahoo.com ...
Sure, get the goobermint involved — that’s always the best way to make everything better. /sarc
All these problems could be solved by getting rid of all the dimwits in congress and let the free market work the situation out.
Congress smells taxes and possible bribe money in all this.Nothing can stop them now!
What are the “market malfunctions” they they allegedly want to solve? The fact that oil is going up?
It is the right thing to do.
Source?
I’d like to know more also and would rejoice if true.
Lay, DeLay, Gramm, Gramm & Clinton
The late, infamous Enron head, Ken Lay, realized in the eighties that he could make more money bidding up energy in the futures market than by actually creating and selling energy. But, under then-current rules, how much you could make swapping paper was limited. Fortuitously, Lay had excellent Texas political connections; and in November of 1992, the head of the Commodities Futures Trading Commission moved to exempt energy-derivative contracts and related swaps from any government oversight.
A vote was hurriedly put together before the Clinton White House would take over, and so Lay could finally start "dark" – unregulated – futures trading. The head of the CFTC was Wendy Gramm, wife of Texas Senator Phil Gramm; five weeks after she left, she became a board member of Enron in Houston.
Fast-forward to late 2000 and H.R. 5660, the Commodity Futures Modernization Act of 2000, sponsored by Republican Congressman Thomas Ewing of Illinois. That bill went nowhere, even though Tom Delay’s wife Christine was then working for a Washington lobbying firm, Alexander Strategies – which Enron had paid $200,000 to push through legislation for permanent energy deregulation in these "dark" markets.
Six months later came Senate Bill 3283, also named the Commodity Futures Modernization Act of 2000. This time around the sponsor was Republican Sen. Richard Lugar of Indiana, and now Phil Gramm was listed as one of the bill’s co-sponsors. Like it had in the House, this bill was destined to go nowhere until, late one night, it was attached as a rider to an 11,000-page appropriations bill – which was signed into law by President Clinton.
Now traders had an officially deregulated market for energy futures. Worse, that bill also deregulated many financial instruments – including the collateralized debt obligations that are at the center of today’s mortgage crisis, which may well cost us more than $1 trillion before it’s over.
How were they not subject to them?
“...Now traders had an officially deregulated market for energy futures. Worse, that bill also deregulated many financial instruments – including the collateralized debt obligations that are at the center of today’s mortgage crisis, which may well cost us more than $1 trillion before it’s over.”
Special. A lot of things happening in the last administration that will raise an ugly head for decades to come.
How much margin your exposed to is determined by how you are classified.
Producers and consumers of a traded commodity are, for instance, different from speculators in their margin percentages.
The hedge funds were given the better deal even though they neither produce nor consume the commmodity.
“market malfunctions”???????? hahahaha.......
they mean excessive profits I think.
Policy changes by a regulatory agency? Hmmmm
Sounds communistic to me.
The pension funds who are using investment banks as a means of 'investing' in various commodities (with the banks' complete connivance, of course) are absolutely subject to margin calls, if and when appropriate.
They are **not**, however, subject to the ordinary position limits in any given mkt that you, I, Joe Smith and George Soros are. The Regress, in their infinite stupidity, have classified investment banks, when acting as agent for a client, as ''commercials'', not speculators.
''Commercial'' traders are those who either produce or use a market's goods, and need the mktplace in order to hedge out their price risk: the wheat farmer, the crude producer, the baker, the refiner -- and none of these folks are subject to position limits; they can hedge as much as they need to do. When the Regress created the now-infamous ''swaps exemption'' for those who are clearly not using the mktplace for insurance purposes, they unleashed a monster (and, of course, had absolutely no clue that they were doing so).
Effectively, the Regress gave investment banks, and by extension the banks' big fund clients, an absolute exemption from position limits. Thus, CALPERS (to name one sleazy pension fund) can now own absolutely as many contracts for future delivery of crude (or soybeans, or copper, or coffee, or...) as it wishes -- indirectly, through ''index'' products provided by GS, or Morgan, or Chase, or Merrill.
Fun, eh?
But, make no mistake, should CALPERS' or any fund's positions go sour on them, they will be assessed a margin call -- and they WILL pay it, because if they don't, Goldman et al. will cut them off at the knees (what? you think Goldman will meet CALPERS' margin call(s)? whatcha smokin'? sheesh).
ok, well that is what I understood. So “They are not subject to margin calls” is not really accurate.
The 'hedge funds', for once, have generally clean hands in this deal. The 'pension funds', otoh, are gaming the system shamelessly, aided and abetted by the big investment banks.
This is somewhat ironic, because pension funds shouldn't even be in futures mkts, under any rubric whatever. Gee, where's the famous 'prudent man' rule when we need it, eh?
What’s your best guess as to the extent that some of these funds woulds have to readjust their portfolios? Is it on the order of say “CALPERS is holding 50,000 contracts and they have to flatten out to 5000?
I thought financial fiduciary rules flat out forbid trading futures in pension funds?
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