Ted Vaill’s five letters to the editor were not very instructive. They began with a plea to support the insidious pork laden farm bill ultimately signed into law. Ted apparently reasoned that the bill’s inefficiencies, which he never acknowledged, were outweighed by the benefits arising from the imposition of stringent regulation on oil speculators. Yet neither the evidence he presented subsequently, nor his reliance on the controversial study by Masters and White (M & W) provided much support for his conclusions. Regardless, taxpayers/consumers are now stuck with the bloated farm bill and, with Ted’s help, will soon be saddled with overly burdensome regulation on speculators.
At this juncture it seems abundantly clear that physical demands for oil drove the market. Prices rose when expected market conditions dictated and fell more recently when those expectations changed. Had prices been distorted initially by financial speculators, as his sources claimed, physical inventory accumulations would have existed, but they didn’t. A recent study by the Commodity Futures Trading Commission provides some insight. It determined that speculative positions did not increase even though oil prices were peaking. M & W’s findings of larger dollar investments future probably resulted from higher oil prices on existing positions rather than from investors making additional bets in the commodities market.
Ted’s position is further undermined by the fact that commodities not subject to the 2000 Enron Exemption nor the easing of restrictions on OTC trading had price movements which mimicked the price of oil. Like oil, the prices of these commodities rose and then fell, even though they did not have futures markets subject to “manipulation” by speculators.
Clearly Ted’s declaration of victory is premature. I suggest that he cut short his victory lap and spend the time considering how best to structure an efficient, not punitive, regulatory environment. Politicizing the whole discussion, as he has done, by constantly hammering Bush, Cheney and “McCain’s crony,” Phil Gramm, is clearly not helpful. In these tenuous financial times, it is important to maintain focus and not become distracted by one’s political biases.
Lester F. Salt