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Energy Traders Avoid Scrutiny
Key Excerpts from Article on Website of Washington Post
Posted: October 26th, 2007
http://www.washingtonpost.com/wp-dyn/content/article/2007/10...
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. Part of the problem is that the regulator, the federal Commodity Futures Trading Commission, has had a hard time keeping up with the sector it oversees. Commodity trading has exploded in complexity and popularity, growing six-fold in trading volume since 2000 -- the year that a handful of giant energy companies, including Enron, successfully lobbied to get Congress to exempt energy markets from government regulation. Meanwhile CFTC's staffing has dropped to its lowest level in the agency's 33-year history. Its computer systems that monitor trades are outdated. Its leadership has seen frequent turnover. "We are facing flat budgets and exponential growth in the industry," said CFTC Acting Chairman Walter Lukken. "Over the long term this type of budgetary situation is not sustainable." Commodities markets also have become complex with many trading futures contracts as well as financial tools called derivatives and swaps, whose value is based on the risk of futures contracts. Gathering data on these products has been a challenge for the CFTC. The evolution of the markets has led to some tension between the CFTC and the Federal Energy Regulatory Commission.
Note: For more revealing major media reports of unregulated financial corruption and its impact, click here.
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