In 2000 the Commodities Futures Trading Commission was taken off the job of regulating the purchase of oil futures. This is a brief summary of how this affected the prices of oil, gasoline and how badly the resultant price instability affected the average u.s. household -- leading up to economic collapse.
from Wikipedia:
The Commodity Futures Modernization Act of 2000 (CFMA) is United States federal legislation that clarified most over-the-counter derivatives ("OTC derivatives") transactions between "sophisticated parties" would not be regulated as "futures" under the Commodity Exchange Act (CEA) or as "securities" under the federal securities laws. Instead, the major dealers of those products (banks and securities firms) would continue to have their dealings in OTC derivatives supervised by their federal regulators under general "safety and soundness" standards. "Functional regulation" of derivatives products by the Commodity Futures Trading Commission (CFTC) was rejected for continued "entity-based supervision of OTC derivatives dealers."[1]
Prior to the Commodity Futures Modernization Act of 2000, only businesses who had a "vested interest" in purchasing and trading wholesale futures of oil were interested in engaging on the futures commodities exchanges. These businesses had to make these purchases because of their high usage of the product. The best example would be airline companies.
After the removal of what turned out to be vital regulation, anyone (especially big banks) could trade nearly unregulated values of this vital commodity on the market, this led to a cornering of the market and nearly instant and wide swing in wholesale prices of oil which immediately translated to volatile and higher retail gasoline prices.
as was explained in "Who is in the Oil Futures Market and How Has it Changed"
We find that non-commercial players now constitute about 50% of those holding outstanding positions in the oil futures markets, as opposed to 20% prior to 2002.
. . .
recent shift in the composition of oil market participations and dollar-oil correlations also correspond to changes in the manner of regulation of commodity markets such as those implemented with the CFMA. As noted in the 2007 Government Accountability Office report, the new legislation made it easier for financial players to obviate speculative limits and made it more difficult for the CFTC to regulate oil futures markets.
By the beginning of 2008, you can see the 120% increase in gasoline prices paid since 2001. This extra burden of cost for a necessary household good became a massive burden on household balance sheets.
By reviewing the retail sales figures and comparing them to the retail sales figures with gasoline purchases removed, one can clearly see the increase in monthly expenditures.
between 2001 and 2008 the monthly expenditures of gasoline increased by over 100% or about 25 billion u.s. dollars per month.
In 2008 there were about 118 million u.s. households. Therefore, on average this increase in gasoline prices led to a direct tax on u.s. households of over $212.00 per month.
For middle class wage earners who perform the majority of the commute/consumption this value was slightly higher, say approximately $230.00 per month.
Therefore, to create a real economic recovery in the U.S. two vital legislative activities must occur.
The first was proposed recently by a Republican (with a mysterious Dem cosigner). John McCain recently introduced legislation to reinstate the Glass-Steagal Act.
http://www.bloomberg.com/...
"Under our proposal, too-big-to-fail banks would be forced to return to the business of conventional banking, leaving the task of risk taking or management to others," McCain, an Arizona Republican, said.
And the second is a repeal of the CFMA of 2000. Which was also recently introduced by the same MYSTERIOUS Democratic Senator. . . (along with Ron Wyden and Bernie Sanders)
http://cantwell.senate.gov/...
Tuesday, November 10,2009
WASHINGTON – Today, U.S. Senator Maria Cantwell (D-WA), together with Senators Ron Wyden (D-OR) and Bernie Sanders (I-VT), proposed legislation empowering state gambling regulators and attorneys general to examine unregulated derivatives trading and take appropriate action to protect citizens from practices which can harm the foundations of our economy.
unfortunately, there is almost NO chance of passage in today's banker controlled senate. Where there used to be the protection of the public good by our elected representatives. These bastards are selling us out for their banker and industry masters. Yes, the same old revolutionist rhetoric. I know. . .
but guess what. IT is THIS MESSAGE that is what spreads through american politics faster than a wildfire in the Santa Anas. (thats a southern california wind in case you don't know). This is the message that the corporate owned mainstream media is desperate to avoid. They say that current political digression away from the democratic base is due to the dem's being too progressive, when in actuality, they are actually linking up with the anti-banker bailout and cozy legislation that is also driving the tea-party movement.
It is the same message that currently keeps about 50% of the general u.s. public home on election day. The general perception in the u.s. is that our elected government DOES NOT REPRESENT the public.
and until a massive populist STAND is made to prove them wrong. It won't change (for the better).
As another blogger aplty put it:
CFMA (following Glass-Steagall repeal) confirmed that Wall Street and ISDA could control law and regulation to a degree never before imagined, dictating laws to order. CFMA’s passage meant that Wall Street no longer had to fear Washington, just write what it wanted and buy it off. Phil Gramm (whose wife Wendy was chairman of the CFTC) is the poster boy for the decade of crony capitalismthat followed.
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update: Please access this excellent diary by Cornsyrupawareness on Sen Levin's closure of the oil futures portion of the enron loophole.
http://www.dailykos.com/...
While this legislation helped to block the abuse of oil futures. The current Wyden, Cantwell and Sanders legislation will finish the job.