Although Wall Street traders and oil company executives are enjoying record returns, most Americans aren’t seeing the benefit of that economic success. Working families are still struggling to find steady employment while Tea Party officials cut taxes for corporations and services for everyone else. As the Progress Report warned a month ago, gas and food prices, inflated by international speculators, hammer the middle class. Rising gas prices are expected to inflate ExxonMobil’s profits by more than fifty percent.
Meanwhile, catastrophic weather fueled by decades of oil pollution is uprooting lives and adding to the uncertainty of the much-needed economic recovery. Rep. Paul Ryan’s (R-WI) 2012 budget passed by the House Republicans compounds the threats by keeping billions of dollars in subsidies for oil companies while slashing investment in clean energy by 70 percent. While the GOP maintains a single-minded focus on subsidizing new oil drilling, even Goldman Sachs has admitted that “the price of oil has grown out of control due to excessive speculation.”
President Obama has taken notice, laying out his “plans to address rising gas prices over the short and the long term” in his weekly Saturday address. “Instead of subsidizing yesterday’s energy sources, we need to invest in tomorrow’s,” Obama said. “We need to invest in clean, renewable energy. In the long term, that’s the answer.”
“Speculators today have about 70 percent of the open interest in the commodity markets,” explains hedge fund manager Michael Masters, who has founded the financial reform group Better Markets. “Ten years ago – they controlled roughly 30 percent of the market.” Commodities “index funds,” “which allow investors to bet on the price of several commodities at once,” have exploded in value from “about $15 billion in 2003 to $200 billion in 2008, and are currently valued at over $250 billion.”
What the administration and others should do, which they have the power to do quickly, is impose position limits, which would stop excessive speculation now,” says Better Markets’ Dennis Kelleher.
The Dodd-Frank legislation signed into law by Obama last year requires the Commodities Futures Trading Commission (CFTC) to set “position limits” on speculation, but the agency is planning to implement its proposed limits only by “early 2012, a year after the deadline set by lawmakers.” The CFTC has found that there are only about ten energy traders who are large enough to be affected by these position limits.
“On CBS’s Face The Nation, Sen. Richard Blumenthal (D-CT) “called for an aggressive federal probe — including a possible grand jury – into whether rising gasoline prices stem from illegal manipulation of energy markets.”
On Thursday, Obama “unveiled a new working group to combat any fraud or manipulation in the oil and energy markets” led by the CFTC and the Department of Justice. “If we can work more closely with the DOJ folks, we may be able to put more people in jail,” CFTC Commissioner Bart Chilton told The Huffington Post.
By swamping the market, even without any deliberate fraud, these oceans of money swamp the traders who actually need to buy and sell the underlying commodities, such as oil producers and gasoline distributors. “A ban of both commodity index funds and exchange-traded funds that use commodity futures, removing much of this investment, would be an important and instantly measurable first step,” believes former oil trader Daniel Dicker. At a minimum, a transaction fee on speculators would keep the oil markets more reliable.
ENDING DIRTY SUBSIDIES:
In his weekly address, Obama reiterated his call to “end the $4 billion in taxpayer subsidies we give to the oil and gas companies each year.” Americans of all stripes recognize that tax breaks and giveaways to oil companies need to be eliminated, despite the industry propaganda that these subsidies are needed to prevent high energy prices.
When asked about massive subsidies given to the oil industry, even Tea Party activists have agreed with progressives that there is a structural imbalance in the political system towards corporate power. Many of the oil-industry subsidies come in the form of passing corporate risks onto American families: there have been no laws passed to protect our nation from oil disasters like BP’s, and companies like Koch Industries enjoy the multi-billion dollar subsidy of being able to emit millions of tons of carbon pollution for free — while communities foot the bill for our increasingly dangerous climate. Far from raising prices at the pump, eliminating these subsidies would instead reduce oil companies’ outsized profits and corporate paydays.
If this Congress wants to take on the pain at the pump, it will support legislation to build a national infrastructure of electric charging stations for electric vehicles, deploy 21st-century high-speed rail, and curb oil profiteering by Wall Street.
GOP CARRIES WATER FOR BIG OIL:
The GOP answer to Wall Street and Big Oil taking over our economic future is to give them even more power. The Ryan budget slashes the CFTC budget by nearly two-thirds, and would “slash investments in the research, development, and deployment of the clean energy technologies of the future.”
As they work to lose the future, they also plan to roll out a new iteration of the “drill baby drill” marketing campaign in May. “House Republicans are planning bill introductions, hearings, markups and floor votes on legislation aimed at expanding domestic oil production in response to high gasoline prices.” “Now, the GOP controls the floor agenda and plans to use it when they get back from the two-week spring recess.”
According to House Speaker John Boehner’s spokesman, “The White House and the rest of the Democrats who run Washington are terrified about the political impact of gas prices, because many of their policies — like the national energy tax — are explicitly designed to raise energy prices.”
In reality, big oil profits go up with higher gas prices, and the only “national energy tax” is the cost of our national oil dependence. Speaker Boehner’s office has the “concern” that Democrats are calling for investigations of market fraud “to distract from the real issue” of the “need to increase the supply of American energy.”
In other words, they’re worried that the American public agree that oil companies and Wall Street need to be reined in, not left in charge of our energy policy. Even members of Boehner’s own caucus — like Rep. Tom Graves (R-GA) and Sen. Mark Kirk (R-IL) — admit the time has come to cut oil subsidies.
This post was originally published by ThinkProgress.