In his testimony before a congressional committee today, Dennis Kelleher, president and CEO of Better Markets, a nonprofit, nonpartisan organization that promotes the public interest in financial reform, demonstrated that rising gas prices are closely related to speculation activity on Wall Street. Drawing on research, he argued that Wall Street has poured hundreds of billions of dollars into the energy markets to speculate, generating enormous profits for the biggest banks, while raising gas prices for consumers and called for the practice to be stopped.
“Wall Street is needlessly driving up gas prices,” Mr. Kelleher said in his prepared remarks at the House Natural Resources Committee hearing on the real-life impacts of rising gasoline prices. “Wall Street’s actions hurt the budgets of families and communities, and our entire economy, because money is diverted from everything else to help pay an ever-increasing fuel bill.”
“There is increasingly broad agreement that excess speculation is distorting many commodity markets, including in particular the oil markets. Thus, the real debate is no longer if speculation is having this effect, but how great an effect it is having,” Mr. Kelleher continued.
Mr. Kelleher told committee members that regulators should prohibit Wall Street’s so-called “commodity-index funds.” These funds have driven up the cost of commodities for across the board, affecting families, farmers, police departments, even the Department of Defense. Better Markets has conducted research showing these funds have radically changed the price structure of commodity markets. In the past, prices were based largely on supply and demand, but they are now driven up by investors placing self-fulfilling bets on higher prices for oil, wheat and other products – resulting in boom-and-bust cycles.
Mr. Kelleher noted the Commodity Futures Trading Commission took a good first step in its rule to impose position limits on large traders, but they are set too high to have strong effects and do not focus on Wall Street’s commodity index trading. A ban on commodity index funds is critically necessary if oil prices are to better reflect supply and demand fundamentals, rather than Wall Street speculators profiting off American consumers’ pain at the pump.
