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.).