Excessive speculation on oil and other commodity markets is driving up prices for consumers. Goldman Sachs has suggested that speculation increases the price of a gallon of gas by 65 to 70 cents. Exxon CEO Rex Tillerson has said that speculation has maintained oil prices a third above what they would otherwise be.
The landmark Dodd-Frank legislation aimed to address this problem by directing the Commodity Futures Trading Commission (CFTC) to issue an order establishing “position limits” – caps on the portion of a commodities market any individual trading entity could maintain.
The rule that was promulgated after much delay by the CFTC was far too weak, but it was nonetheless an important measure to begin to rein in Wall Street speculation.
Unfortunately, the U.S. District Court for the District of Columbia this afternoon struck down the rule, which was challenged by the International Swaps and Derivatives Association. The court held that Dodd-Frank did not, as the CFTC had concluded, establish an unambiguous requirement that the agency set position limits, notwithstanding briefs filed by many of the key drafters of the legislation explaining that the intent of the law was to require the CFTC to issue position limits.
The winners and losers from this ruling are clear: Wall Street wins, consumers lose.
We hope that the CFTC will appeal this decision and prevail. If not, the agency should immediately work at re-crafting a new and even stronger rule. If Goldman Sachs and Exxon can agree that speculation is driving up oil prices, it’s surely necessary for the agency to take strong measures to protect consumers and Main Street.