The Washington Post and most other Republicans, including presumptive GOP presidential nominee Sen. John McCain, chose to turn their backs on hours of explosive, expert testimony before the U.S. Senate Commerce Committee Tuesday that nailed unbridled financial speculation as the root cause of the recent period’s absurd run up in the prices of a barrel of oil and a tank of gas.
Despite the testimony of experts like Michael Greenberger, former head of the Commodity Futures Trading Commission and a University of Maryland professor, that capping speculation on oil futures would bring down the cost of a barrel by 25% virtually overnight, McCain said at a town meeting in Louisiana yesterday that nothing will bring down the price of oil except the development of alternative energies.
The contrast could not have been sharper.
McCain’s comment suggests he has no intention of reversing the anti-regulatory orgy of the current Bush administration, which is arguably the real culprit behind everything from the sub-prime real estate crisis, the collapsed value of the dollar and runaway price of oil and gas.
Greenberger cited the so-called “Enron loophole” for the current situation, an eleventh hour revision to federal legislation that slipped through and has allowed speculators, namely, major financial institutions such as Goldman Sachs and Morgan Stanley, to run amok with commodity future speculating.
The loophole removed any regulatory cap from how excessive the speculation may become.
Therefore, those who are profiting the most from the pain that average Americans are suffering at the gas pump, and in the pass-through costs of all commodities that require fuel to transport, are the nation’s biggest financial institutions.
Ironically, organizations such as the Petroleum Marketers Association of America are equally appalled and hurt by this arrangement. The common wisdom is to slap the blame on the oil production and supply process, or on supply and demand pressures from emerging oil consumer giants like China and India.
But Greenberger, George Soros of the Soros Fund Management, and Mark Cooper, research director of the Consumer Federation of America, all pointed fingers at a much different primary cause: investment banks.
They all acknowledged that supply and demand issues are real for petroleum, and did nothing to undermine the valid assumptions of the “peak oil” theorems, as articulated weekly by Tom Whipple in his Falls Church News-Press columns.
But they noted that, among other things, oil producing nations in the world have no incentive to increase production with the value of the dollar as low as it is, and with unbridled speculation on their commodity as high as it is.
Cooper argued that the “real economic cost of a gallon of gasoline is $2.25,” and that everything above that is simply lining the pockets of investment bankers.
These financial institutions are also hoarding more oil than the entire U.S. strategic reserve, he suggested. “Banks are robbing gas station and heating oil people blind,” he said. Oil prices “are speculated on 30 times from well-head to burner tips,” he said. Over 90% of the value of West Texas Intermediate is speculation by banks, hedge funds and mutual funds, he said.
The only Republican who showed up at the hearing to spend a significant amount of time there was Sen. Olympia Snowe of Maine, of the endangered species of liberal Republicans. Her concern was also for her constituents, however, faced with bitter cold winters coming up.
Greenberger said there is a correlation between a weak dollar and excessive speculation, and said our current situation is a “national crisis.” Deregulation has been the root of the problem, and that happened when ideologues of the Bush administration were put at the head of regulatory agencies “who themselves do not believe in the role they’re supposed to play.”
He called for a swift kick in the rear end to the Federal Trade Commission. He said if “speculative limits” were applied, a precipitous drop in the cost of a gallon of gas would occur almost immediately.
