Hi Tim,
are you aware of the Enron loophole? I wasn't buying all this speculator stuff until I read about the Enron loophole. Essentially, it goes like this. All of our exchanges are regulated by the SEC, meaning we have oversight to make sure there aren't insider traders or other manipulations in the market that detract from the ACTUAL market setting the price for stocks. That's a good thing, because it levels the playing field and gets us as close to a frictionless market as possible. If insiders or others were able to trade on their knowledge, then the market would buy and sell at unfair prices set by insiders and not by actual market supply and demand forces.
Now enter the Enron loophole. Back in 2000, Enron lobbied to get a regulation dispensation on the Commodity Futures Trading Commission. So Congress passed legislation limiting oversight by that Commission. Essentially, oil is one of those futures markets that has almost no regulation, so insiders can set the price regardless of what the supply and demand factors are. We know this is true because as part of the Enron collapse and subsequent public trials, we watched as they explained how they would manipulate the price of commodities to pad their financial statements.
Now consider this. The Saudis claim that there is plenty of oil ready for delivery, but there are no takers. So they are wrongly claiming that supply is not the problem. However, any econ 101 student could tell you that supply at the right price is never a problem. So the big question is why don't the Saudis lower the price on that oil ready for delivery? Their answer to a reporter that asked them that question was that they sell at what the futures market price dictates. Well, two things are wrong with that. First, that is a manipulation of price, because a real working market would sell all supply at market prices dictated by real time bidders. Second, the futures market is unregulated, and if manipulated by futures traders, can't be relied on as a barometer of true market prices. The only way to ensure you have true market prices are to participate in an auction with real time bidders for ALL existing supply ready for delivery. The Saudis won't do that. I wonder why?
It's a bit convoluted, but in today's world of high finance nothing is ever simple. What is simple are the slogans and pandering and lobbying that is being done by both sides while American consumers suffer.
I believe that we need regulation on all markets. A free for all has never worked and usually only works to enrich a few insiders. An unregulated market like oil has resulted in a 500% price increase since 2000. Maybe it's not all due to speculation, but it's a good bet that some of that is.
references:
en.wikipedia.org
blogs.abcnews.com |
