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Sanders Accuses CFTC of Breaking the Law

Yesterday we learned that Saudi Arabia warned US officials of oil price speculation back in 2007, telling them they had nowhere to sell additional crude even if they produced more. Since January, the Commodity Futures Trading Commission has had the authority to stop this rampant speculation, which has returned to the market, by using Dodd-Frank tools to set position limits on what a firm can hold in oil futures contracts. So far, they have delayed the rulemaking. Bernie Sanders (I-VT) and a group of Senate Democrats – Maria Cantwell (D-WA), Bill Nelson (D-FL), Jeff Merkley (D-OR), Amy Klobuchar (D-MN), Mark Udall (D-CO) and Ron Wyden (D-OR) – met with the chairman of the CFTC, Gary Gensler. And Sanders pronounced himself “very disappointed” by the meeting. “The American people are hurting, especially in rural states like Vermont. We need action and we need it now,” Sanders said. “Unfortunately I was very disappointed in the tone of the meeting and the lack of urgency.”

Sanders went so far as to accuse Gensler of breaking the law for not implementing the Dodd-Frank regulation on position limits. He cited the now well-worn quote by Exxon Mobil CEO Rex Tillerson, that the price of oil under regular market conditions should be $60-$70 a barrel (it’s currently trading at around $100). Sanders also cited the recent lawsuits from the CFTC against Parnon Energy, Arcadia Petroleum and Arcadia Energy for driving up prices during the spike of 2008, and stated that the same conditions exist today.

I found it somewhat unusual for Sanders to so bluntly state that the CFTC is flat-out breaking the law, especially after their enforcement action this week. But it’s hard to come to another conclusion. Dodd-Frank was explicit, that position limits needed to be in place by January 17, 2011. It’s May 27, and nothing has happened. Given that speculation is causing not only increased prices but a drag on the economy, it’s imperative that CFTC does its job.

Matt Taibbi, who wrote about the price spike of 2008 and Wall Street’s role in it in his book Griftopia, picked up on the Wikileaks revelations yesterday:

All of this is significant because both the Bush administration and the Obama administration have denied this narrative to various degrees. The CFTC only recently admitted that speculation played a role in the 2008 mess, having originally (and stubbornly) blamed supply and demand issues. Subsequent analyses have shown that the Saudi position, that worldwide demand for oil never increased nearly enough to account for the gigantic 2008 price spike, was almost certainly correct.

More on this to come later. Given the surge in commodities prices in the last year (which may in part have caused the rise in food prices that led to disturbances in the Middle East) and the Obama administration’s seeming reluctance still to rein in speculators, it’s remarkable that this issue doesn’t get more press. It’ll be interesting to see how much ink these Wiki cables get.

I don’t think much. Only McClatchy reported on them; other news outlets have had the cables for months and never saw fit to do so. After all, it’s only oil. Not like it’s anything important.

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David Dayen

David Dayen