Yesterday President Obama stood at the White House with Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler, Treasury Secretary Timothy Geithner, Attorney General Eric Holder, Federal Trade Commission (FTC) Chairman Jon Leibowitz, and proclaimed that he will be putting “more cops on the beat” to investigate Wall Street oil price speculation and potential wrongdoing. I have written on this subject before here, here, and here. While I have little confidence that anything will come of this third call by the President for the Department of Justice, the FBI, and the CFTC to investigate oil futures speculation and other speculation in the commodity derivatives markets, he is at least taking his act public this time.
“We can’t afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage, and driving prices higher, only to flip the oil for a quick profit,”
Many argue that the President can not do much at all to influence oil prices. Many simply buy the Wall Street rhetoric hook, line and sinker, and even go so far as to turn sheer conjecture into fancy charts in order to confuse the public. I disagree. First, there is no greater motivator than personal freedom, and under current law Eric Holder can punish those found to have run afoul of the law by sending them to federal prison. Moreover, while the fines currently permitted are small change, the embarrassment that would accompany fines has consequences. I do not have any explanation for the extraordinary impotence and insolence at the Department of Justice under Eric Holder. The entire soap opera could just as easily be an elaborate act wherein the President calls for investigations of this thing or the other thing, and subsequently sends Eric Holder privately on his way with instructions to do nothing.
I find it extraordinarily difficult to believe that if Eric Holder made the decision to call in the FBI and begin interviewing the big Wall Street players in the commodity futures derivatives markets and put a few of them in prison, that the oil prices wouldn’t drop in an instant. I envision FBI agents and federal regulators walking through hallways at Goldman Sachs, owner of the Goldman Sachs Gold Index, and other large firms carrying lawfully issued subpoenas and search warrants. I have a hunch that some of the more egregious activities would stop immediately if people realized they might actually be sent to prison. Exxon Mobil, the Saudi Oil Minister, among others, are on record as believing that the current price of oil has no basis in the realities of supply and demand nor the potential disruption in delivery that could ensue following a conflict with Iran. Holder’s behavior with regard to oil futures speculation is not dissimilar from his approach to both the larger mortgage and financial instrument fraud which caused the recession, and his utter infecundity with regard to prosecuting those responsible for the BP oil spill. It is as if the entire Department of Justice loathes prosecuting anyone, for anything, at any time.
What is particularly troublesome about Obama’s footing on oil prices is that it is not Republicans who are obfuscating efforts to initiate investigations, make arrests, and prosecute those responsible. It is his own administration and administration officials who stand in his way. It is cerytainly true that Republicans, Mitch McConnell in particular that are placing the blame at Obama’s feet, but the President has the tools to demonstrate through concrete actions that he takes Wall Street fraud and price manipulation seriously. One man, let alone the President of the United States, can alone control the world price of oil, but one man can use the tools available to him to take action. Some time ago CBS’s 60 Minutes ran a piece in which it interviewed the chief prosecutor at the Department of Justice concerning the lack of criminal prosecutions stemming from the financial collapse. His response was a contemptuous “just wait.” Well, the American people have been patiently waiting for nearly four years for the administration to show that it will prosecute wrongdoing perpetrated by the golden boys of Wall Street. My guess is that the wait will continue.
Ian Masters interviewed Michael Greenberger, the former Director of Trading and Markets at the Commodity Futures Trading Commission, on this subject yesterday. It’s worth a listen.