We heard rumors that speculators were having an effect on the price of oil in the spring and summer of 2008, when it went over $140 a barrel and gas began to cost as much as $4 a gallon across the USA. We were assured that such things weren't really true: the Bush Commodity Futures Trading Commission wouldn't let it be! 
Turns out ... the assurances were false and the rumors dead-on. the assurances were false and the rumors dead-on -- and there's no mechanism in place to stop it happening again.
Note that Taibbi’s hardly the first person to say that the money from the housing bubble moved to form the commodities bubble, which remember, not only sent gas prices skyrocketing but helped cause dangerous food disruptions around the world.
He is one of the first prominent journalists I’ve seen to report that the massive oil spike had little or nothing to do with supply and demand for the physical product. I’d like to see some more reporting on that. If he turns out to be right, the financial press is going to have an awful lot of explaining to do.
It seems clear the CFTC report will lend credence to Taibbi’s assertion that Wall Street and Goldman Sachs (an Audit funder) caused the oil spike, which he says wouldn’t have happened if trading were limited to those who had physical control of the oil, excluding those betting with derivatives.
The Columbia Journalism Review has more, including the warning that the bubble machine's not been turned off yet.
There's a guy called Dean Baker writing for the Guardian with a solution: tax commodity futures trading. It's a stroke of genius: it's progressive, the folks already in economic trouble aren't apt to be dabbling in that market -- and unlike anything proposed in the past decade, it smacks Wall Street in the chops.
From the standpoint of blowhard politicians, restrictions on speculation also have the advantage of being difficult to administer. At the end of the day, the rhetoric on speculation is likely to prove emotionally and politically satisfying, but economically meaningless.
For those who actually want to crack down on speculators in a meaningful way, there is a much more practical solution: tax it. A modest tax on all financial transactions will impose a serious cost on those who actively speculate in oil futures, or any other commodity, while having almost no impact on those who use these markets for hedging. It can also raise an enormous amount of money.
A 0.02% tax on the sale or purchase of commodity futures, and a comparably sized tax on options and other derivatives, the tax could easily raise more than $10bn a year, even assuming large declines in trading. If a comparably small tax were applied to all financial transactions, including stock and bond trades, the revenue could exceed $150bn a year, a take that is equivalent to 10% of the federal income tax.
Such a tax would be extremely progressive because the overwhelming majority of trading is done by the wealthiest people. While middle-class families would bear some of this tax, the cost to the typical family saving for their retirement or kids' education would be almost invisible.
Essentially, a transactions tax would be treating gambling by the wealthy in the same way that we now treat gambling by ordinary working people. Bets placed in casinos, horse races, or state lotteries are subject to taxes as high as 30%. Why shouldn't we tax gambling on oil futures at a rate of 0.02%?
There is another benefit to a tax on financial transactions. The biggest winners in an economy that has produced mostly losers over the last three decades have been the Wall Street crew. In 2006, before the housing bubble began to unravel, the financial industry accounted for almost 30% of all the profits in the economy. In the last year most of the biggest firms in the sector, such as Citigroup, Merryll Lynch, Fannie Mae, and Freddie Mac, have taken huge write-downs on bad loans and seen their stocks plummet.
But their executives still collect tens of millions in compensation and there is little reason to believe that they have changed any of their predatory practices.
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Good
I'm glad you went for the tax on financial tranasactions. Seems to me a little sand in the gears that turn the bubble machine can only be good.
"First they ignore you, then they ridicule you, then they fight you, then you win." -- Mahatma Gandhi
OMG, lambert, don't you remember when the GOP/M$M all wanted
Hillary strung up 'cause she made a pile of money trading cattle futures?
Yeah, me neither.
Damnation. Are we being drug headfirst into a pit of stupid, or what?
We can admit that we’re killers … but we’re not going to kill today. That’s all it takes! ~ Captain James T. Kirk, Stardate 3193.0
1 John 4:18
Since Many Love
Krugman a little less today after reading his single payer spin, it is interesting to recall that he spilled more than a little ink on his blog refuting the idea that the oil bubble was being caused by speculation. As I recall he was arguing that he was seeing no evidence of inventory buildup, which he took as prima facie evidence that supply was barely able to stay abreast of demand...ergo, no speculation.
I love his humor and his books and his lucid explanation of complex economic issues, but I began to love him a little less when he was unwilling to call out Summers and Geithner for the TARPs and associated liquidity injections for the banksters, all the while he was railing against those very programs in his columns. Dinner at the WH?
An old post
that is related:
Bailing out the Oil and Energy Markets
You really want to know how the bail out will hit you in the pocketbook?
These companies all have REAL assets to sell off that can cover the costs of their failures in buying and selling of scraps of paper that have zero value other than their manufacturing of commissions and bonuses for these Banks.
People are screaming about losses on the stock market if we don't bail them out. I still believe strongly that it is all a very necessary and well deserved market adjustment. But even if you are on the side of giving cash to these criminal and scheming banks... Think about the other costs to your own pocketbook beyond just your personal investment portfolio.
Real tangible assets: The food you eat, the gas you put in your car, the paper you read or write on. All of these commodities are kept at an artificially high price because of a bail out.
Most Americans don't own that much in the stock market for them to be killed by losing a bit of money because a few banks failed. Most Americans do eat, drive and some of them even read and write.
Everything you do on a daily basis is costing you more because of artificially high prices.
Now, with news that the fed was printing out 630 Billion dollars on paper made from their magical money tree, and before the 700 billion dollar TOXIC BILL had been voted down... Think about the double whammy you are getting from a bailout. (Never mind the fact that it means it was really a pre-planned 1.33 trillion dollar hand out to these criminals?)
Not only are you paying artificially high prices for these commodities because these banks don't have to sell off their commodities to bail themselves out BUT you will be paying even higher prices with a devalued American dollar because the Fed is printing even more funny money that never existed.
Do you not realize when you are really getting fucked over by the system? A system that bush and his neocon cabal has gamed against you with all of these premeditated maneuvers...