Gas Price Experts: Wall Street 'Casinos' Raise Pain At The Pump

WASHINGTON -- Americans are paying for $4-a-gallon gasoline because Wall Street "casinos" have blocked regulators from cracking down on rampant oil speculation, finance experts argued on Capitol Hill Wednesday.

In an effort to counter Republican claims that gas prices are high because the Obama administration does not allow enough drilling, House Democratic leaders staged a hearing featuring former Reagan and Clinton administration oil and trading analysts who blame the surge on speculation.

And the vast profits from that speculation do not go into developing more oil or creating jobs, the analysts argued.

"Your constituents should know that every time they break their heart by buying $4 and maybe soon $5 gasoline, that money isn't going into production," said University of Maryland professor Michael Greenberger, who served as director of the division of trading and markets for the Commodity Futures Trading Commission in the Clinton administration. "It's going into homebuilding in the Hamptons and yacht building."

And the big finance firms are working overtime to ensure that the speculative commodity keeps flowing, he said.

"They've got hundreds of millions of dollars that they are using in lobbying on the Hill" or the Commodity Futures Trading Commission, Greenberger told HuffPost after the session. "Now they are bringing all these lawsuits; they are stopping the action that has already been asked for by Congress to stop the speculation."

He was referring to suits that seek to limit certain Dodd-Frank financial reforms that, among other things, grant the commission the power to crack down on excessive oil speculation.

Greenberger told the Democratic Steering and Policy Committee that curtailing the speculation -- some of which he said was necessary -- would cost nothing and would not stop any markets from functioning.

"What are you stopping here? Are you stopping money from going into production? Are you stopping money from [reaching] people creating jobs?" Greenberger asked. "Unless you think casinos -- which come to us with names like Goldman Sachs and Morgan Stanley -- are job creators, you’re stopping betting. If we’re wrong about this -- if everything we're telling you is incorrect -- what will you have done except close a couple of casinos?"

Rep. Xavier Becerra (D-Calif.) pressed Greenberger if there was contradictory evidence when it comes to figuring out whether high gas prices could be cured through increased drilling and domestic oil production.

Greenberger conceded that one or two experts in the country would hold that opinion but said the vast majority in his field believe that Wall Street sets the price of oil.

"Many would like you to believe that this is a supply-demand problem. It's not," Greenberger said. "It is excessive speculation, which is a fancy way of saying that gamblers wearing Wall Street suits have taken over and created investment vehicles designed to drive the price of oil up."

He cited testimony by Goldman Sachs earlier this year asserting that speculation drives up the cost of a barrel of oil by as much as $23.39.

Gene Guildford, a former president of the Maine Oil Dealers Association and a Reagan administration Commerce Department official, estimated that speculation translates into roughly a dollar added to the price of each gallon of gasoline bought by the U.S. consumer. "Instead of spending four dollars, you should have been spending something closer to three dollars for your gallon of gasoline," he said.

The extra cost to America's drivers is staggering, Guildford said. "At 11 billion gallons a month that Americans consume, Americans today are paying $10 billion more a month for gasoline today than they did in December."

Both men urged the committee to fully fund the Commodity Futures Trading Commission and propose legislation in the House aimed at cutting oil speculation to what is required to keep the markets liquid.

Otherwise, it's just making millionaires richer and middle-class Americans poorer, they and Democrats argued.

"Wall Street speculators are artificially driving up the price at the pump and causing pain to millions of American consumers," said House Minority Leader Nancy Pelosi (D-Calif.).

Related on HuffPost:

Comments

[John 99point99percenter]

11:31 AM on 05/24/2012

Needs to be a public utility. Only charge enough to pay for overhead and keep an eye on that, too. Stop all speculation in energy. The economy is being killed by the high price of fuel. Dump the subsidies. Roll back prices to pre-deregulation levels. Make Big Oil sweat for a decade. Then find a fair price for all and don't change it. Before deregulation Big Oil did OK, not great, but OK. That's how it should be. Roll back the prices so Big Oil looses 20Billion a quarter, instead of surprise profits of 20B, then the economy would flourish. Call your Congressman and tell them this. Make everyone of the politicians who accept money from Big Oil wear a baseball cap with the logo on it, like Nascar drivers do for their main sponser. Make the politicians feel the pain of embarrasment and shame them for their utter dissregard for the American People. And above all, DON'T VOTE FOR THE GOP!!!!!!! If you do you are a total idiot and should be locked in stocks in the town square for everyone to throw cabbages and rotten tomatoes at.

[the99pct]

08:13 PM on 04/23/2012

The drumbeat about gas prices is hot right now. If people sit back and think for a minute, with the country's infrastructure (cars, roadways, highways) gas is really an essential commodity for over 95% of the people. It is stupid to leave the supply of this essential commodity to for profit private sector and price fixing to speculators and gamblers in Wall Street.

Unfortunately, the country is capitalist and cannot get rid off free market and profiteering in the most vulnerable commodity. What a shame.

[guppybear]

12:57 PM on 04/10/2012

I can not believe that the price of gas is getting this high. I liked Guildford's quote: "At 11 billion gallons a month that Americans consume, Americans today are paying $10 billion more a month for gasoline today than they did in December." It's scary to think we use that much, and I am just as guilty. I'm a recent grad and was lucky enough to get a job right out of college. I commute about 70 miles per day (35 miles each way) and I can't really do that via public transit here in Phoenix. I've found Allstate's gas widget really handy for find the cheapest gas prices based on my zip code: http://www.allstate.com/gas-price-locator.aspx

[Clevelandinwi]

11:00 AM on 04/06/2012

Perfect example of how it works: wall street lobbies Congress with lotsa money and goodies, Congress refuses to regulate wall street and gas goes through the roof. And these damn fools blame the President? HYPOCRITES !

[nypapajoe]

09:33 AM on 04/06/2012

If the American farmer was to raise the price of corn and grain to these same oil producing nations I bet that they will curtail their greed and and that of the speculator because they can't eat oil! Would should do on to them as they do on to us! Be ause it all goes hand in hand! Food for oil on an even scale!

[authorized-user]

09:18 AM on 04/06/2012

Americans are paying for $4-a-gallon gasoline because Wall Street "casinos" have blocked regulators from cracking down on rampant oil speculation, finance experts argued on Capitol Hill Wednesday.

THIS IS NEWS????

[jalaroc]

07:43 AM on 04/06/2012

I remember when Obama opened up the national reserves and caught speculators with their pants down. They supposedly lost a bundle when that happened. During the financial crisis, GOP swore up and down that the rising gas prices were from inadequate production and that speculation in the market did not exist on a large scale. A post mortem after the crisis found that 4 firms had cornered the market on oil speculation and weren't even using their own money to do so but were borrowing funds and profiting off the difference. It is ironic that GOP is considered the party of big business when they are so clueless when it comes to economics.

[Saulius Muliolis]

07:55 AM on 04/06/2012

Yes, they are as clueless as Democrats.

Of COURSE they were speculating with borrowed money. That's what I have been saying this whole time. The fed manipulates interest rates and makes it easier for people to borrow, they will speculate with other people's money and inflate commodity and stock bubbles. Thats why we got the housing bubble, the Tulip bubble, the Mississippi Bubble, the South Sea Bubble, railroad bubbles in the 19th century, the stock market bubble of the late 1920's that led to the Great Depression, and the Tech Bubble that started this recession, of which I consider the 2008 crash to be its second dip.

[progressiveG]

10:34 AM on 04/06/2012

Clueless as Democrats? Good luck finding Republicans that want to put an end to the speculation or cheap borrowed money.

[builderman55]

12:43 AM on 04/06/2012

Oh yeah--we need to definitely elect a Republican that wants to FURTHER deregulate the economy and get the government off the backs of big business. I cannot believe ANYONE is buying the Republican drivel in the face of the economic facts in front of us...

[Saulius Muliolis]

07:57 AM on 04/06/2012

What do you mean FURTHER deregulate? When, in this millennium, have we had deregulation? Bush gave us Sarbanes Oxley and increased the federal government's regulatory budget by over 60%.

[builderman55]

10:33 AM on 04/06/2012

You are kidding right? Exactly when did you start paying attention?? Remember Reagan? The orgy of deregulation bean with him, and culminated in Clinton signing the repeal of Glass-Steagall, probably the single greatest element in the cause of the mortgage bubble and collapse. Do a little research my friend...

[rotorhead1871]

11:41 PM on 04/05/2012

the regulators need to quit making excuses and get the speculators...out of the market....so get some of the government power and make it happen....

[Anthony Thoms]

11:15 PM on 04/05/2012

No No No, everyone knows that its not Wall Street, Its the presidents fault.

oh yeah that was sarcasm.

[rikadarling]

12:43 AM on 04/08/2012

It shouldn't be. It is at least partly his fault. If he wanted to end speculation in oil and gas futures, or if he wanted simply to regulate it, he could but he does nothing. When he talks about the prices he talks about fringe issues like supply and demand, or drilling more etc. Pure bunkum. Obama IS to blame at least in part.

[Sharon Anthony]

11:14 PM on 04/05/2012

I am so sick of hearing about the MIDDLE CLASS!!! What about the poor, and extremely poor in this country, that also have to buy gas? Food, electricity, rent, phone, etc???

[Saulius Muliolis]

07:58 AM on 04/06/2012

The middle class is being pushed back into poverty by Federal Reserve inflationary policies that are driving up all sorts of prices, including fueling a speculative bubble in oil and gas.

[read matt taibbi]

10:44 PM on 04/05/2012

Blaming speculators for high gas prices is like giving bunch of kids matches and then blaming them for setting the barn on fire.

It is the central banks (from the Fed to Bank of Japan) that print trillions of dollars in an effort to mask some poor decisions of private bankers. Traders just do what they are trained to do - they put all this extra liquidity to work wherever they perceive best returns.

In plain English: when central banks print (debase) money, that money then obviously buys less gas. So stop blaming speculators and start blaming those who think that printing little green pieces of paper is a sure way to prosperity.

[Saulius Muliolis]

07:59 AM on 04/06/2012

I've been saying that for years.

And I like the Douglas Adams reference. I've used that one in debates on health care.

[Zip Zinzel]

08:49 PM on 04/05/2012

THE SINGLE MOST IMPORTANT THING WE SHOULD DO IN RELATION TO THIS ISSUE IS
OUTLAW commodities speculation by parties that neither PHYSICALLY BUY or SELL the commodities.
Too many insiders are able to manipulate the market, through these gimmicks.
REALITY-CHECK= there are no disinterested parties taking the other side of these transactions. THE OTHER SIDE consists of Market-Makers, who are in a unique position with all kinds of specialized benefits where it is almost impossible for them to lose money on their transactions.
The offshoot of this is that insiders are using this ConGame to benefit at the general public's expense.

[Raymond Chuang]

07:24 PM on 04/05/2012

I've been saying for a LONG time that economically strategic commodities (petroleum products, certain industrial metals, staple foodstuffs, and precious metals) should be subject to a 35% minimum margin requirement (MMR) for futures trading. At 35% MMR, that's high enough to discourage the "make a fast buck" speculators and will result in a LOT more stable pricing without the fear of sudden spikes and dips in pricing that can cause serious economic problems. At 35% MMR, even George Soros would be reluctant to do such futures trading.

[SPITR]

06:30 PM on 04/05/2012

This man makes sense. Demand is lower (even in China) but the prices keep climbing as
the rich push the prices up on Wall Street.