CFTC Poised to Reign in Oil Speculators

According to this Businessweek article, the Commodity Futures Trading Commission (CFTC), the regulatory body for US futures exchanges, is discussing whether to limit the number of contracts traded by speculative investors on the New York Mercantile Exchange.  The stated purpose is to reduce the impact speculators have on energy prices.

As I’ve discussed before, speculators cannot have a sustained impact on prices without leaving a paper trail.  Such a trail was absent at the price peak in 2008, and it’s not there now.

In a rare display of bureaucratic straight talk, CFTC commissioner Bart Chilton admits his ignorance:  “Even if I’m not sure that these new speculators are contorting markets, if there’s the hypothetical possibility, we’re obligated to do something about it,” Chilton said. “To do nothing would be irresponsible.”

Just brilliant.  He’s essentially saying “I don’t know what I’m doing, but I’m a regulator and I’m paid to regulate.”  Using the “government knows best” mindset, Chilton doesn’t consider that perhaps doing SOMETHING would be irresponsible.

When government intervenes in markets, there are always unintended consequences.  Regulatory and legislative fingerprints are all over the mortgage meltdown.  I point you to Thomas Sowell’s book “The Housing Boom and Bust” for an excellent and easy-to-understand recap of that mess.

Perhaps before acting out of ignorance Mr. Chilton should consult someone with a bit of expertise and try to determine whether his cure might prove to be worse than the disease.

Leave a Reply