Market speculation: An update
NewsNotes, July-August 2009
Much movement is underway in the administration and Congress around excessive speculation in food and energy commodities (see NewsNotes, July-August 2008), but calls and letters are needed, demanding that Congress act quickly.
In a May 13 letter to Congress, Treasury Secretary Timothy Geithner wrote of the administration’s expectations on this issue. Its proposed measures to rein in commodity speculation go much further than expected, though not quite far enough. Geithner’s letter has been endorsed by both Rep. Collin Peterson, chair of House Agriculture Committee, and Rep. Barney Frank, chair of House Finances Committee. The administration later sent an 85 page white paper which spells out its expectations for financial regulation reform in greater detail.
The administration calls for clearing almost all trades through an exchange, a big improvement on the unregulated markets created in the past few years. By clearing through an exchange, government regulators would have access to the information needed to avoid meltdowns like the current recession. An improvement would be to require exchange trading (not just clearing) because that would provide information not only to regulators, but to the public which would be able to see and point out imbalances in the market. The current crisis shows that relying only on regulators is not enough. Making information public ensures fewer major problems in the future.
Another positive item regarding commodity speculation was the release of a study by the Senate Permanent Subcommittee on Investigations that details how speculation directly contributed to high wheat prices in the past three years.
Advocates on international hunger issues are concerned that Congress probably will not vote on financial regulation laws until the fall, which will be too late to avoid another crisis of high food and energy prices. It’s clear that speculation is the main cause of the current rise in oil prices, despite record low demand and high supplies. It is important that members of Congress know that their constituents are aware of the problem and want re-regulation of the commodity futures markets.
Faith in action:
Call your representative and senators and demand that Congress stop excessive speculation in food and energy commodities as quickly as possible.