Just a few days ago, Michael Greenberger told a congressional committee that financial speculators were gambling on oil the way they did on housing a few years ago. When that bubble burst, we wound up with a Little Depression.
"It is similar to the gambling Wall Street did on whether or not people would pay their subprime (below-market rate) mortgages in the mortgage meltdown," said Michael Greenberger, a law professor at the University of Maryland and a former federal regulator of financial markets. "Now they are betting on the upward direction of the price of oil."
Although oil prices, which make up about two-thirds of the price of gasoline, are set by dynamic forces in global markets, financial speculation can have a short-term impact. Just six months before an election, that impact can be problematic. And higher prices, even in the short term, could choke off what has so far been a fragile economic recovery, most of whose benefits already are skewed to the top tier of the population.
The White House plan includes:
1. Requesting Immediate Funding to Put More “Cops on the Beat” Overseeing Oil Markets: The President is calling on Congress to pass an immediate increase in funding to support at least a six-fold increase in the surveillance and enforcement staff for oil futures market trading at the Commodity Futures Trading Commission (CFTC).Greenberger told members of the House Democratic Steering and Policy Committee that
2. Funding Critical Technology Upgrades in the Oversight and Surveillance of Energy Market Activity: The President is also requesting that Congress provide the CFTC funding for critical IT upgrades to strengthen monitoring of energy market activity.
3. Substantially Increasing Civil and Criminal Penalties for Manipulation in Key Energy Markets: The President’s proposal includes a ten-fold increase in maximum civil and criminal penalties for manipulative activity in oil futures markets. These heightened penalties will make sure that penalties reflect the seriousness of misconduct.
4. Empowering the CFTC to Raise Margin Requirements in Oil Futures Markets: The President is also calling on Congress to act immediately to give the CFTC authority to direct exchanges to raise margin requirements to address increased price volatility or prevent excessive speculation or manipulation. This authority will help limit disruptions and reduce volatility in oil markets.
5. Taking Immediate Steps to Expand Access to CFTC Data to Better Understand Trading Trends in Oil Markets: These executive actions will allow additional analysis of CFTC’s data to look for patterns and better understand trading activity in energy markets.
even the threat of a Justice Department investigation might be enough to intimidate speculators. "If there is a real investigation, just the appearance of it will cause these cockroaches to scatter," he said, "because the light will be turned on."