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Thursday, July 10, 2008                           (202) 225-3661     

DeLauro Questions CFTC on Excessive Speculation and High Energy Prices at Oversight Hearing

Washington , D.C. – Congresswoman Rosa L. DeLauro (Conn.-3), chairwoman of the House Agriculture, Rural Development, Food and Drug Administration and Related Agencies Appropriations Subcommittee, delivered the following statement at an oversight hearing held by the Subcommittee.  The hearing examined whether the regulatory functions of the Commodities Future Trading Commission have been adequate to curtail the energy market speculation activities that have contributed to skyrocketing energy prices.  In the fiscal year 2009 Agriculture, Rural Development, Food and Drug Administration and Related Agencies Appropriations Bill, the CFTC was funded at $135 million - $5 million above the President’s request – to increase staff and improve technology to help the Commission’s oversight and enforcement capabilities.

Below is DeLauro’s opening statement (as prepared for delivery).

The hearing will come to order. Thank you to Ranking Member Kingston and Members of the Subcommittee for taking part in this important hearing – the first oversight hearing on the Commodity Futures Trading Commission this subcommittee has held in nine years.  I also want to thank all of today’s witnesses for sharing their testimony and answering our questions today.

We are here to address the concerns of millions of Americans – families and farmers – who simply feel powerless at the gas station and in the grocery store, sensing that something more than supply and demand is going on to produce breathtakingly high prices. The goal of this hearing is to take a hard look at the Commodity Futures Trading Commission, to examine its mission and its funding, and to determine whether excessive energy speculation is driving up energy prices, making it harder for so many families just to get by.

Excessive speculation occurs when the market price for a given commodity no longer accurately reflects the forces of supply and demand. This is basically the definition of excessive speculation the CFTC is charged with policing and preventing under the Commodities Exchange Act.

This is a complex issue but our responsibility as a Congress and a nation is serious. We are in a crisis, and as such, we need to look at every aspect that could potentially affect energy prices.  Of course, we must take into account factors such as a weak dollar, strong demand from emerging economies, geopolitical tensions in oil-producing regions and supply disruptions.  But we must also do everything in our power to protect consumers from improper market manipulation and excessive energy speculation.  

It has not even been 7 years since Enron filed for bankruptcy: the lives of thousands of workers and retirees devastated, and the so-called “smartest guys in the room” shown to have taken advantage of special influence and deregulated energy markets.

Now, the American people wonder if it is déjà vu all over again. Today, we will hear from people on the frontlines like Tom Devine of the New England Fuel Institute who suggest that we can no longer have faith in the power of our energy futures markets to provide realistic pricing or manage risk.       

Instead, loopholes and exemptions have grown, and experts point to interested parties with special access or information improperly speculating on the price of energy without much oversight.

Of course, the American people have seen this movie before and they know how it ends – from the savings and loans to the dot-com bubble from the Enron debacle to an ongoing sub-prime mortgage crisis. Speculative bubbles emerge, regulators do nothing in the name of letting markets do their magic, the bubble bursts, and consumers and taxpayers pay the bill.  We go from one financial crisis to another, but do not ever seem to learn the lessons.

Today, the consequences are as grave as they have ever been. Our most basic needs are at stake. Fuel and food: We know that soaring gas prices are shattering everyone’s budget, killing middle class families trying to make ends meet, farmers harvesting their crops, truckers traveling our highways. 

To be sure, I understand that this Congress is not going to uncover every intricacy of the marketplace during one hearing, but I do believe that the market has exhibited a whole host of problems, and we have a responsibility to investigate and respond, to bring oversight and enforcement to our markets.

Again, no one wants to see wholesale price controls or the elimination of strong market incentives to deal with long term issues of supply and demand.  But when one sees prices weaving down the road as erratically as they have been, it may make sense give the market a sobriety test.  The amplitude of these swings does not appear to make sense.

Ultimately, the one thing we know for sure is that we do not know enough. With so much at stake, transparent and efficient trading systems are essential, and yet we may not have the data to make that possible.  According to a July 2007 Government Accountability Office report, some observers “believe that higher energy prices were the result of supply and demand fundamentals while others believe that increased futures activity may also have contributed to higher prices. But the effect on energy prices of individual changes in these markets is unclear.” At that time, the average price for a gallon of regular self-serve gas was $2.97.  

Just this Monday, with the price of gas now at $4.11 a gallon, the Congressional Research Service reported that “Very little information is available about Over-The-Counter commodity markets.”  How much longer are we going to wait?

So this is where we turn to you – the Commodity Futures Trading Commission – the agency charged with ensuring that our markets run effectively and our consumers are protected.  According to its mission, the CFTC’s primary function is to “protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.” 

But a regulatory agency cannot do its job without adequate resources and staff. In the Agriculture Appropriations bill, the subcommittee’s recommendation included greater resources than the President’s proposal to help the CFTC make the needed down payment to begin recovering from years of under investment.  

I also understand the agency has already taken on a series initiatives in order to meet these basic regulatory responsibilities.

Requiring ICE Futures Europe to match the current US reporting requirements and provide daily position reports.

Requiring traders in the energy markets to provide monthly reports of their index trading. 

And reviewing the trading practices for index traders in the futures markets to determine the impact of futures trading on the price discovery process.

But I must wonder if all of this is too little too late. I am glad the CFTC has is moving more aggressively to investigate the issue of swaps. But when the agency promises to present its report to Congress by September 15 of this year, it begs the question – how high will the price of oil have climbed at that point?

We have more to do to ensure excessive speculation is not distorting energy prices. Since 2000, the Commodity Futures Modernization Act (“CFMA”) placed large segments of the commodities futures market outside CFTC jurisdiction and allowed for virtually unregulated over-the-counter and electronic trading of many commodities futures. We must bring transparency to the over-the-counter markets and foreign boards-of-trade which today remain so obscure and fully close the so-called “Enron-loophole.”

For too long the CFTC has acted only when pushed hard by Congress – another example, like the FDA, OSHA, and the Product Safety Commission, of this administration’s failure to meet its regulatory responsibility. Ultimately this is part of something bigger. And our response must be bigger too. The US dollar is threatened and people do not have confidence in the US economy. Speculators are landing in commodities because they see few other places to go. And we are paying the price for neglecting our economic fortunes at home for eight long years. Getting back on track will require broad and wholesale change.  And the American people agree we cannot afford to do anything less. We can begin immediately, and empower the CFTC to do its regulatory job.

With that I will turn things over to Congressman Kingston before we move on to our first set of witnesses.

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