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WASHINGTON – At a press conference Friday morning on Capitol Hill, U.S. Congressman Bart Stupak (D-Mich.) announced the introduction of revised legislation aimed at closing loopholes that are allowing speculators to manipulate energy markets and artificially inflate prices. This latest version of Stupak’s Prevent Unfair Manipulation of Prices (PUMP) Act, takes a comprehensive approach to addressing the loopholes that allow energy traders to evade federal oversight. Stupak, chairman of the House Energy and Commerce Committee’s Subcommittee on Oversight and Investigations, delivered the following statement:
“No matter where I travel across my northern Michigan congressional district, the No. 1 issue on people’s minds is gas prices. Just last weekend, I was home in my district on Mackinac Island. This is an island where they don’t even drive; motor vehicles are banned. People don’t hop in their cars to go to work; they walk or bike or ride a horse-drawn buggy. But the issue I heard the most about was gas prices.
“Even though these islanders aren’t filling up at the pump, high gas prices are having a devastating effect on their livelihood. Many of the visitors who would normally flock to the island are opting to stay at home rather than spend the extra $30 or $40 on gas. The ferries from the mainland have increased their prices to off-set their rising fuel costs and cutback on their runs to the island. Stores are hurting because there are fewer visitors to buy their products. Food and other necessities cost more for not just visitors to the island, but for those who live and work there. Indeed all Americans are seeing the cost of their basic necessities skyrocketing! Whether you’re on Mackinac Island, in Manhattan or Mississippi, it’s the same story.
“For the past three years, I have been looking into the excessive speculation occurring on the energy markets. I have done more than just scratch the surface; I’ve really delved deep into this issue to understand the extent to which market speculation is inflating the price of crude oil. I sat through the Enron hearings and saw how Enron manipulated the energy markets. Naturally, when I began to see wild swings in gasoline prices, I was suspicious of mischief in the markets.
“And it’s not just me. While the Treasury Secretary and the Commodity Futures Trading Commission (CFTC) won’t acknowledge that excessive speculation is a big part of the problem, more and more people are reaching the conclusion that excessive speculation is a significant factor in the price Americans are paying for gasoline, diesel and all energy products.
“As the price of crude oil has doubled over the past year – up 40 percent so far in 2008 – more and more people, like the International Monetary Fund and even the Saudi Oil Minister, are coming to realize that speculation has played a significant role in the run-up of oil prices. And the numbers back it up:
“Between September 30, 2003 and May 6, 2008, traders holding crude oil futures contracts jumped from 714,000 contracts traded to more than 3 million contracts. This is a 425 percent increase in trading of oil futures!
“Since 2003, commodity index speculation has increased one-thousand-nine-hundred percent, from an estimated $13 billion to $260 billion invested.
“According to CFTC data, in 2000, physical hedgers – businesses like airlines that need to hedge to ensure a stable price for fuel in future months and actually took control of a product – accounted for an estimated 63 percent of the oil futures market. Speculators accounted for an estimated 37 percent.
“By April 2008, physical hedgers only control 29 percent and speculators have taken over a whopping 71 percent of the oil futures market.
“In May 2008, the IMF compared crude oil prices over the past 30 years to the price of gold. Gold prices are not dependent on supply and demand, and have been viewed as a highly speculative commodity. The IMF analysis showed that since 2002 crude oil prices track increases in gold prices. Oil has morphed from a commodity into a financial asset –traded for its speculative value instead of its energy value.
“In April 2006, when crude oil was trading at $70 a barrel, I introduced the Prevent Unfair Manipulation of Prices (PUMP) Act to close the “Enron loophole” created in the Commodity Futures Modernization Act of 2000. A provision was included in the 2007 Farm Bill that addresses some of the problems with the “Enron loophole.” But the provision in the Farm Bill does not go far enough.
“Today I am introducing a new, more comprehensive version of my legislation to seal off not just the Enron loophole, but also the other loopholes that have allowed energy traders to evade federal oversight and realize excessive profits! My new bill addresses:
“Bilateral Trades: These trades are made between two individuals and are not negotiated on a trading market. Because the Farm Bill only addressed electronic exchanges, these bilateral trades remain in the dark. By dark I mean no federal oversight and no transparency as to these trades.
“Foreign Boards of Trade: Foreign markets with little government oversight are being used to trade U.S. energy commodities. Petroleum futures are offered to U.S. traders on electronic screens run by the InterContinental Exchange (ICE), a foreign board of trade registered in London, Because the Farm Bill did not address foreign boards of trade, Congress needs to make foreign exchanges trading commodities with a delivery point in the United States subject to U.S. regulation.
“Swaps Loophole: Eighty-five percent of the futures purchases tied to commodity index speculation comes through “swap dealers” which are investment banks that serve as intermediaries for the pension funds and sovereign wealth funds. By closing the swaps loophole, we can eliminate a major avenue energy speculators use to avoid oversight.
“Bona Fide Hedging Exemption: A growing number of speculators have taken advantage of an exemption that allows businesses “to hedge their legitimate anticipated business needs.” My bill would clarify that “legitimate anticipated business needs” does not mean financial speculators.
“To paraphrase a comment Robert Reich made on National Public Radio (NPR) this week, the problem isn’t speculation. It’s the government’s failure to curb excessive speculation. The biggest speculative bubbles happen when investors don’t need to use their own money and can borrow virtually limitless funds for speculative investments. That’s why we saw the housing bubble burst, it’s why we’re seeing food prices skyrocket and now we have excessive artificial inflation of energy costs.
“On Monday, as chairman of the House Energy and Commerce Subcommittee on Oversight and Investigation, I will hold a hearing to look at energy speculation. This will be our second hearing on the topic in the past six months.
“We will hear testimony from witnesses who believe Congress can lower the price of a barrel of oil by as much a $65 to $ 70 – half of the current price – by closing off these loopholes and taking tough measures to stop excessive speculation.
“On behalf of all Americans, it is time for Congress to close the Enron loophole, end the excessive speculation in energy, and lower our gas and diesel prices by 50 percent! I am proud that many of my House colleagues have already signed on in support of the new PUMP Act and some of them are here with me today. Right now, I have more co-sponsors of my 2008 PUMP Act, the Prevent Unfair Manipulation of Prices Act, than I did any previous version of the bill.”
The text of the bill is available at: http://www.house.gov/stupak/pumpbill.pdf
A summary of the bill is available at: http://www.house.gov/stupak/pumpsummary.pdf
A letter of support from a coalition of consumer, labor and business groups is available at: http://www.house.gov/stupak/pumpletter.pdf |
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