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Congress Must Close `London Loophole'
To Stop Speculation

May 20, 2008 (EIRNS)—"We've closed one loophole, where we hope to stop some of the excessive speculation that's taken place on the electronic exchange by closing the 'Enron loophole,' but there are other loopholes that need to be addressed, which we will now call the "London Loophole." These were the introductory words of Sen. Carl Levin (D-Mich.) at a hearing of the Senate Homeland Security and Governmental Affairs Committee, chaired by Sen. Joe Lieberman (I-Conn.). But Levin wasn't finished. "[T]he oil market is a farce," he continued, then quoted an oil analyst, whom he said represented his views, "'the speculators have seized control, and it's basically a free-for-all, a global gambling hall. And it won't shut down unless and until responsible governments step in.'"

Testimony followed, from a panel of witnesses which included the chief economist (representing the administration) of the Commodity and Futures Trading Commission (CFTC), Jeffrey Harris; hedge fund groups; and president of the National Farmers Union Tom Buis. One hedge fund rep, Michael McMasters, was actually highly critical of speculation, highlighting "index trading" which took advantage of the "London loophole" (to use Levin's term), allowing speculators to buy and hold futures contracts without any expiration date. This, he said, ammounted to an electronic form of "hoarding" which greatly increased the inflationary effect in the market. When he was through, chairman Lieberman simply gasped, "that certainly frames the issue, doesn't it..."

During questioning, administration witness Harris, a complete academic, became the target for Senators and witnesses alike. Levin scored Harris, complete with charts, for his testimony that he has "tried and tried," but somehow could never establish a link between speculation and hyperinflation. "You say 'that doesn't prove it,' but there it does accompany it.... You're supposed to be the cop on the beat," Levin said, yet, "you don't seem to even acknowledge [speculation's] existence." When Harris offered a weak defense, Levin cut him off, "You monitor, you update, [but] you don't do a thing about it!" He raised the case of Amaranth (as he did in his opening), which had at one point cornered 70% of the natural gas market, and that the CFTC never took any action. Sen. Clair McCaskill (D-Mo.) followed with, "the people of America are about to get pitchforks... if you don't [regulate speculation], we here in Congress will find a way."

This is one hearing which Committee member Barack Obama definitely should not have missed.