Energy Traders Avoid Scrutiny As Commodities Market Grows, Oversight Is Slight
By David Cho Washington Post Staff Writer Sunday, October 21, 2007; A01
One year ago, a 32-year-old trader at a giant hedge fund named Amaranth held huge sway over the price the country paid for natural gas. Trading on unregulated commodity exchanges, he made risky bets that led to the fund's collapse -- and, according to a congressional investigation, higher gas bills for homeowners.
But as another winter approaches, lawmakers and federal regulators have yet to set up a system to prevent another big fund from cornering a vital commodity market. Called by some insiders the Wild West of Wall Street, commodity trading is a world where many goods that are key to national security or public consumption, such as oil, pork bellies or uranium, are traded with almost no oversight.
. . . "No one could have imagined that you would have a [commodity] energy market develop the way it did," added James Newsome, chief executive of Nymex. "The markets are changing so quickly that there is no way you could keep up with the changes from a rules standpoint."
But Dan Berkovitz, a top Levin aide, said traders "hesitate when somebody's watching. And when nobody's watching, traders will go wild."
All of which coincides with the rush to so-called 'private equity' firms that deal in stocks, bonds, derivatives and futures without regulation--because there is no 'public' money involved.
Two things are going on here, out of sight of the public eye, even though (when the crash occurs) public as well as private money goes down the same sewer. First of all, we had an illegal Dick Cheney 'energy conference,' about which the White House has stonewalled inquiry and no one has been able to learn a damned thing for six long years--even after Enron. Second, private equity conglomerates have been and are being formed to buy huge positions in publicly traded stocks and bonds-- essentially without oversight--because the deals are private, firm to firm.
At a time when the Middle East and its oil markets are in turmoil, the dollar falling like a rock to historic lows and one scandal following another in the conduct of Wall Street, does this seem like a prescription for disaster to you? Amazingly, Congress sees the conflicts of interest that are building entirely without federal oversight and blandly announce "there is little agreement on how far a new law should go, or whether commodity trading can be effectively monitored."
There will be plenty of time after the crash.