Streetwise Professor

March 8, 2012

Can’t Have It Both Ways, Bart

Filed under: Commodities,Derivatives,Energy,Politics,Regulation — The Professor @ 9:37 pm

Bart Chilton has been fairly quiet recently, but today he made news twice, with two completely contradictory statements.

First, he bemoaned the lawsuits challenging the CFTC’s ability to quantify the costs and benefits of its regulations-as required by Congress:

“Some regulators live in constant fear and are virtually paralyzed by the threat” that they will face “spuriously” filed suits alleging that the costs and benefits of their rules weren’t adequately considered, Chilton said in a speech prepared for the Trade Tech 2012 conference today in New York. “It is a bastardization of the conduct and use of cost-benefit analyses in regulatory rulemaking.”

. . . .

Chilton, a supporter of the speculation limits, said banks and others should be required to provide cost analyses to rebut regulators’ conclusions.

“We put out a proposal, ask for comments and ask what the costs might be,” Chilton said. “Then we either aren’t provided with costs of the regulation, or what we get from the commenters isn’t very helpful.”

Well, if the CFTC could accurately quantify costs and benefits, (a) it wouldn’t need help from the banks to provide cost/benefit analyses, and (b) it wouldn’t have to fear lawsuits claiming it hadn’t performed an adequate analysis.  Eliding over the issue of burden of proof-which Congress has clearly placed on the agency by statute, not on those subject to the rules as Chilton would like it-this is a clear confession that the CFTC is incapable of performing a rigorous analysis that would persuade a court: if it was confident in its ability to do so, why the paralysis.

But on the same day (and I think the same event) Chilton quantified the effects of “excessive speculation” on energy prices to the penny.  Seriously:

Today, Chilton is expected to tell the traders that the “speculative premium” on oil adds 56 cents to every gallon of gas, which he calls “an enormous drain” on businesses. Chilton has previously said oil speculation costs every consumer up to $757 extra a year.

Not 55 cents.  Not 54 cents.  56.  Not $756 dollars/year.  Not $758.  $757.

And Bart can give very precise industry breakdowns of the impact:

Runaway oil speculation is costing the airline and trucking industries $39 billion a year in added expenses, according to new data to be released today.

The airline sector alone could save as much as $9.8 billion annually if Wall Street speculation is curbed, Commissioner Bart Chilton of the Commodity Futures Trading Commission is expected to announce today.

The trucking industry stands to save even more, as much as $29.1 billion a year, according to Chilton, who will reveal the data in a speech before a group of traders at the Javits Center.

I have no clue how Bart calculated these numbers.  (I suspect he has no clue either.  A little more than “suspect”, actually.)  But apparently he believes he can calculate the impacts of speculation with considerable precision, and since there is no way the costs of complying with the regulation could run into the mid-11 figure per year range, it follows immediately that Bart should have no problem convincing any court in the land that the benefits of the regulation exceed the cost.

So why doesn’t he?  So why are he and his fellow commissioners “paralyzed” by the prospect of providing the cost benefit analysis?

The easy answer is that Chilton is almost certainly MSU (making stuff up–trying to keep it clean tonight, folks) regarding the impact of speculation.  I am very familiar with the literature, and the available methods.  Such accurate quantification is impossible, and no reputable method has produced such numbers.

So when is Bart BS-ing? When he says it is impossible to quantify the benefits and costs of the position limit rule?  Or when he says he can–to the penny?

The answer cannot be “neither.” It’s one or the other.  Smart money answer: he can’t really quantify, which is why he doesn’t want the CFTC to be forced to do so.

Which raises another point.  The CFTC position limit rule’s cost benefit analysis, such as it is, repeatedly says that Congress has decided that position limits are necessary, and that as a result the benefits of the rule are presumed to exist.  But Congress has also decided that cost-benefit analysis is required.  The commission doesn’t really have the ability to choose which Congressional directives it must follow, does it? And wouldn’t the cost-benefit analysis requirement be superfluous if Congress had already decided that the benefits exceeded the costs, as the position limit rule repeatedly argues?  So doesn’t that undermine the commission’s argument?

Full disclosure: I filed a declaration on behalf of ISDA  and SIFMA in what Chilton believes to be the “spurious” lawsuit challenging the position limit rule. But as anyone who has read this blog knows, or who has read some of my other writing knows, I have long been critical of claims that speculation distorts prices, and of position limits.

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  1. Do you think long-only investors in commodities ETFs (investing in futures that they continuously roll over) can distort prices upward? Why or why not?

    Comment by vbounded — March 9, 2012 @ 1:57 am

  2. He was extrapolating from Goldman Sachs research that begin life in 2008 and was republished in March last year. It had a section which read: “We estimate that each million barrels of net speculative length tends to add 8-10 cents to the price of a barrel of oil.”

    Chilton picked the 10¢/bl figure and went on from there:

    “One of the big Wall Street banks has said that each million barrels of net speculative length adds as much as 10 cents to the price of a barrel of crude oil. But, what does that mean to us when we fill our tanks? With a little math, you can determine that the “speculative premium” on oil these days is around $23 a barrel…”

    In fact, Goldman Sachs was using regression analysis and only came up with a correlation between non-commercial positions and crude price rises, not a causality. Their report was just very badly worded, and enabled Chilton to claim a ‘gotcha’ fact.

    Comment by Down With This Sort Of Thing — March 9, 2012 @ 7:47 am

  3. @ vbounded

    Do the shorts who sell to them and keep rolling over distort prices downward? Why or why not?

    Comment by Green as Grass — March 9, 2012 @ 11:55 am

  4. @vbounded. You show me how that behavior affects quantity on some margin, and we can discuss. Rolling as contracts go prompt doesn’t contribute to demand for oil during the spot month: indeed, the rollers are sellers during that time. You’d have to show that, somehow, the existence of these long-only rollers induces someone to hold more inventory than they would otherwise. That would tend to raise the spot price today, but would have a countervailing effect in the future when that additional inventory is sold. Indeed, since the inventory holdings arguendo encouraged by the existence of these long only traders would presumably be put on the market when demand spikes up or supply spikes down, it can actually lead to a reduction in the magnitude of price spikes.

    I have yet to see a credible model that predicts such an effect. It seems implausible, moreover, if it is (as is realistic) anticipated that these entities will never actually consume the oil.

    @Down. Great. We have a CFTC commissioner clip quoting a Goldman study that uses unknown-and likely dubious-methodology to make outlandishly precise statements about price effects. Statements that are inconsistent with quantity evidence. Knowing the regression methodology well, and having run that kind of analysis just to see what it produces, I can say that it is defective on many levels. The correlation-causation problem is one of those defects. Another is the fact that even taking that correlation/regression coefficient as representing causation, movements in speculative net length do not explain the big price movements, e.g., in 2008.

    The ProfessorComment by The Professor — March 9, 2012 @ 3:13 pm

  5. Why is Jon Corzine still walking a free man Professor?

    I’m beginning to wonder if my old Belmont Club sparring partner Buddy Larsen was right, and so much of what passes for the ‘Russian opposition’ is just one giant Soros psy-op to keep Putin in power forever. How else to explain the Financial Times Catherine Belton et al believing their own BS that arresting Ukrainian provocateur punk rocker lesbians who stripped down to their undies before the altar of Christ the Saviour Cathedral in Moscow is yet another example of Putin ” suppressing dissent”. Would a President Rick Santorum be amused by a Fluke parading in her lingerie at the Shrine of the Immaculate Conception of Mary in D.C., I wonder?

    Always dangerous when one starts to believe one’s own b—$–t. Putin included, of course.

    Comment by Mr. X — March 10, 2012 @ 8:42 pm

  6. Dear me, misogynist X is at it again I see, why the slagging off of lesbians Mr.X?

    And do your weirdo conspiracy theories never end?

    First you say you hate Soros because he is spreading democracy in the FSU, threatening Russian “interests” then you claim he is propping up Putin, which is it?

    Comment by Andrew — March 11, 2012 @ 1:37 am


    Andy Dzughashvili, this rant — actually less a rant and more a trip down memory lane — is a good place for those new to SWP to start. I fail to see how disapproving of Ukrainian girls getting used as globalist provocateur cannon fodder to provoke the Church so the Demintern machine can have one more scandal story is ‘misogynist’. Aren’t you the one running around using the term ‘fag’ insisting it has something to do with sticks, or something?

    Again, listen to what AJ says: the Russians aren’t shipping guns into Mexico and blaming the 2nd Amendment. The Russians didn’t just tell the U.S. Senate to piss off, the UN and NATO and not the Constitution is the entire controlling legal authority that the SecDef answers to (go watch the video SWP of Sessions, instead of sticking cotton in your ears and commiserating with your regime-change fanatic Twitter buddies at what a whipper snapper Mark Adomanis is, or something like that). I mean, where’s LibertyLynx professor on that case? Or is the ability to wage unlimited total warfare something your fake Republican/libertarian pals all trust this President with, along with the FBI Director saying he doesn’t know for sure whether Obama can order citizens killed on U.S. soil?

    “First you say you hate Soros because he is spreading democracy in the FSU, threatening Russian “interests” then you claim he is propping up Putin, which is it?” No, I don’t ‘hate’ Soros. I just think he’s demonically possessed old man, who probably cut his deal with Old Scratch when he was a handy fourteen-year-old pulling errands for a Nazi collaborator in WWII era Hungary. I didn’t say I agreed with my old friend Buddy Larsen, only that Soros provocations are so bizarro I can only conclude that chaos and pitting as many people as possible against each other is a feature, not a bug.

    And now you have National Review, no less, publishing article showing Syria’s rebels flying the same shahida jihadi flag first popularized by Zarqawi in Iraq and proudly waving in Benghazi — in Syria. AJ is right, you and your globalist, eternal warmongering propaganda tool buddies are getting their asses handed to them in the info-war. No wonder you love SOPA so much. Cute, ‘secular state’ defender SyriaGirl’s getting a lot more hits than your pal Reginald Quill that’s for sure.

    Comment by Mr. X — March 11, 2012 @ 3:07 am

  8. Hence all this sudden urge to see the likes of Zerohedge — and I presume their just the beginning — shut down on various pretexts. Nobody pays attention to all this pro-Establishment propaganda anymore. Just keep twiddling away with all the safe, PC obscure academic posts while bankster looters walk scot-free…

    Comment by Mr. X — March 11, 2012 @ 3:15 am


    I shouldn’t let give in to anger over the same manic, demonic energy that motivated Bolsheviks to deface and eventually utterly raze the original Christ the Saviour Cathedral in the 1920s motivating its modern minions to dispatch a few poor, deluded pawns to create some stunt within that place. Because ultimately, even if SWP doesn’t believe in God, he better start believing that the Devil lies behind this addiction to war and death, this rubbing hands with glee I see on the faces of the likes of Sen. Graham when he says “you don’t get no lawyer” or Sen. McCain calling for yet another ‘limited intervention’. The Evil One, not the Saviour, delights in war and death, and spurs on his deceived followers to do it all in the name of Righteousness. The thing that sets off every warning sign in my gut is how utterly similar folks like Reginald are to the Bolshiveks they claim to despise. Everything was conspiracy to the Old Bolsheviks, to the members of the Inner Party, therefore some conspiracy or weird mind rays must account for the deep seated unhappiness with the Status Quo (including the foreign policy of the Status Quo) displayed by so many libertarians, liberals, conservatives, bitter clingers, goldbugs, et al. As Wretchard writes, every hardened Lefty pol only has one question, “Who sent you?” the thought that no one sent them is too hard to contemplate. Sauron never imagined that a bunch of hobbits could handle the Ring of Power and destroy it, he always presumed all would aspire to use like himself. And that’s what total governmental power is — The One Ring to Rule Them All…even if SWP thinks it can somehow be safely walled off from the domestic front (it can’t and never has been, witness the blowback of CIA-funded lefties literally raising one Barack H. Obama, per Codevilla, and all the drones and techniques perfected in the Middle East now coming home to roost).

    But if America should ever see the Left without its mask, take comfort in this. It too shall pass. The important thing is not to let its poison, like a Zombie bite, infect your heart. For wolf’s bane you must turn to simple things. Never forget the memory of sunlight on the lawn, or the unfeigned laughter of the guileless; the taste of potato salad prepared by a not very good cook, or the help offered by stranger.

    Keep these in your heart and whatever befall, you will never wholly be damned. Never forget who you are; what you believe, nor doubt that decency is accounted for among the sparrows. However dark it becomes, never lose your way.

    Whatever comes will come. But save your heart from the wreckage. Unless you do that, you lose.

    Comment by Mr. X — March 11, 2012 @ 3:56 am

  10. Putin Fag X, the Russian “Church” is an organ of the state, it is not really Christian, but an organ of the FSB

    And FYI, in supporting a mass murderer like Putin, you are a servant of the evil one…..

    Matthew 24:6-7 ESV

    And you will hear of wars and rumors of wars. See that you are not alarmed, for this must take place, but the end is not yet. For nation will rise against nation, and kingdom against kingdom, and there will be famines and earthquakes in various places.

    Matthew 10:34 ESV

    Do not think that I have come to bring peace to the earth. I have not come to bring peace, but a sword.

    Romans 13:4 ESV

    For he is God’s servant for your good. But if you do wrong, be afraid, for he does not bear the sword in vain. For he is the servant of God, an avenger who carries out God’s wrath on the wrongdoer.

    Deuteronomy 20:1-18 ESV

    “When you go out to war against your enemies, and see horses and chariots and an army larger than your own, you shall not be afraid of them, for the Lord your God is with you, who brought you up out of the land of Egypt. And when you draw near to the battle, the priest shall come forward and speak to the people and shall say to them, ‘Hear, O Israel, today you are drawing near for battle against your enemies: let not your heart faint. Do not fear or panic or be in dread of them, for the Lord your God is he who goes with you to fight for you against your enemies, to give you the victory.’ Then the officers shall speak to the people, saying, ‘Is there any man who has built a new house and has not dedicated it? Let him go back to his house, lest he die in the battle and another man dedicate it. …

    Deuteronomy 20:1-4 ESV / 7 helpful votes

    “When you go out to war against your enemies, and see horses and chariots and an army larger than your own, you shall not be afraid of them, for the Lord your God is with you, who brought you up out of the land of Egypt. And when you draw near to the battle, the priest shall come forward and speak to the people and shall say to them, ‘Hear, O Israel, today you are drawing near for battle against your enemies: let not your heart faint. Do not fear or panic or be in dread of them, for the Lord your God is he who goes with you to fight for you against your enemies, to give you the victory.’

    Comment by Andrew — March 11, 2012 @ 1:06 pm

  11. To moron X the spam-child of the Lord’s Resistance Army in USA

    The Protocols of the Elders of Zion or The Protocols of the Meetings of the Learned Elders of Zion is an antisemitic hoax purporting to describe a Jewish plan for global domination. It was first published in Russia in 1903, translated into multiple languages, and disseminated internationally in the early part of the 20th century

    The siloviki and the Russian Orthodox Church are natural allies in the drive to build a state-dominated, authoritarian capitalist system based on traditional Russian values. The siloviki are using the authority of the church to restore more and more elements of the country’s 1,000-year monarchist tradition, to which many prominent siloviki have expressed unconcealed sympathy. One recent chekist manifesto, “Project Russia,” quoted the revered 19th-century cleric St. Ioann of Kronstadt as saying, “Hell is a democracy; heaven is a kingdom.”

    Finally, siloviki endorse the nationalistic, xenophobic, and sometimes anti- Semitic views of the most conservative elements within the Russian Orthodox Church

    Comment by Anders — March 11, 2012 @ 2:09 pm

  12. Andy,

    It’s eerie that you bring up Romans 13, when Chuck Baldwin was just on AJ’s show talking about how Romans 13 gets used to shut the church up and make it compliant with the State. It certainly was in the 3rd Reich save for the Confessing Church, some Roman Catholics, and Jehovah’s Witnesses. I don’t know what the rest of those verses you quoted have to do with anything, but the fervency with which you quote them and draw on them keeps me wondering if you are some sort of paid Cointelpro guy.

    And Anders — I have no idea what you’re talking about, as usual, or what the Lord’s Resistance Army has to do with anything. Presumably you mean that because Alex Jones doesn’t think the U.S. ought to invade Uganda that means he’s somehow supportive of a child-soldier kidnapping maniac named Kony in the bush. Well there are loads of em’ all over Africa, I guess that means Oceania…er the good ole’ US of A will have to intervene almost everywhere on that Continent. Couldn’t have anything to do with raw materials for LEDs and batteries and trying to elbow the Chinese away from the same…I know Cointelpro, pro-war propaganda when I see it, and that Kony video, particularly the use of social media to brainwash kids who don’t know the techniques, is a textbook example.

    As for the alleged ‘anti-Semitism’ rampant in the Russian Orthodox Church, that would explain so well why the State of Israel is working very hard to woo the Orthodox and has restored property to the ROC that Tsar Nicholas II’s father or grandfather purchased in Jerusalem in the late 19th century.

    No Anders, I’m worried about THE AMERICAN SILOVIKS who are taking over MY (not your) country, putting UNLICENSED, unsworn knuckle-dragging TSA officers all over the place, and flagrantly violating the Constitution with undeclared wars in total contempt of Congress’ Constitutionally appointed war powers as well as the War Powers Act. Plus the 30,000 drones authorized for domestic, U.S. surveillance.

    Either way, while you FOREIGN SWP fans constantly lecture this American on whom he ought to be more concerned with, some lawfully elected president 4,000 miles away, you all notice SWP refuses to even discuss the increasingly authoritarian if not fascistic direction the U.S. government is taking here at home. Hence, case closed.

    Comment by Mr. X — March 11, 2012 @ 5:26 pm

  13. Moron . X – I am a lot more worried about the Norwegian Investments in Your Beloved ortodox mafia-country and on Cypros . Norwegian investors and The Government Pension Fund – Global have a lot higher trust in the US than you .

    Your country is not USA , your byzantine conspiracy logic is not from the US i know .

    You sounds more like MoronX & Partners ABC Media, Ltd. at P.O. Box 814 Sofia

    Comment by Anders — March 12, 2012 @ 5:13 am

  14. Moron X -are you able to think or are you just a ortodox spamming moron ?

    Thus, the “black” (KGB), “gray” (Christian Peace Conference), and “white” (Novosti Press Agency) elements of the Soviet active measures apparatus worked together, weaving a seamless web that first planted and then spread the messages of Soviet active measures specialists, while obscuring their role in orchestrating this campaign from start to finish. This type of scenario was repeated by Soviet active measures specialists literally hundreds of times. The organizations varied tremendously, as did the themes, which were chosen for their appeal to certain target audiences. But the purposes remained the same: to stimulate anti-Western or pro-Soviet sentiments that would ultimately rebound to Soviet advantage.

    Comment by Anders — March 12, 2012 @ 5:29 am

  15. Mr.X, no case closed.
    Putin was not legitimately elected, as the international observers pointed out.
    Abuse of state resources, massive election fraud, refusal to allow actual opposition figures to stand.
    If you consider that a “fair election” then you really are retarded.

    You really are a pathetic pillock.

    Mr. X, there is a land called douchebagistan, and you are its king.

    BTW, if you don’t understand scripture, you shouldn’t be claiming that you know what the Saviour wants.

    Comment by Andrew — March 12, 2012 @ 1:31 pm

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