Obama vows crackdown on energy speculators

Discussion in 'Economics' started by walter4, Jun 22, 2008.

  1. McCain supports effort to close the 'Enron loophole'

    By John Dunbar, Jun 22, 2008

    WASHINGTON (AP) — Sen. Barack Obama on Sunday said as president he would strengthen government oversight of energy traders he blames in large part for the skyrocketing price of oil.

    The Democratic candidate's campaign singled out the so-called "Enron loophole" for allowing speculators to run up the cost of fuel by operating outside federal regulation. Oil closed near $135 a barrel on Friday — almost double the price a year ago.

    "My plan fully closes the Enron loophole and restores commonsense regulation as part of my broader plan to ease the burden for struggling families today while investing in a better future," Obama said in a campaign statement.

    Obama's campaign blamed the loophole on former Sen. Phil Gramm, a Texas Republican who serves as Republican candidate Sen. John McCain's co-chairman and economic adviser. The Obama campaign accused Gramm of inserting a provision into a bill in late 2000 "at the behest of Enron lobbyists" that exempted some energy traders from government oversight.

    Houston-based Enron collapsed in scandal in 2001 when it was discovered the company had vastly overstated its income.

    McCain spokesman Tucker Bonds said McCain has supported efforts to close the loophole and noted the bill in question was signed into law by former President Clinton.

    "The fact that Barack Obama is attacking John McCain, despite McCain's leadership on the issue, shows that Barack Obama is driven by the partisan attacks that Americans are tired of," Bounds said.

    McCain's campaign supplied a copy of a letter Gramm wrote to Sen. Byron Dorgan, D-N.D., on June 13 in which the former senator denied charges that the adoption of the bill was a "secret maneuver." Gramm said he had "nothing to with the writing of the provision" on regulation of energy trading.

    Obama's plan was outlined Sunday by New Jersey Gov. Jon Corzine, former chairman and CEO of Wall Street investment firm Goldman Sachs, during a conference call with reporters. Corzine said the volatility in the price of oil "is absolutely indicative of speculation in the markets."

    Congress already has acted to close the loophole, including a provision in the huge farm bill that passed earlier this year. But Obama's campaign said the candidate would go further by requiring that U.S. energy futures be traded on regulated exchanges.

    Obama also would ask the Commodity Futures Trading Commission to consider whether traders should be subject to higher margin requirements. He also would work with other countries to regulate energy markets and press the Federal Trade Commission and the Department of Justice to investigate possible market manipulation.

    The campaign said Obama's proposal is part of his broader energy strategy that calls for reducing oil consumption by 35 percent by 2030.


    McCain Defends 'Enron Loophole'

    by Jason Leopold, May 19, 2008

    John McCain May 19, 2008—Sen. John McCain says he opposes the $307 billion farm bill because it would dole out wasteful subsidies, but his chief economic adviser Phil Gramm also wants to stop its proposed regulation of energy futures trading, a market that was famously abused when Enron Corp. manipulated California’s electricity prices in 2001.


    Clearing the way for that California price gouging, Gramm, as a powerful Texas senator in 2000, slipped an Enron-backed provision into the Commodities Futures Modernization Act that exempted from regulation energy trading on electronic platforms.

    Then, over the next year, Enron – with Gramm’s wife Wendy serving on its board of directors – worked to create false electricity shortages in California, bilking consumers out of an estimated $40 billion.

    Gramm left the Senate in 2002 but now has emerged as what Fortune magazine calls “McCain’s econ brain,” not only filling the Arizona senator’s acknowledged void on economic expertise (“I don’t know as much about the economy as I should”) but recognized as one of McCain’s closest friends in politics. The two men talk daily.

    A McCain aide told me that the Arizona senator opposes the farm bill because it “rewards lobbyists” by granting rich farmers lucrative subsidies, although he would support “a reasonable level of assistance and risk management to farmers when they need America's help.”

    But the aide, who spoke on condition of anonymity, acknowledged that the presumptive Republican presidential nominee also opposes the farm bill because Gramm advised McCain that he should resist its regulatory language on the energy futures market.

    Democrats have dubbed that gap in energy futures regulation the “Enron loophole,” but it played a part, too, in the more recent attempt by the Amaranth Advisers hedge fund to corner the national gas market by shifting trades to the unregulated “dark markets” of the Intercontinental Exchange.

    The “Enron loophole” also has become part of the debate over the soaring price of oil. Last week, a study sponsored by Sen. Carl Levin, D-Michigan, concluded that speculative futures markets were partly to blame for the surge in oil prices that have pushed gas at the pump toward $4 a gallon.

    At a May 15 news conference, Levin said the skyrocketing price of oil is “not the result of supply and demand. Speculators have taken over most of the futures market."

    However, the 673-page farm bill, containing the regulatory provisions on electronic energy trading, still faces obstacles amid overall concerns about the bill’s largesse to farmers at a time of rising food prices.

    President George W. Bush has vowed to veto the bill, although it cleared the House and Senate by margins wide enough for an override, assuming Republicans don’t rally behind Bush and McCain, their current and future standard bearers.
    Gramm and Enron

    The battle over the “Enron loophole” also could draw attention to McCain’s dependence on Gramm as his chief economic adviser and Gramm’s key role in passing legislation that let Enron trade commodities on electronic platforms without federal oversight...

  2. Phil Gramm’s Enron Favor

    Watchdog: Senator Pushed End to Oversight for Campaign Contributor
    by James Ridgeway, January 15, 2002

    The one person in the Enron scandal whom congress is not likely to subpoena is its own revered Phil Gramm, the retiring Republican Senator from Texas. Gramm and his wife, Wendy, have tight links to Enron, Wendy being a director and Gramm the pusher of legislation that assisted the company during its troubles last year. In December, his press secretary denied the latter charge, saying, "Senator Gramm took no role, had no say, and did not vote on the energy futures provisions."

    That's not the story presented by the D.C. watchdog Public Citizen, whose tale goes like this:

    In an apparent response to a 1992 plea from Enron, Dr. Wendy Gramm, then chair of the federal Commodity Futures Trading Commission, moved to exempt the company's energy-swap operation from government oversight. By then, the Houston-based Enron was a major contributor to Senator Gramm's campaign.

    A few days after she got the ball rolling on the exemption, Wendy Gramm resigned from the commission. Enron soon appointed her to its board of directors, where she served on the audit committee, which oversees the inner financial workings of the corporation. For this, the company paid her between $915,000 and $1.85 million in stocks and dividends, as much as $50,000 in annual salary, and $176,000 in attendance fees, according to a report by Public Citizen, a group that has relentlessly tracked Enron, which in turn has called the report unfair.

    Meanwhile Enron had become Phil Gramm's largest corporate contributor—and according to Public Citizen, the largest across-the board donor in its industry. Between 1989 and 2001, the company tossed Gramm just under $100,000.

    In 1998, Wendy Gramm cashed in her Enron stock for $276,912. There's nothing unusual about a Washington regulator quitting the government and going to work for a private company she was regulating. And people often get rich in the process. Wendy Gramm, whose office didn't return Voice calls, has told reporters she sold the stock expressly to avoid any hint of a conflict of interest.

    But that's not the end of the story.

    In June 2000, Senator Gramm co-sponsored the Commodity Futures Modernization Act, a measure aimed at deregulating certain kinds of futures trading, but not energy futures. That bill never made it to the floor, and thus quietly died.

    Six months later, on December 15, Gramm curiously turned up as co-sponsor of a bill with the same name, the Commodity Futures Modernization Act, which did deregulate energy futures and which, without undergoing the usual committee hearings and preliminary votes, was immediately attached as a rider to an 11,000-page appropriations bill. It passed and was signed into law by President Bill Clinton six days later.

    Few lawmakers had likely perused the rider carefully, if they even knew it was there. And at any rate, Enron had given to the campaigns of over 200 legislators.

    That's not to say no one opposed Enron's aims. An economics advisory group to Clinton—with representatives from the Federal Reserve, SEC, and Commodity Futures Trading Commission—had come out against deregulated energy trading. They argued the market was ripe for manipulation. Yet the bill passed, setting Enron free to run what amounted to an energy auction, which Public Citizen claims "gained control over a significant share of California's electricity and natural gas market."

    All during this period there was a series of remarkable coincidences. Between June and December 2000, the California energy situation was worsening but still not in crisis. After the Gramm bill went through, all hell broke loose, with one emergency rolling blackout after another. There were charges that out-of-state suppliers were withholding gas and running up the price. Finally, in June 2001, public pressure forced the Federal Energy Regulatory Commission, or FERC, to reassert price controls.

    In the midst of this mess, Enron's "wholesale services" revenues quadrupled, hitting the $48.4 billion mark in the first quarter of 2001. That gain came on top of an earlier jump in income, from $35.5 billion to $93.3 billion from 1999 to 2000.

    By reasserting federal controls, FERC basically killed Enron's auction system. Company executives then rushed to dump stock. CEO Kenneth Lay had been quietly selling Enron shares from early 1999 to the end of July 2001 for prices ranging from $31 to $86. (The stock's current value has dipped below 70 cents a share.) Lay eventually piled up $101.3 million for himself. Jim Derrick, general counsel, sold 160,000 shares between June 6 and June 15, 2001. Former CEO Jeffrey K. Skilling had sold 500,000 shares as of September 17, 2001. A few weeks later, on December 2, their company filed for bankruptcy.

    Now the government officials who voted to call off federal oversight face the task of sorting out this labyrinthine disaster. Lawmakers have launched a dozen separate Capitol Hill investigations, seeking answers to why the executives got rich while the workers—many of whom had their life savings in Enron stock—lost everything. The freewheeling Enron created a maze of some 2800 subsidiaries, many of which were offshore tax havens. The company also wove a web of influence, leading not only to the recusal of Attorney General John Ashcroft from the case, but that of the entire U.S. attorney's office in Houston as well.

    If Enron saw itself as a friend to Washington, it expected some friendliness in return. As their ship began sinking, the execs began trying to call in the chips with the Bush administration. In October, Ken Lay called Don Evans, Bush's chief campaign man turned secretary of commerce, obviously seeking help. Evans said on Meet the Press Sunday that he passed this news on to Bush's chief of staff, Andrew Card, and spoke to Treasury Secretary Paul O'Neill, as well as members of an economic consulting group that included Lawrence Lindsay, who had previously been a consultant to Enron. By now, the insiders in both Enron and the government must have known the company was on the way down.

    Next, Robert Rubin, Clinton's secretary of the treasury and now chairman of Citigroup, called a top Treasury official, inquiring about Enron's situation. Citigroup was holding $750 million in Enron debt, not exactly chump change even in these high-flying circles. The Bush administration insists no one offered the corporation help, and they likewise seem to have ignored the needs of the public. White House officials failed to counter Enron's propaganda, the endlessly repeated claims to the general public, workers, and investors that the company was in fine fettle.

    All this happened as official Washington was poised for the resignation—rumored but never tendered—of Treasury Secretary O'Neill. Among his much discussed replacements was none other than Phil Gramm.

    Little noticed in the melee has been the transfer this month of Enron's major asset, the 17,000-mile Northern Natural Gas Company pipelines, to Dynegy, a smaller competitor. Northern pipelines carry gas from Texas's Permian Basin to the West and Midwest markets. The power behind Dynegy is ChevronTexaco, which has a 26 percent stake. When completed, this transaction will transform Dynegy into a vertical gas giant, with a hand in production, distribution, and end-use markets. In short, Dynegy becomes the next big player, controlling both the product and the pipes.

    Evans talked on Sunday about the beauties of capitalism and the way everything worked just fine. Judging from the Enron case, the system's rightful fruit must be that executives get out unscathed, the little guys get screwed, and competition gets ditched in favor of a mega-monopoly on a scale not seen in America since John D. Rockefeller's Standard Oil Trust.

    For his part, O'Neill sang the same carefree tune. "Companies come and go," O'Neill told the Associated Press this weekend. "That's the genius of capitalism."

  3. was this supposed to be a joke? outlaw the oil futures market?
  4. This will only drive the majority of the oil trade overseas, beyond US control. Oil is a world-wide market...duh. Which non-US futures exchange will benefit the most from this type of policy? My guess is Dubai.
  5. Dubai is the new manhattan
  6. phoenix3


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  7. sg20


  8. I see no problem with that. Futures market was simply overlaid on top of an already functional market with well-entrenched pricing practices. It is the duplication of systems that provides fertile ground for speculative games.
  9. McCain is the biggest farce in politics today. He will lose the election by a wide margin.

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    #10     Jun 22, 2008