February 29, 2016

Beyond the banks, beyond the shadow banks: Commodities speculation

Anybody who remembers $147/bbl oil in 2008 before the Great Recession, and knows a lot about the "why" of that knows that possible Peak Oil related issues weren't the only cause.

Commodities speculation was, too.

And, now, as investment banks, presumably the hedge fund portion of shadow banks, and other fiscal institutions have tried and failed to manipulate oil prices from out of the toilet — and we know why — it's time to address this situation further.

On the Democratic side, Bernie Sanders has a transactions tax that's part of his pledge to raise money for single-payer national health care. While not an actual Tobin Tax, it is good in its own right.

Such a transactions tax, as long as it included commodities trading, might at least take the edge off such speculation.

And, Sanders could extend this into what should be (but sadly won't be) a foreign policy based on ideas he's expressed on the domestic side. Things like bread riots in Egypt a few years back, while based in part on tight harvests, were exacerbated when those tight harvests led speculators to bid upward grain prices.

And, moving beyond Sanders, there's good environmental as well as fiscal reasons for reigning in commodities speculation. The money from taxing commodities transactions could, of course, be used to beef up the Commodities Futures Trading Corporation, largely gutted by ... wait for it, wait for it ... Bill Clinton when signed the Commodities Futures Modernization Act shortly before the door hit his tuchis on his way out of the White House.

"Buy one, you get two." Right, Hillary Clinton?

Gutting the CFTC, above all, beyond commodities speculation, led to the rise of slice-and-dice derivatives that led to the Great Recession, too.

"Buy one, you get two." Right, Hillary Clinton?

Even if Sanders stays on his 1-note tune, he's got many regulatory overtones that he could be sounding louder. Of course, given that milk and cheese both trade as commodities, and that he voted in favor of the Big Ag-friendly 2014 farm bill, maybe that is part of the reason Sanders hasn't spoken more. An even bigger reason is that Sanders voted FOR the CFMA.

Now, Sandernistas will say, yes, but the CFMA was rolled into a budget omnibus bill after the 2000 election, but before the calendar year's end, with a lame-duck Congress not paying attention.

True. But, Sanders also voted FOR the original CFMA earlier that year. While it wasn't as deregulatory as the final version, it arguably was not a "good" bill itself, just a lesser of evils compared to what actually passed.

And, per Wiki's article on commodities, derivates and swaps can both be commodities-based. And, per Sanders' Holstein-heavy Vermont, there's commodities markets for both milk and cheese. While they may not be as sexy as oil or gold, nonetheless, commodities contracts for both can be sliced, diced, and even speculated upon.

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