WASHINGTON – Homeland Security and Governmental Affairs Committee Chairman Joe Lieberman, ID-Conn., and Ranking Member Susan Collins, R-Me., unveiled three discussion documents Wednesday aimed at curbing excessive speculation in the commodity markets, which they say is contributing significantly to the skyrocketing costs of food and energy.
The draft proposals are based on testimony received at two hearings held by the Committee to explore the role of commodity market speculation in the rising cost of food and energy. A third hearing will be held June 24, 2008, to examine the drafts in detail. The Senators said they hoped to introduce bipartisan legislation after the July Fourth recess.
“The cost of food and energy is creating severe economic distress for millions of working families in America and around the globe,” Lieberman said. “Each trip to the gas station or grocery store puts a strain on family budgets. We are not, as some continue to argue, witnessing the ebb and flow of natural market forces at work. We are instead seeing excessive market speculation at work and that is why our government must step in with new laws to protect our economy and our consumers.”
Collins said: “High energy costs are having a devastating impact on our economy and on the people of Maine. In a state where 80 percent of homes are heating with oil, far too many Mainers do not know how they will cope with the high cost of home heating oil this winter. There is compelling evidence that excessive speculation by non commercial traders is playing a role in the spike of energy and food prices. Senator Lieberman and I plan to introduce comprehensive legislation to address this important issue.”
The discussion drafts are posted on the Committee website, and the Senators invited public comment.
In descending order of aggressiveness, the three draft proposals would:
• Prohibit pension funds and governmental entities from investing in commodities; prohibit other large institutional investors from investing in commodities index funds;
• Cap the amount of overall market share in any one commodity that can be held by financial speculators; and
• Close the so-called swaps loophole which allows large investors to skirt the individual speculative position limits created by Congress in 1936.
Lieberman said that although he is convinced that excessive commodity markets speculation has contributed to unprecedented levels of food and energy prices, other factors – such as increased demand and a weak dollar – have also played a role. The CFTC, both Senators said, is ill-equipped to address the problem.
The share of long interests in commodities held by financial speculators has grown over the past decade from one-quarter to two-thirds of the commodity market. The share held by individual investors has dropped by an equivalent amount in the same period. In just five years, from 2003 to 2008, investment in index funds tied to commodities has grown twenty-fold, from $13 billion to $260 billion. In part, as a result, gasoline costs over $4.00 per gallon today, compared to $0.98 in 1998 and the price of food and energy-related commodities has increased by nearly 200 percent in the last five years.
The Administration has taken some steps to solve the problem, and many other Senators have proposed solutions to improve the transparency of the markets, increase surveillance, and add resources to the CFTC. The Senators support those efforts but are focusing on strengthening speculative position limits that are supposed to curb the amount speculators can invest in commodities. These limits were first authorized in 1936. The Senators said the law needs to be updated to reflect the changes in the market over the past 72 years.