More Friday Financial Follies

I’m definitely not an economist, but here’s how the markets seem to work (as nearly as I can get this); our weak dollar pushes up the price of oil, and when the price of oil hits a new record (sending oil futures soaring), the Dow Jones tanks, as it's doing again today. Other bad financial news impacts that also, of course, including unemployment statistics, as well as questions about whether Fannie Mae or Freddie Mac will need a bailout, as is apparently the case as well.

Where am I going with this? Well, this is actually a setup to a comment about this column from Kimberly A. Strassel of the Wall Street Journal in which she more or less compliments Dick Durbin (as much as anyone from the WSJ would compliment a Democrat, which is with faint praise of course) over his “hands off” actions towards the futures markets, which are based in Chicago (and Durbin being one of the two senators from Illinois; perhaps you’ve heard of the other one? Hint: He bailed on FISA a couple of days ago)…

Give Mr. Durbin credit: He's a main reason the Chicago futures markets have continued to thrive. It was Mr. Durbin who only recently helped ensure the (Chicago Merchantile Exchange)-Nymex deal passed antitrust muster. It was Mr. Durbin -- along with Rep. Rahm Emanuel, a Chicagoan, former CME board member and House Democratic Caucus Chair -- who in February sent a public screed to both Treasury and Justice, incensed that Justice would even suggest changes in the structure of the futures markets. It was Mr. Durbin who at that time praised the Commodity Futures Trading Commission for its "vigorous oversight" of the futures markets. That would be the same CFTC that his colleagues are now bashing as an ineffective regulator.

Strassel maligns Democrats throughout much of this column (no surprise) because they, in the persons of Senators Maria Cantwell, Dianne Feinstein and Ron Wyden (as well as Repugs Ted “It’s A Series Of Tubes!” Stevens and Olympia Snowe) have written to the Commodities Futures Trading Commission in an effort to restrict the trading of oil futures, which might keep the price of oil from soaring to new levels every other day or so.

Admittedly, since we’re talking about WSJ editorial commentary, it is “through the looking glass” to begin with. But I took issue in particular with the following…

…under the Durbin strategy, (the Democrats) can continue the sham of getting tough on speculators, all the while knowing (Durbin) will see to it they aren't allowed to wantonly destroy U.S. financial markets. As a bonus, Mr. Durbin can privately take credit for rescuing his hometown industry, sucking up its support and donations for his re-election bid this fall. The only losers are voters, who've yet to be let in on the joke of this "speculation" farce.

The so-called “farce” of speculation in futures, though admittedly not the primary cause of high gas prices (but still a factor – oil is a futures commodity), was turned into a means of making vast sums of wealth as a result of, as The Nation tells us here, “a bill exempting energy trading from regulation (inserted) into (former President Bill) Clinton's omnibus appropriations act (of 2000), avoiding hearings, floor debate and notice.” And as a result, “Enron was all set to operate in the dark” (Enron’s energy futures contracts were exempted from oversight shortly before Clinton was sworn into office in 1993).

The Nation article then goes on to tell us that Enron generated an illusory “fortune” built on energy futures speculation, which the company then used to lobby for even more deregulation before it eventually collapsed in the largest corporate bankruptcy in our country’s history, taking down investors and service-dependent consumers all over the place.

Oh, and by the way, the person who wrote the bill exempting energy trading from regulation and thus helped turn Enron into a “player” in the futures market was none other that Phil (“Whining Americans”) Gramm, and the person in charge of the Commodities Futures Trading Commission who exempted Enron’s futures contracts from regulation was Wendy Gramm, Phil’s wife (noted in the Nation article).

Update: Here's more fun with Phil Gramm, by the way.

I suppose at least one lesson to be drawn from this is that a McCain presidency (God help us) would guarantee further deregulation of futures commodities, including oil, and allow new Enrons, if you will, to operate in unregulated fashion with little if any oversight (which I’m sure would suite Strassel and her ilk just fine).

Among the results, you can rest assured we will continue to “get it” at least two ways: first, from ever-escalating gas prices, and second, from the continued evaporation of whatever investment earnings we may have gained when the soaring cost of a barrel of oil causes a stock market plunge like what we are witnessing again today.