Frank And Others Less Than Interested In Financial Regulatory Reform

By Joseph Russell- Talk Radio News Service

House Financial Services Committee Chairman Rep. Barney Frank (D-Mass.) seemed to be a bit distracted Wednesday during the committee's testimony on financial regulatory reforms proposed by the Obama administration.

Frank read a newspaper, fell asleep, and then left early during testimony from Chairman Mary Schapiro of the Securities and Exchange Commission (SEC) and Chairman Gary Gensler of the Commodity Futures Trading Commission (CFTC).

Frank’s lack of attention highlighted the disapproval shared by Republicans on the committee that the Obama administration’s proposals do not address the specific needs of financial regulatory reform, and vastly expand the SEC’s power.

“Perhaps an even more fundamental question needs to be asked here,” said Rep. Scott Garrett (R-NJ). “Will standardized business be significantly related to the recent meltdown of our financial markets? And if not, why are we prescribing cure for a non-existing ailment.”

The Obama administration has proposed a broad spectrum of reforms that would expand the U.S. financial regulatory system. The administration’s plan calls for derivatives and hedge funds to be regulated, a stiffening of securities and futures regulation, and regulation of the credit rating agencies by the SEC. This committee meeting was the first of several that will examine these proposals.

How to solve the oil problem: Do something about it

Witness Walter Lukken of the Commodity Futures Trading Commission (CFTC) testified before the House Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies. Lukken tried to explain the multitude of issues contributing to rising oil, corn, and other commodity prices and what the CFTC is doing to address the problem.

At one point, Chairwoman DeLauro (D-Conn.) began to raise her voice in frustration. She said that CFTC, which is in charge of assessing the commodity price problem, should also be taking action, but nothing is being done.

It is the price of onions, not oil that has risen the most since 2006, Lukken said. Oil and corn prices have risen 100 and 300 percent respectively, but onion prices have gone up 400 percent since 2006. 70 percent of oil in the U.S. is imported, Rep. Marcy Kaptur (D-Ohio) said. Money is moving away from America and into other financial markets, Kaptur said.

When prompted by Rep. Ray Lahood (R-Ill.) to answer questions about rising oil prices in simpler terms, Lukken said, “We are consuming more than we are producing.” Rep. Jack Kingston (R-Ga.) asked Lukken if any oil suppliers were hoarding inventory. Lukken said there is no evidence of hoarding.

A number of representatives said they were confused about the terminology Lukken was using. Chairwoman DeLauro observed the confusion and said that the commodity market is complex and so the answers to rising oil prices and other commodities will also be complex.

Supply and demand still a law

The House Committee on Agriculture met to discuss the Commodity Futures Trading Commission (CFTC) and its role in monitoring oil prices. Rep. Jeff Moran (R-Kan.) said that speculation is a component of high oil prices but that speculation is being used as a scapegoat and preventing Congress from addressing other important issues.

Walter Lukken, acting chairman of the CFTC, said that the CFTC launched an investigation in December 2007 to monitor the oil prices, realizing that enforcement and regulation is imperative to the industry. According to Lukken, the CFTC has found that the cost of oil properly reflects supply and demand, adding that the CFTC is unable to find evidence supporting claims that speculation is driving up prices at the pump. Lukken said he welcomes evidence showing why oil prices should be lower than they currently are.

Lukken also said that the CFTC is able to monitor a complex market despite being understaffed. He stated that the CFTC has asked for $27 million dollars in order to increase its staff to historical levels. Lukken told the committee that the CFTC has seen an 8,000 percent increase in activity and will be unable to sustain itself without additional employees.

Lukken expressed support for the Farm Bill, saying that the CFTC is working to comply with it and asking Congress to allow its implementation before revising it. Lukken also said he is confident that the Farm Bill has closed the “Enron Loophole,” a loophole that allows for exchanges made electronically to circumvent US regulation.

Disagreement on cause of food and oil prices

The Senate Committee on Homeland Security and Governmental Affairs met to discuss financial speculation in commodity markets and to hear statements as to whether or not investors and hedge funds are causing inflated food and energy prices. Witnesses discussed their findings on the influence of speculation on the global rise in commodity costs.

Michael W. Masters of Masters Capital Management, LLC., stated that a lack of lines at the gas pump and the availability of food on shelves, a clear indication of supply, does not warrant an increase in prices, an increase that would suggest greater demand. In addition, Masters refuted the suggestion that oil prices have increased due to increased demand from developing states such as China. Masters cited a Department of Energy report which said that Chinese demand for oil has increased by 920 million barrels over the last five years and compared that to increase in demand from index speculators, an increase of 848 million. According to Masters, this increase is not responsible for a 183% increase in oil prices in the last five years.

Thomas Erickson, the chairman of the Commodity Markets Council, mentioned five reasons as the cause of price levels: strong economic growth in China and India, increased demand, reduced yield due to weather events, export restrictions, and the weakening U.S. dollar. Jeffrey H. Harris, the chief economist of the Commodity Futures Trading Commission (CFTC,) said that price levels are the result of the laws of supply and demand and not due to speculation trends.

Senator Claire McCaskill (D-Mo.) expressed frustration with Harris, stating "The people of America are about to take-up pitchforks." McCaskill asked Harris what tools he and the CFTC need to see the influence of speculation on commodity prices. Under oath, oil company officials testified that $30-$50 dollars per barrel can be attributed to speculation.