Ever since passage of the Commodity Futures Modernization Act of 2000, speculators have been empowered to own the commodities markets through manipulation. It's an enormously complex and agonizingly obscure field of investment, fraught with anti-manipulation law and oversight dating back to regulations imposed during the Great Depression. The CFMA relieved much of the legal penalties of really clever and really big money cornering markets and extorting money out of an economy that's just trying to buy raw materials for its own consumption. Honest consumers, both businesses and individuals, it seems are perfect rubes to be ripped off by the unscrupulous members of Wall Street.
Wall Street seems to rely on some pretty flimsy arguments to justify a laissez-faire commodities market. The most egregious platitudes appear here, where Aaron Brown of Minyanville argues that commodities speculation is just like Las Vegas. It's a victimless crime he says, because commodity speculation is just like betting on a ball game. It can't affect the outcome of the game. Unfortunately for him, no amount or persiflage can make that analogy work.
The difference is that the outcome of the game is, in fact, affected by this particular kind of bet. Speculators buying futures drives up the cost of the futures on which consumers rely to make purchases for the next business cycle. People who will actually consume the product -- oil in the most topical instance -- will have to pay the price established by speculators for it. The speculators, meanwhile -- who have never intended to consume the oil -- just drive up the price and reap a profit from inflating the price themselves and then roll that profit over to further distort the next futures cycle. As speculator's money inflates the price of product, there are losers, and those losers are the people who will actually have to pay the futures contract price, take delivery of it and consume it: the public. As the law is now, it's legalized extortion by billionaires.
To a lesser extent, the same activity goes on in the stock market. A big player can create demand for a stock by running up the price himself and then selling to the rubes that want to buy a stock that is going up. There is no one as ruthless as the most ruthless of easy money speculators, and the more money you have the easier it all is. There's a lot of money in the hands of the 1 percent that is up to exactly this kind of mischief. It would probably do them and the public a great deal of good to surtax some of that back into the real economy. As it is, big money is just eating away at the economy on which big money depends to make money. It's manifestly stupid.
Having the commodities futures market open to non-consumers of the product does serve a purpose though. It helps prevent a big consumer of oil from dominating the market for its own benefit and grabbing up all the product with its purchasing power and re-selling it at an artificially high price that it created itself, exactly what outside speculators in oil are doing now. Again, the people who need the oil are just at the mercy of big money. This potential and actual behavior by markets is the poster child for government regulation of markets. Free markets really only work when everyone's resources and information are the same.
Obama aims to rein in speculation or at least make it a political knuckle ball for a Republican dominated congress to deal with. It's fair. The Republicans who de-regulated commodities trading should have to deal with the consequences of that deregulation rather the he.
Republicans aim to cash in politically on the very problems their ideology in policy caused for this nation. Obama is now in the process of making that obvious.