Repubs Vote for High Gas Prices, More Illegal Immigration and Against "the Troops"

Yup -- that's the effect.
On Friday Republicans blocked a bill in the Senate meant to give regulators more ability to reign in oil speculation (h/t The Zoo). While there's some dispute how much if any of the price of oil is based on speculation, there's reason to think it could be a lot. And current law means that a lot of oil futures trading is done in such a way that we don't even know how much is being done, let alone if it's having any effect. At this point the current law is effectively "we don't even look to see if a crime could be occuring."

Hugh lays this out (365):

3. The Enron exception. Through its political pull with politicians like then Senator Phil Gramm (R-TX), Enron was able to insert language into the Commodity Futures Modernization Act of 2000 exempting energy trading companies from oversight by the Commodities Futures Trading Commission (CFTC), the government watchdog agency, in the over-the-counter (OTC) market for "futures-like" instruments.
4. London-Dubai loophole. In January 2006, the Intercontinental Exchange (ICE) with the blessing of the CFTC (via no-action letters) began allowing American traders to trade futures contracts on oil produced and consumed in this country on foreign terminals in the UK thus circumventing reporting requirements to the CFTC regarding large trader activity and speculation caps. (ICE also has an OTC component.) NYMEX joined with the Dubai Mercantile Exchange to launch a similar venture in May 2007.
5. Swaps dealer loophole. Under a 1993 CFTC rule, swaps dealers, investment banks like Goldman Sachs and Morgan Stanley, were given the same status as traditional futures traders like oil companies and airlines as long as they were considered to be hedging a "legitimate" risk. This allowed large financial funds to enter into swaps contracts with investment banks. A swap contract is essentially an agreement between two parties in which the first party agrees to pay the second a fixed rate of interest on an agreed upon amount, and the second party agrees to pay the first a variable rate on the same amount. The actual principals offset each other so it's really a mechanism to convert a fixed rate into a variable rate. The trick is that the investment banks use the money they receive to buy something that has a variable value, in this case crude oil futures which they have access to and the funds do not. This has been yet another way for large amounts of outside capital to enter into and distort the operation of the futures market in crude.
6. An ineffectual CFTC. This agency is supposed to regulate futures markets, but in this most anti-regulatory of Administrations, it has given away so much of its authority that it has no idea what is going on in the "dark markets" created by ICE and the Enron exception and no real interest in doing anything about it.

So, the Senate bill, while it doesn't go far enough (I'd slap a percentage tax on all futures and options commodity trading, probably of 1% and I'd increase margin requirements significantly), it's certainly a good basic idea. Even if you don't think futures are doing a thing to oil prices, no liberal can be for all that trading going on in the dark--nor should any markets believer, since transparency in markets is generally considered necessary for them to operate properly, and this is clearly not a transparent market without information asymmetries.
Ian Welsh is the managing editor of The Agonist and a sometime contributor to FDL and the Huffington Post.
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