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Stop profiteering by oil price speculators
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Stop profiteering by oil price speculators

  #11 (permalink)
Market Wizard
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ThatManFromTexas View Post
Typical short sighted knee jerk reaction from a sound bite seeking politician who lacks any understanding how the markets work.

Make it too difficult to trade here... big boys will just go offshore...

The Dubai Exchange would love to become the world trading center for Oil...

Even if they outlawed oil speculation ...

How are they going to control foreign traders?

Wall Street will just have their foreign offices handle the trading.

This should work well , I mean the Kyle bill made all the internet gambling sites go out of business ... right?

Gov'ment needs to stay outta the Ol Bidness....

Regards,
TMFT

Actually - this politician has done his homework and he is 100% correct.

The oil futures market is now causing the problem it is supposed to resolve. Futures markets were created to provide price stability to buyers & sellers of a commodity. This is not what they currently do. Hedgers right now have stepped away from the oil market and speculators have stepped in.

This is not about freedom or allowing capitalism to do what it does naturally. This is about a broken system.


Quoting 
Mon, 04/19/2010 - 00:11 EDT The financial reform bill being considered in the US Senate aims to impose stricter supervision of all derivatives and prohibit futures based on box-office receipts and the price of onions


Quoting 
Wed, 04/21/2010 - 16:55 EDT A proposed ban on betting on movie box office receipts took one step closer to becoming law. A U.S. Senate committee on Wednesday passed a financial regulatory reform bill that supports Hollywood in outlawing the trading of futures contracts based on predicted movie ticket sales.


Quoting 
The Onion Futures Act (7 U.S.C Chapter 1 § 13-1]) is a United States law banning the trading of futures contracts on onions. It was passed on August 28, 1958, and remains in effect as of 2010[update].

This law is notable as the first and only ban on the trading of futures contracts of a specific commodity in United States history, and as a unique modern case with which to study the effects of the existence of an active futures market on commodity prices. In particular, proponents of futures markets often claim that they serve to stabilize otherwise volatile commodity supplies (and thus, prices) by providing a market-driven consensus mechanism for future price estimation. The conclusions drawn in subsequent studies of the effects of the Act upon price volatility have been mixed.

Now - futures markets for movie tickets and onions has not sprung up in Dubai and there is no reason that a futures markets for oil would either if the government implemented sane restrictions to prevent the damage done by pure speculation.

These markets actually exist for one group of people. That is the people that run the markets. They want more markets - cap and trade, weather, onions. movie receipts etc. The people that run the markets want this because they can charge a fee for every transaction.

Even when we go back in time, studies are very mixed on whether futures markets provide any price stability at all. In fact, there is evidence that these markets are the very thing that cause instability. They cause the problem they are attempting to resolve.

Of course, it's an emotive issue. I don't want to see futures markets disappear for personal reasons but I would very much support the curtailment of speculation on all energy and food related commodities.

At the end of the day commodity prices should be set by supply and demand. This IS capitalism. Setting commodity prices by the supply and demand of contracts is insanity and is nothing at all to do with capitalism.

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  #12 (permalink)
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Let me pose a few questions to those that are all for the futures markets in their current form:

What if there was a housing futures market for the prices of new homes ? Would we all be happy for the very trustworthy Goldman Sachs to run a futures market to which the price of future home supply would effectively be pegged ?

What do we think would happen if trillions of dollars were pumped into this market and the price of new homes became unpredictable (as oil) because of this new market ? Or would this market make house prices more stable ? If so - how ? Would we not see speculators all running for the doors at the same time when it appeared prices were weakening ? Would we not also see speculators bidding prices up in times of growth ?

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