June 26, 2008
For the past few weeks, the Senate Commerce Committee has been hearing testimony about the impact of the so-called “Enron loophole” in the Commodity Futures Modernization Act of 2000, 7 U.S.C. §2(h)(3) and (g), which existed throughout Bill Clinton’s tenure in the Oval Office. This “Enron loophole” is what has made it possible for speculators to drive the price of gasoline beyond $4 per gallon. Consider the Senate Commerce Committee testimony of Michael Greenberger, former Commodity Futures Trading Commission (CFTC) Director of Trading and Markets. Mr. Greenberger testified that if the “Enron loophole” were closed, we would see “overnight” a 25-percent drop in the price of crude oil and as much as a 50-percent drop in the price of gasoline. The Senate Commerce Committee hearing featured testimony by hedge fund managers and other market experts, concerning how the skyrocketing price of gasoline, diesel and heating oil are “breaking the back” of the American economy. Some of these experts (knowing that their testimony would be falling on the “deaf ears” of bought-off lawmakers and friends of the oil industry) were nearly at the point of tears in describing how the rest of American industry is getting killed for the benefit of the oil industry. Let’s revisit Mr. Greenberger’s point once again: if the “Enron loophole” were closed, we would see “overnight” a 25-percent drop in the price of crude oil and as much as a 50-percent drop in the price of gasoline. “Overnight” may be an exaggeration, although I’m sure he means a lot quicker than waiting for unbuilt and unplanned oil wells to start having an effect on the price of a barrel of crude. (This turnaround time is considered by most experts to be a 10-year period.)
Our old friend, the Former John McCain, whom we once knew, voted with the Democrats to close the “Enron loophole” in 2002 and 2003. His comments in the February, 2002 issue of The New Yorker told us much about how we got to where we are now, six years after he gave that interview:
Enron made a sound investment in Washington. It did them a lot of good. Where they really do well is around the edges, the insertion of an amendment into an appropriate bill.
McCain is no longer so strident about the sleazy origins of this “Enron loophole”. This is probably because the loophole owes its existence to Phil Graham and his wife, former CFTC Chair, Wendy of Enron. Phil is now McCain’s “economic advisor”, so don’t hold your breath waiting for McCain to repeat what he said to The New Yorker in 2002. He has yet to speak out against this loophole as his new self: McCain 2008. Nevertheless, a very loud, “hard” right-wing voice, that of Bill O’Reilly, has spoken up on this issue. A visit to the website: http://closeloophole.org/ recites this quote from O’Reilly on his Factor show:
I want those SOBs [speculators] taken down…let’s work together to save the American consumer at the pump.
My favorite issues are those where “liberals” and “conservatives” can work together to solve the crucial problems faced by society. It appears as though we have one right here. If we address it, we may solve it “overnight” according to one expert. If we do solve it, we will be helping more than the individual consumer. We will probably save the entire roster of Russell 2000 “small-cap” companies from swirling down the toilet. Most experts believe these companies are the hardest-hit by the uncontrolled cost of petroleum products.
For his part, Barack Obama has spoken on the record numerous times about his opposition to the “Enron loophole”. This should come as no surprise since his fellow Senator from Illinois, Dick Durbin, is a key advocate for closing this loophole. Obama supporter, New Jersey Governor Jon Corzine, has a bit of “street cred” on this subject, having served as the former chairman of the investment firm, Goldman Sachs. Corzine is on the record for blaming this unregulated speculation for the outrageous pricing of petroleum products.
The American public has a notoriously short attention span. It seems unbelievable that something this important, that erases “discretionary spending” and limits what food can be placed on one’s table, could be overshadowed by the latest celebrity scandal. Americans must stay focused on this fundamental problem. A visit to http://closeloophole.org/ will give you the opportunity to send e-mails to your Senators, expressing your opinion on whether our government should perform one of its most important missions: to save us all from sleazebags.
A Shocking Decision
September 23, 2010
Nobody seems too surprised about the resignation of Larry Summers from his position as Director of the National Economic Council. Although each commentator seems to have a unique theory for Summers’ departure, the event is unanimously described as “expected”.
When Peter Orszag resigned from his post as Director of the Office of Management and Budget, the gossip mill focused on his rather complicated love life. According to The New York Post, the nerdy-looking number cruncher announced his engagement to Bianna Golodryga of ABC News just six weeks after his ex-girlfriend, shipping heiress Claire Milonas, gave birth to their love child, Tatiana. That news was so surprising, few publications could resist having some fun with it. Politics Daily ran a story entitled, “Peter Orszag: Good with Budgets, Good with Babes”. Mark Leibovich of The New York Times pointed out that the event “gave birth” to a fan blog called Orszagasm.com. Mr. Leibovich posed a rhetorical question at the end of the piece that was apparently answered with Orszag’s resignation:
The shocking nature of the Orszag love triangle was dwarfed by President Obama’s nomination of Orszag’s replacement: Jacob “Jack” Lew. Lew is a retread from the Clinton administration, at which point (May 1998 – January 2001) he held that same position: OMB Director. That crucial time frame brought us two important laws that deregulated the financial industry: the Financial Services Modernization Act of 1999 (which legalized proprietary trading by the Wall Street banks) and the Commodity Futures Modernization Act of 2000, which completely deregulated derivatives trading, eventually giving rise to such “financial weapons of mass destruction” as naked credit default swaps. Accordingly, it should come as no surprise that Lew does not believe that deregulation of the financial industry was a proximate cause of the 2008 financial crisis. Lew’s testimony at his September 16 confirmation hearing before the Senate Budget Committee was discussed by Shahien Nasiripour of The Huffington Post:
During 2009, Lew was working for Citigroup, a TARP beneficiary. Between the TARP bailout and the Federal Reserve’s purchase of mortgage-backed securities from that zombie bank, Citi was able to give Mr. Lew a fat bonus of $950,000 – in addition to the other millions he made there from 2006 until January of 2009 (at which point Hillary Clinton found a place for him in her State Department).
The sabotage capabilities Lew will enjoy as OMB Director become apparent when revisiting my June 28 piece, “Financial Reform Bill Exposed As Hoax”:
Another victory for the lobbyists came in their sabotage of the prohibition on proprietary trading (when banks trade with their own money, for their own benefit). The bill provides that federal financial regulators shall study the measure, then issue rules implementing it, based on the results of that study. The rules might ultimately ban proprietary trading or they may allow for what Jim Jubak of MSN calls the “de minimus” (trading with minimal amounts) exemption to the ban. Jubak considers the use of the de minimus exemption to the so-called ban as the likely outcome. Many commentators failed to realize how the lobbyists worked their magic here, reporting that the prop trading ban (referred to as the “Volcker rule”) survived reconciliation intact. Jim Jubak exposed the strategy employed by the lobbyists:
You have one guess as to what agency will be authorized to make sure those new rules comport with the intent of the financial “reform” bill . . . Yep: the OMB (see OIRA).
President Obama’s nomination of Jacob Lew is just the latest example of a decision-making process that seems incomprehensible to his former supporters as well as his critics. Yves Smith of Naked Capitalism refuses to let Obama’s antics go unnoticed:
Ms. Smith has developed some keen insight about the leadership style of our President:
Yes, the Disappointer-In-Chief has failed to deliver for his allies once again – reinforcing my belief that he has no intention of running for a second term.
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