It is becoming clear that Obama’s criticism of speculators was not a one-off. Instead, it is part of a broader campaign to demonize them. Today’s installment of the Two Minutes’ Hate came courtesy of the Justice Department (so tempted to use quotes around that). Eric Holder announced the formation of an Oil and Gas Price Fraud Working Group consisting of Department of Justice, the National Association of Attorneys General, the Commodity Futures Trading Commission, the Federal Trade Commission, the Department of the Treasury, the Federal Reserve Board, the Securities and Exchange Commission, as well as the Departments of Agriculture and Energy. The Group’s charge is:
In March 2011, President Obama asked the Attorney General to work with federal and state agencies to monitor oil and gas markets for potential wrongdoing. In response to the President’s call for action, Department of Justice leadership consulted with federal agencies and state attorneys general and discussed pending inquiries in some states, the most effective legal tools and areas that require additional exploration. As a result of this examination and to further the central mission of the Financial Fraud Enforcement Task Force, the Attorney General formed the Oil and Gas Price Fraud Working Group.
The Oil and Gas Price Fraud Working Group will explore whether there is any evidence of manipulation of oil and gas prices, collusion, fraud, or misrepresentations at the retail or wholesale levels that violates state or federal laws and harms consumers or the federal government as a purchaser of oil and gas. The Working Group will also evaluate developments in commodities markets and examine investor practices, supply and demand factors and the role of speculators and index traders in oil futures markets.
Here’s the Reuters feed on Obama’s announcement:
* ( RTR ) 04/21 02:30PM OBAMA SAYS HAS ASKED ATTORNEY GENERAL TO CREATE TEAM TO “ROOT OUT” FRAUD, MANIPULATION IN OIL MARKETS THAT COULD HIT GAS PRICES
* ( RTR ) 04/21 02:31PM OBAMA, IN PREPARED REMARKS, SAYS TEAM’S FOCUS WILL INCLUDE OIL MARKET TRADERS AND SPECULATORS
* ( RTR ) 04/21 02:31PM OBAMA SAYS WILL MAKE SURE THAT NO ONE IN OIL MARKET IS TAKING ADVANTAGE OF THE AMERICAN PEOPLE FOR THEIR OWN SHORT-TERM GAIN
Here’s some additional reporting on Obama’s remarks today:
“The attorney general’s putting together a team whose job it will be to root out any cases of fraud or manipulation in the oil markets that might affect gas prices – and that includes the role of traders and speculators,” President Obama said at a town hall meeting in Nevada on Thursday. “We are going to make sure that no one is taking advantage of American consumers for their own short-term gain.”
That same article quotes Northwestern polisci professor Laurel Harbridge, giving the enabling professoriate’s take on this gambit:
Laurel Harbridge says the formation of the investigative group is a way for the president to take control of the situation without taking more extreme steps.
“Doing something that suggests that there’s at least the possibility that gas prices are high because of manipulation or something like that kind of turns the high gas prices into something that he’s combating and he’s against rather than either a problem that can’t be dealt with or something that’s due to domestic policy decisions,” Harbridge said.
In other words, it’s an opportunistic effort to scapegoat others on the basis of zero evidence in order to distract attention from the real issues–but that’s cool!
Craig Pirrong, a finance professor at the University of Houston who specializes in commodity prices, says the task force is hardly needed, since the agencies already have the tools to monitor for fraud and take action. [Yeah. It's like their day job.]
“This is a transparently political fishing expedition that insinuates that fraud or manipulation is distorting oil prices without providing even the flimsiest factual basis for such a suspicion,” Pirrong said. “This is part of a broad effort by the administration to deflect criticism with regard to gasoline prices.”
Actually, the “fishing expedition” characterization is probably optimistic. Especially given Obama’s assertion of ownership of the issue, and his personal identification with the claim that speculators are distorting prices, there is a high likelihood that fishing expedition will give way to witch hunt. Remember when Obama told bankers “[m]y administration is the only thing standing between you and the pitchforks”? It is becoming increasingly clear that Obama won’t be standing between oil “speculators” and the pitchforks this time. Indeed, he’s taking leadership of the mob.
What determines commodity prices is a complex issue. Injecting superheated political rhetoric won’t improve our understanding, and in fact will inevitably have the exact opposite consequence. This, combined with the implicit threat of legal investigations and perhaps legal action (“nice little market you have here–wouldn’t want anything to happen do it”) will have no positive consequences, and likely many negative ones.
It’s already ugly out there. But it just got a whole lot uglier.
It would be nice if this witch hunt was as funny as this one:
I wouldn’t speculate on it, though.