It’s quite possibly the single most important nomination President Obama will make—with nothing less at stake than both the U.S. and global economies, not to mention the potential starvation of millions of people inthe developing world—and last night on The Ed Show, Ed Schultz broke the news that the White House vetting has begun. What is not clear is whether the White House understands just how important this appointment is.
The position is commission member of the Commodity Futures Trading Commission. It sounds boring, until you understand that how the CFTC does its job has a direct impact on how much money you pay at the gas station and the grocery store—and how much of that money goes to Wall Street. The CFTC’s function is to regulate the trading that takes place on everything from oil to wheat.
When things run well, as they did after FDR got his hands on them, the price of your heating oil and your gasoline and your bread and your cereal and your rice cakes and your cotton shirts and your sugar is determined by two factors everyone understands: Supply and demand. The reason bakers and heating-oil companies and airlines don’t just pay whatever price is dictated by current supply and demand is that sometimes unforeseen events can mess with supply (or demand). To hedge their bets against such price fluctuations, those companies I just mentioned (which are known as end users) started to buy contracts with their suppliers to lock in future prices. End users agreed to pay a little more six months or so down the road, in return for knowing they would pay no more than a little more.
For this system to work, end users actually need speculators. They keep the system liquid, and ensure a steady supply of futures traders willing to bet counter to however the end users are betting. You can’t have a casino where everyone’s betting on the same thing, after all. FDR recognized that speculators, left unchecked, could overwhelm the commodity exchanges with bets designed not to hedge against supply and demand, but designed to manipulate prices. He signed into law position limits, legal caps on the volume of Wall Street speculation that kept speculators in check and ensured that most of the futures trading was done by genuine end users.
But Wall Street smelled money. In accelerating fashion over the past two decades, Wall Street investment firms—led by Goldman Sachs—have chipped away at regulation and position limits. Remember how Enron jacked up the price of energy in California? That was just the first, biggest example of energy traders capitalizing on deregulation they themselves had pushed for. Global food riots of 2007 and 2008—and their recent sequels throughout the Mideast—along with gas spikes in 2008 and today, are just the latest iterations of the same thing that gave us the California blackouts.
The Dodd-Frank Wall Street reform law empowered the CFTC to restore the kinds of position limits FDR first put in place. But the CFTC hasn’t done it yet. The CFTC’s two Republican members have been joined by Michael Dunn, a Democratic Bush appointee, in blocking position limits. Dunn says he doesn’t believe position limits will reduce Wall Street speculation on commodities. Never mind the coalitions of public-interest groups and business groups aligned in desperate campaigns for position limits. Never mind that the investment banks themselves overwhelmingly concede that they’ve helped ramp up prices. In any case, Dunn’s term is almost up. And as Ed reported last night, the White House has begun vetting his replacement. So what’s the problem?
We asked the White House whether they’re committed to a nominee who believes in position limits. No answer. Even more troubling, if you review the White House response to the recent spikes in gas prices, there’s no mention of Wall Street. And no mention, therefore, of the CFTC as a weapon to stop it. No mention of House Republicans vowing to starve the CFTC of the funds it needs to keep Wall Street’s hands off our basic staples.
Instead, we get the mainstream media going on about Libya, which produces less than two percent of the world oil supply. We get Republicans spinning conspiracy theories that President Obama wants high gas prices. And the White House is actually wasting time wandering into fights it can’t win about the strategic reserves, looking for supply remedies to solve a problem that has little relation to supply (oil supply hit 18-year record highs just last month).
It’s possible the White House does grasp the nature of both problem and solution here—and that they merely want to slip a strong CFTC member under the GOP’s radar. But even from a political standpoint, a battle over the CFTC’s enforcement of position limits should be a gift to the Democrats. For one thing, some prominent Republicans are already on their side.
Sen. John McCain (R-AZ) has been a strong voice against commodity-futures speculation. So have a handful of other Republican lawmakers. In fact, so has the top-rated commentator on Fox News: Bill O’Reilly. As Ed showed in his report last night, O’Reilly is on record favoring a CFTC crackdown on oil speculators. But with the White House failure to educate on this issue, O’Reilly lately seems to be getting played. On his program last night, he brought up the role of speculators—but then appears to get talked down from it because he doesn’t seem to understand the difference between speculators who are genuine end users and speculators who are purely Wall Street bettors.
This is a complex issue, but no moreso than doing your taxes, or understanding Charlie Sheen. Wall Street is taking a bite out of every dollar you spend on heating your home, filling your gas tank and stocking up the refrigerator. The economy is at risk. Global access to food is at risk.
All this week, in conjunction with “The Nation” magazine, we’re going to lay out the issues on The Ed Show. Because if the White House drops the ball on this one, $4/gallon gas is likely to return, food prices are likely to go up around the world (forcing us to cut coupons, and third-world countries to cut meals) and the economic recovery is likely to stall. I hope you’ll watch this important series. And I hope the White House will watch it, too—because if they don’t get this right, by the time 2012 comes around, all those crazy right-wing theories will be right—the high price of gas really will be Obama’s fault.