This should be entertaining:
Reacting to swings in oil prices in recent months, federal regulators announced on Tuesday that they were considering trading restrictions on hedge funds and other “speculative” traders in markets for oil, natural gas and other energy products.
In a big departure from the hands-off approach to market regulation of the last two decades, the chairman of the Commodity Futures Trading Commission, Gary Gensler, said his agency would consider new limits on the volume of energy futures contracts that purely financial investors would be allowed to hold.
The agency also announced that it would pull back part of the veil on the oil and gas markets, publishing more detailed information about the aggregate activity of hedge funds and traders who arbitrage between domestic and foreign energy prices.
ZOMG SOCIALISM- END OF THE FREE MARKET. SOMEONE CALL UP THOMAS LAURIA FOR ANOTHER AWESOME DEFENSE.
Maybe this will drive some of these pricks to go Galt.
comrade scott's agenda of rage
Maybe this will drive some of these pricks to go Galt.
Hardly. Read Taibbi’s piece on Goldman-Sachs and I’m guessing it’ll just drive these pricks to find the loopholes and workarounds in these rules.
provide lots of campaign contributions tobribe members of the legislative branch to pass laws that maintain the status quo.
OT Froomkin signs on with HuffPo
If we criminalize speculation, only criminals will speculate.
This is excellent news! For Chelsea Clinton!
jake 4 that 1
Shrill, baby shrill!
@comrade scott’s agenda of rage:
They’re already looking for existing loopholes and workarounds in the current framework. I’d rather see the SEC start roping them in rather than spooling out more slack.
How do you think Phil Graham got to be a Senator from Texas? Again, this is business as usual. I have no doubt that they’ll start swinging their financial “freedom of speech” around to every Congresscritter that will listen. This is nothing new. The question is whether they’ll succeed.
MOAR OV THIS PLZ!
The whole “markets can regulate themselves” troupe may be a bit of bullshit, but it’s a whole lot more bullshit when companies are allowed – and encouraged – to play the Enron/Madoff game with their assets and business practices.
I imagine the markets will do a much better job of adding their own regulations to the pot when a mid-sized bank can look at a AAA rated bond paying 7-10% return annually and decide exactly how much bullshit it’s sweating.
Have any of the Galters actually Gone?
Maybe this will drive some of these pricks to go Galt.
Maybe Ted Nugent can have a Going Galt Concert Series.
“Hands off my hedge funds, ‘Bama Man!”
Taibbi notes that even this much regulatory effort probably had to be forced on Gensler:
As someone who makes her living designing the systems the energy traders use to perform these kinds of transactions, I say “Hell yes, about damned time.”
It’s a shell game.
I wrote a 100-page paper on the Chinese entry into the global energy market, and one of my conclusions was basically:
I love being vindicated.
@Molly: Could you expand on this? I’m one of those people who feels like a moron as she desperately tries to keep up with all of this sort of information (“Masters Degree in Middle Eastern Studies” not actually being all that useful, it turns out, some days), and I am always really grateful for help along these lines.
Speaking of Going Galt, I’m surprised no one round these here parts has figured out that Palin, a true american if there ever was one, aint quittin’. She’s just Goin Galt.
God, we can only hope.
I’m always fascinated by the idea that increasing the amount of information available in a market is somehow anti-capitalist.
Try this on for size:
“Now comes the case of the stolen proprietary trading code from Goldman Sachs.
Most interesting in this Bloomberg article is the following statement by Assisitant U.S, Attorney Joseph Facciponti:
“The bank (GS) has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” Facciponti said.”
GS is worried somebody would use their stolen code to unfairly manipulate the markets??? Huh? Am I missing something here?
It was conventional wisdom for decades that speculation on commodities should not be allowed. BushCo changed all of that. As Taibbi notes in his article, last year’s spike in gas prices had nothing to do with supply and demand; it was driven by speculators. As the good Dr. Thompson once said: “These swine should be fucked, broken and driven across the land.” Amen.
My hatred for these fuckers is white-hot.
The Grand Panjandrum
And that is why, in large part, the notion of efficient markets is BS. So-called efficient market theory relies too heavily upon all parties having the same information (or access to the same information). I’m not convinced these new restrictions will make a big difference in the market place but it’s a step in the right direction.
@nikkos: It isn’t Going Galt unless she is leaving valuable services unrendered. Last I checked she was a shitty gov and with her gone the comedy will still go on. My take is she’s trying but doing it wrong.
OT (didn’t want to make two posts one after the other) but ABC has officially made me weep for the state of “journalism” more so than WaPo. http://blogs.abcnews.com/politicalpunch/2009/07/malia-obama-budding-fashionista.html
Deserving of the assholes and media tags on its own
Is Matt Taibbi really the only go to person for economy coverage in Big Media? Rolling Stone? WTF? Jeebus wept.
Edit: ronin122 also.
I’d be happy if we just didn’t pay off hedge fund speculators through companies like AIG. I have nothing against speculation, but I don’t see why we should be the ones to pay their winnings when they make their bets with a company that’s unable to cover them.
Where were you on Friday? It doesn’t get more Galtish than quitting your elected post to go fishing.
Montysano (All Hail Marx & Lennon)
Perhaps Blitzer! is on the case?
Gary better not have any skeletons in the closet or he’ll get Spitzered.
@Montysano (All Hail Marx & Lennon):
Jake Tapper, John King, Chip Reid, Ed Henry, Chuck Todd and Loud Obbs are all busily sharpening their crayons and twitting as we speak. Of course, that’s all they’ll actually do.
On a regular basis? Yes, it’s Taibbi and Krugman and that’s about it. Anyone else who talks finance and money (yes, you, Thomas Friedman) is a liar and/or a tool of the very people they are covering.
In other, less MSM outlets, you can read Brad deLong, or Jamie Galbreath, or Joseph Stiglitz, or Noriel Rubini. But they are rarely on any shows (once in a while you might catch Dr. Doom on Zakaria or Rose or Moyers…if you blink you’ll miss it, though). And the articles they write tend to be in less mainstream publications.
Real financial and economic reporting requires expertise. And, honestly, who on the MSM do you believe has a fine enough intellect to understand finance and economics well enough to make it understandable to the rest of us?
There was a Dickensian industrialist who swore he would cast his factories into the sea before he would let low-life workers dictate terms for better wage and working conditions. I can’t find the quote to save my life, but I thought it was Bounderby from Hard Times who was the first Galtian superhero.
@Montysano (All Hail Marx & Lennon): Congrats, that just made me snort Cola out the nose. Missed the keyboard, thankfully.
DougL (frmrly: Conservatively Liberal)
That’s what these fuckers do; they find a revenue stream, find a way to insert themselves into it and milk it for all it is worth. Once that trick dries up they move on to the next victim while everyone else is left to try and rebuild the one they just killed. No value was added to the oil as it exchanged hands in the trades, just mark it up and pass the bill along to the end user (us). They ‘profit’ at the expense of everyone else while our government stands around scratching their collective asses and sniffing their fingers. As was noted above, the pricks will just find another victim. If our government was smart they would watch these asshole crooks for the ‘next big thing’ they are going to rape and move to prevent abuses before they can happen. We already know that when left to their own devices the markets will trash anything they touch without some adults watching out for them and rapping them on the knuckles.
RICO needs to be brushed off and looked at closely as I bet there are more than a few people in our markets that it could be applied to quite effectively. Many of these assholes are crooks looking for a crime, all in the name of making a profit.
Wile E. Quixote
How’s that for a foray into Wingnut Esperanto? Should I have ended the sentence with “WOLVERINES”?
“Maybe this will drive some of these pricks to go Galt.”
Those “free market libertarians” who advocate no regulations? They could always move to a country that practices their dreamland policies… like Somalia.
Maybe we can get Ron Jeremy involved and get a Hedgehog Hissy Fit.
@Wile E. Quixote: At first glance, I thought it was an actual quote. So I’d say you could pick a license as Wingnut translator/linguist. Horrible job, though.
@hidflect: Somalia is afraid they are going to take over.
OT, but I just saw this quote from Dave Weigel at Andrew Sullivan’s, and felt a burst of schadenfreude:
The one issue on which he still agrees with the American conservative movement and the elected right-wing politician (well, not anymore) he probably dislikes the most, hand in hand. If Palin gets seriously involved with the anti-abortion movement, Sullivan will either have a heart attack, get arrested for assault or be wearing a Che t-shirt within a week.
Wile E. Quixote
I’m unimpressed with Obama’s appointment of so many Goldman Sachs alumni to positions of responsibility within our financial system. Everyone keeps talking about what a genius Obama is but appointing people the people who are responsible for creating the mess we’re in to positions of power where they’re supposed to fix things does not exactly inspire confidence in Obama’s intelligence or integrity, especially since he received almost 3.5 million dollars in bundled contributions from finance firms including almost a million dollars from Goldman Sachs.
Now I’m sure that I’ll have all sorts of people land on me and tell me that “no, this is part of Obama’s secret long term plan and he’s playing a long game, blah, blah fucking blah” but I have to wonder how those people would have reacted if, say, instead of appointing Sonia Sotomayor to the Supreme Court Obama had selected a conservative retread like Robert Bork or Roy Moore or had handed out all of the positions in the state department to members of PNAC. Somehow I don’t think I’d be hearing as much about the brilliance of Obama’s picks then or his long game.
I’ve come to the conclusion that anyone uses the phrase “innovative financial product” to advocate less regulation should get the same treatment he’d get from shouting “F*** Allah” in the center of Mecca during the Hajj.
Wile E. Quixote
Well I’m not in it for the money, just for the bitches the honor and the glory. Hmmmm, wait, I really haven’t thought this through, have I?
What’s funny is that these guys are obviously only in it for the short-term and for themselves. There’s reams of data showing that when markets are properly regulated, and have high levels of transparency, investment increases markedly. Simply put, people don’t generally like to invest in what they don’t trust.
Yeah, the era of easy money and insanely high leverage made it easy to mask this, but I believe that’s going away. Stuff we’re seeing now is kind of the the “death throes” of the previous levels of money manipulation.
On a related note, I think rich fat-cats who oppose basic redistribution via progressive taxation are shooting themselves in the foot. Considering consumer demand fuels 3/4 of the economy, putting money in the hands of consumers (real money, not credit), will increase consumer spending, which increases corporate revenue and profits, driving up share prices, making CEOs and rich fat-cat investor-class types richer (i.e. the increase in money in their pockets will be greater than the increased taxes they pay)
Sure, you can get the same result in the short-term by firing everyone, lowering benefits and pushing people to gorge on credit, but that seems a little short-sighted.
Why go Galt when you can whine and bitch and moan about the end of capitalism?
Why go Galt when you can teabag some morans instead.
Brick Oven Bill
Populist blather. Fine, set the limits, but hedge funds should be required to disclose their short positions. This is more important than gas price monkey business.
Since when did it become “the question”? Of course, they will succeed!! The so-called “question” at issue is like the classic Cosby cute-kid question “Why is there air?” The answer, “Because without it, they couldn’t possibly exist”, also applies exactly, because in the nexus of media campaigns/lobbyist money/politics which rules the Beltway culture, by explicit design, a non-corrupt, un-bought politician becomes a practical, if not logical, impossibility.
“Prick” is one of my favorite words.
It is also not one that I feel should be used frequently, nor lightly.
John’s use of it here was fitting and most excellent.
I’d rather call Dan Lauria. He was great as the dad on Wonder Years.
OT, but folks at Red State are trying to say that a state’s secretary of state going on vacation is the same as a governor disappearing without telling anyone where he’s going or how to get in touch with him. The fact that the media isn’t shrieking about it only shows their liberal double standard.
While Adam Smith argued in favor of the Invisible Hand (mentioned ONCE in his entire library of writings, and it was a plea directed at the monarchies that controlled the mercantile-style economies to the detriment of the common man), Chandler later argued that as the family-owned business model evolved into the modern corporation (early 1900s), that the Invisible Hand was replaced by the entirely visible hand of managers that now controlled said markets.
Free market, schmee market. It’s a scam, baby.
The Moar You Know
@Brick Oven Bill: I think commodities trading restrictions are pretty important. Unlike financials, commodities are things that we actually eat and use, and should not be subject to the bullshit manipulations of moneymen.
That being said, I could not agree more – hedge funds surely should be required to disclose what they’re short selling.
Montysano (All Hail Marx & Lennon)
@The Moar You Know:
QFT. Moar beat me to it, and said it better than I would have.
Thank you for the reference to Tom Lauria whose whining over the Chrysler bankruptcy was an embarrassment to lawyers everywhere. Not to mention his apparently lousy legal advice. Also.
I appreciate this blog, but I don’t agree that spec position sizes ought to be limited.
The problem with limiting speculative positions is that you drive the trading from open, transparent markets like NYMEX to hidden markets. If speculative positions are limited, you’ll see entities like Goldman moving to buy actual oil fields, and withholding development of the fields when they feel the price is likely to go up.
Another problem with limiting spec positions is that thinner markets lead to greater price volatility, not lower volatility. In fact, we’re seeing exceptionally high volatility right now, due not to speculators, but to the fact that markets are thinner due to the credit crisis.
What people who blame speculators for price moves in commodities don’t understand is that speculators don’t actually make their money by being right about price direction, just as professional poker players don’t make their money by guessing correctly what the next card will be. They essentially make money by taking on price risk that commercial producers and consumers don’t want, and getting paid a premium by the commercials for taking on that risk. A successful speculator, in other words, makes his money not by being right about price direction, but by getting odds on his bets, like an insurance company. The edge comes not from knowing the future or manipulating the market, but from pretty conventional mathematical analysis of risk.
There have been numerous academic studies (here is one of them: http://www.oxfordenergy.org/pdfs/WPM32.pdf) that show that speculative positions are as likely to be wrong as right on any given price move, and that speculators do not drive price moves. Again, being right is not how speculators make their money.
There are many problems with lack of regulation of the markets (leverage and compensation models being key), but speculator position sizes are really not one of them.
Disclaimer: I am a professional commodities trader, for my own account. I am unlikely to be affected by limits on speculative positions.
See post on markets above. This covers it well.
Moe Gamble: You are positing that the positions that the big “speculators” are acting like the gamblers you compare them to. The idea being that the house (in this case, the producers, I would guess) is a separate entity. I may not be a professional commodities trader, but I know a fixed game when I see one. And the idea of collusion among the incestuous people of our business elites is not some paranoid fantasy. Not when numerous people who I respect confirm my less than knowledgeable but quite cynical from experience suspicions.
Good for Froomkin, but HuffPo is still primarily garbage. Vaguely better than the MSM, but still pandering, infested with liars, and not much of a useful progressive force.
Reading the Oxford article, they differentiate between logical and non-logical speculators, and whether or not the market can absorb non-logical speculators. The more participants in the markets, the more liquidity, the faster price adjustments happen, the more stable the market can become. I have also seen the issue with dried-up credit being a barrier to entry…and it’s also a huge barrier on whether or not the pipelines will schedule a transportation contract and even move the product. The entire industry is getting to the point where it’s difficult to even operate any more, from production to trading to scheduling to delivery.
I worked with the energy traders at Enron, Dynegy, and BP. Most of them operated as much as possible on a data-driven, model-based analysis to make rational decisions. However, I also saw cases where the market itself was being manipulated, the outside factors that AFFECT those models was being artifically manipulated by witholding available supply (such as what the paper discussed around OPEC). Or the price was being driven high artifically, using trading platforms like ICE. These are all things that can happen with other commodities, of course. I think it’s just easier, right now, to do those things due to the relative immaturity of the energy markets.
In all, beyond the transactions themselves, there are real problems in trading accounting. They’re still there. Enron going down didn’t fix it. Sarbanes-Oxley didn’t fix it, just created a new set of rules to work around.
So, I don’t believe in limiting participants in the markets. I DO believe in absolute transparency into the activity of those markets to the public. I’ve had to unravel a suspicious set of energy transactions many times; it takes expertise to do it. It can get so damned complex. Believe me, folks, I don’t wish having to deal with this market on anyone, and I admire the people who do it every day in an ethical manner. I’ve just watched a lot of manipulation happen that was hidden, and saw a lot of things that were “quietly” dealt with that didn’t go public.
That’s all. This all can sound mysterious and covert and unethical, but the vast bulk of it is driven by risk models and careful analysis. But…that transparency is vital.
tripletee (formerly tBone)
@DougL (frmrly: Conservatively Liberal):
Read the end of the Taibbi article and prepare to get really depressed about cap and trade.