Abstract
This chapter examines a series of Levin-led investigations into how commodity speculation sparks volatile prices for vital staples such as oil, natural gas, and electricity. It focuses on instances of price manipulation and excessive speculation that forced American families and businesses to pay more than they should for basic necessities like fuel and raw materials. The case studies feature oil companies like BP discussing ways to elevate gasoline prices; a hedge fund named Amaranth that spiked natural gas prices, while losing billions; and three banks—Goldman Sachs, JPMorgan Chase, and Morgan Stanley—that gained control of billions of dollars of physical commodities without protecting U.S. taxpayers from accompanying risks. The chapter also recounts how the Levin investigations fueled new safeguards.
“‘But to tell the truth, Sam, I had sort of made up my mind to keep out of speculation since my last little deal. A man gets into this game, and into it, and into it, and before you know he can’t pull out—and he don’t want to.’”
Frank Norris, The Pit: A Story of Chicago (1903)
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- 1.
The information in this section is based on “Gas Prices: How Are They Really Set?” S. Hrg. 107-509 (4/30 and 5/2/2002), including the majority staff report at 322, https://www.gpo.gov/fdsys/pkg/CHRG-107shrg80298/pdf/CHRG-107shrg80298.pdf.
- 2.
The information in this section is based on “U.S. Strategic Petroleum Reserve: Recent Policy Has Increased Costs to Consumers but Not Overall U.S. Energy Security,” Minority Staff Report, S. Prt. 108-18 (3/5/2003), https://www.gpo.gov/fdsys/pkg/CPRT-108SPRT85551/pdf/CPRT-108SPRT85551.pdf.
- 3.
See Feinstein-Lugar-Levin Senate Amendment 2083 to the FY2004 agricultural appropriations bill, H.R. 2673. The amendment failed 41-56. Senate Roll Call Vote 436 (11/5/2003).
- 4.
See S. 2058, Close the Enron Loophole Act, introduced by Senator Levin in 2007; and Harkin-Chambliss-Feinstein-Snowe-Levin Senate Amendment No. 3851 to Senate Amendment No. 3500 to H.R. 2419, the 2008 farm bill, also known as the Food, Conservation, and Energy Act. The Senate amendment was agreed to by voice vote (12/13/2007), and retained in the final bill, Public Law No. 110-234, as Section 13201 et seq.
- 5.
Their first attempt to stop the high-cost filling of the SPR was in 2003: Levin-Collins Senate Amendment No. 1750 to H.R. 2691, FY2004 Interior appropriations bill (9/23/2003), https://www.congress.gov/amendment/108th-congress/senate-amendment/1750. The amendment passed the Senate, but was dropped in conference. The second attempt was in 2004: Levin-Collins Senate Amendment No. 2817 to S. Con. Res. 95, FY2005 budget resolution, Senate Roll Call Vote No. 54 (3/11/2004). The amendment passed the Senate, but the underlying bill was never enacted into law. The third attempt was in 2005: Frist (for Senators Levin and Collins ) Senate Amendment No. 864 to H.R. 6, Energy Policy Act of 2005, adding Section 301 (6/22/2005), Public Law No. 109-58 (8/8/2005), https://www.congress.gov/amendment/109th-congress/senate-amendment/864. The amendment was enacted into law, but DOE ignored the required balancing test. The successful fourth attempt was in 2008: S. 2598, Strategic Petroleum Reserve Fill Suspension and Consumer Protection Act (2/6/2008), was incorporated into Reid Amendment No. 4737 to Senate Amendment No. 4707 to S. 2284, Flood Insurance Reform and Modernization Act (5/13/2008), https://www.congress.gov/amendment/110th-congress/senate-amendment/4737; and enacted into law in H.R. 6022, Strategic Petroleum Reserve Fill Suspension and Consumer Protection Act (5/14/2008), Public Law No. 110-232 (05/19/2008). For more information on oil company profits, see, for example, “Money Guzzlers: Big Oil Prepares to Announce Profits,” Center for American Progress, Daniel J. Weiss and Anne Wingate (7/23/2007), chart entitled, “Big Five Oil Company Profits 2001–2007,” http://ampr.gs/2jEEJQ5; “Global 500: The World’s Largest Corporations,” Fortune, Telis Demos (7/11/2007) (in 2006, due to high oil prices, oil companies were among the most profitable corporations in the United States), http://for.tn/2zfBZj7.
- 6.
The information in this section is based on “Excessive Speculation in the Natural Gas Market,” S. Hrg. 110-235 (6/25 and 7/9/2007) (hereinafter “2007 Natural Gas Hearing”), https://www.gpo.gov/fdsys/pkg/CHRG-110shrg36616/pdf/CHRG-110shrg36616.pdf.
- 7.
See “The Role of Market Speculation in Rising Oil and Gas Prices: A Need to Put the Cop Back on the Beat,” Staff Report by the U.S. Senate Permanent Subcommittee on Investigations, S. Prt. 109-65 (6/27/2006), at 24, https://www.gpo.gov/fdsys/pkg/CPRT-109SPRT28640/pdf/CPRT-109SPRT28640.pdf.
- 8.
CFTC v. Amaranth Advisors LLC, Case No. 1-07-cv-06682-DC (SDNY 5/21/2008), Court Opinion, at 6.
- 9.
“The Amaranth Collapse: What Happened and What Have We Learned Thus Far?” EDHEC Risk and Asset Management Research Centre, Hilary Till (8/2007), http://bit.ly/2ARGXyX.
- 10.
CFTC v. Amaranth Advisors LLC, Case No. 1-07-cv-06682-DC (SDNY), CFTC Complaint (7/25/2007); In re Amaranth Advisers LLC, 128 FERC ¶ 61,085, Order to Show Cause and Notice of Proposed Penalties (7/26/2007).
- 11.
“Amaranth Entities Ordered to Pay a $7.5 Million Civil Fine in CFTC Action Alleging Attempted Manipulation of Natural Gas Futures Prices,” CFTC Press Release No. 5692-09 (8/12/2009), http://www.cftc.gov/PressRoom/PressReleases/pr5692-09; In re Amaranth Advisers LLC, 128 FERC ¶ 61,154 Order Approving Uncontested Settlement (8/12/2009), https://www.ferc.gov/enforcement/market-manipulation/amaranth.pdf.
- 12.
Hunter v. FERC, 711 F.3d 155, 157 (D.C. Cir. 2013).
- 13.
“Federal Court Orders Brian Hunter of Calgary, Alberta to Pay a $750,000 Civil Fine in CFTC Action Alleging Attempted Manipulation of Natural Gas Futures Prices during the Expiry on Two Trading Days,” CFTC Press Release No. pr7000-14 (9/15/2014), http://www.cftc.gov/PressRoom/PressReleases/pr7000-14.
- 14.
See 2008 farm bill, Public Law No. 110-234, Title XIII, Commodity Futures, Section 13201 et seq.
- 15.
See, for example, “Excessive Speculation in the Wheat Market,” S. Hrg. 111-155 (7/21/2009), https://www.gpo.gov/fdsys/pkg/CHRG-111shrg53114/pdf/CHRG-111shrg53114.pdf; Levin letter filed with the SEC (3/19/2012) in response to a concept release, “Use of Derivatives by Investment Companies under the Investment Company Act of 1940,” SEC Release No. IC 29776, RIN: 3235-AL22 (8/31/2011), https://www.sec.gov/comments/s7-33-11/s73311-54.pdf; “Compliance with Tax Limits on Mutual Fund Commodity Speculation,” S. Hrg. 112-343 (1/26/2012), https://www.gpo.gov/fdsys/pkg/CHRG-112shrg73671/pdf/CHRG-112shrg73671.pdf; “Excessive Speculation and Compliance with the Dodd-Frank Act,” S. Hrg. 112-313 (11/3/2011), https://www.gpo.gov/fdsys/pkg/CHRG-112shrg72487/pdf/CHRG-112shrg72487.pdf.
- 16.
Public Law 111-203 (7/21/2010).
- 17.
The information in this section is based on “Wall Street Bank Involvement with Physical Commodities,” S. Hrg. 113-501 (11/20–21/2014), Volumes 1–2 (hereinafter “2014 Senate Commodities Hearing”), https://www.gpo.gov/fdsys/pkg/CHRG-113shrg91522/pdf/CHRG-113shrg91522.pdf.
- 18.
“The Merchants of Wall Street: Banking, Commerce, and Commodities,” Minnesota Law Review, Professor Saule T. Omarova (11/24/2012), Volume 98, Issue 265 (2013), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2180647.
- 19.
2014 Senate Commodities Hearing, “Physical Commodity Activities at SIFIs,” Prepared by the Federal Reserve Bank of New York Commodities Team (10/3/2012), FRB-PSI-200477-510 (sealed exhibit).
- 20.
2014 Senate Commodities Hearing, Hearing Exhibit 1h, at 823; discussed at 103–105.
- 21.
S. 3013.
- 22.
“Industrial and Commercial Metals,” Rule Promulgated by the OCC, 81 Fed. Reg. 251, at 96353 (12/30/2016).
- 23.
“Regulations Q and Y; Risk-Based Capital and Other Regulatory Requirements for Activities of Financial Holding Companies Related to Physical Commodities and Risk-Based Capital Requirements for Merchant Banking Investments,” Rule Proposed by the Federal Reserve, 81 Fed. Reg. 190, at 67220 (9/30/2016).
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Bean, E.J. (2018). Targeting Commodity Speculation. In: Financial Exposure. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-94388-6_13
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DOI: https://doi.org/10.1007/978-3-319-94388-6_13
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