After weeks of tough sounding rhetoric directed at speculators and the regulatory agency allowing them to speculate, Congress took bold action, kind of.
Thursday the House of Representatives passed the Energy Markets Emergency Act. The bill requires the Commodity Futures Trading Commission (CFTC) “to utilize all its authority, including emergency powers, to take steps to curb excessive speculation in the energy futures markets." It passed overwhelmingly by a vote of 402-19.
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The bill falls far short of some of the draconian measures being recommended in recent hearings such as manipulating futures’ margins to direct market activity and restricting pension money from investing in commodity index funds. Basically it directs the CFTC to do its job and authorizes it to use the authority inherent to it—including emergency powers—to do it.
“A growing number of people believe a flood of speculative money into energy futures is driving the record prices in crude oil,” said House Agriculture Committee Chairman Collin C. Peterson (D-Minn) in a release. “CFTC must take immediate steps to ensure that index and hedge fund money is not the cause for price manipulation and should take any necessary action to curb excessive speculation in the markets.”
The CFTC has indicated that it has already done this and found supply and demand the driver of energy prices but Congress didn’t like that answer so the regulator has committed to studying the matter further.
While the legislation—if you can call it that—takes no real action, which may be it most important attribute other than its comedic value, it does threaten further action. “In July, the House Agriculture Committee will examine legislative proposals that would affect CFTC’s authority over energy futures and swaps markets. Several bills affecting regulation of the energy futures and swaps markets have been introduced and referred to the Committee in the 110th Congress,” noted the release.
Legislative experts at the recently concluded Managed Funds Association (MFA) conference in Chicago noted that despite all of the bluster coming out of Washington regarding commodity speculators, there was little chance any legislation would pass before the fall elections and that hopefully it would allow the current furor to die down. Perhaps they are right but it may not be likely as crude oil just closed above $140 per barrel for the first time ever.
On another note the Dow Jones Industrial Average continued to free fall on Friday, dropping nearly 500 points on the week and more than 1,000 points for the month of June with one day left. If Congress feels compelled to address this issue it could really get interesting. There has already been legislation proposed calling for higher margins (performance bonds) on futures contracts; wouldn’t it be interesting if some member of Congress intent to take action to help a sagging equity market proposes lowering margin on equities. I wouldn’t bet against it.