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The Joy of Free Trading October 21, 2007

Posted by Jim Satterfield in Business & Society, Government.
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Well, at least the people who make big money on it are happy. The rest of us, not so much. the Washington Post writes about how easily completely unregulated energy trading markets can be manipulated solely for the benefit of the traders and their profits. The resulting commodity prices have nothing to do with supply and demand or any of those old fashioned things and simply result in higher energy bills. After the Amaranth debacle where the fund eventually paid the price for making a couple of bad moves Congress is looking into actually letting the agency that should be overseeing this kind of trading do what is needed but it hasn’t been being done for a while. Why? Well…

Commodity trading has exploded in complexity and popularity, growing six-fold in trading volume since 2000 — the year that a handful of giant energy companies, including Enron, successfully lobbied to get Congress to exempt energy markets from government regulation.

And the Commodities Futures Trading Commission, like so many other regulatory agencies in recent years, is understaffed and underfunded, so that even if Congress does undo that gigantic mistake it won’t make any difference unless they increase the CFTC’s funding as well. Unsurprisingly the unregulated markets want to stay that way and since Amaranth did go bust there are undoubtedly defenders of the status quo that will say the markets worked. But the truth is that the markets worked too late to prevent consumers from paying untold millions of dollars in additional utility bills for no other reason than to allow unregulated energy traders to make a profit in a market that had nothing to do with classical market forces.

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