Washington, DC—Senate Majority Leader Harry Reid made the following statement today on the floor of the U.S. Senate regarding the Stop Energy Speculation Act
“With gas prices setting new record highs every day, now $4.12 nationwide, we all know there is neither one cause to blame our energy crisis, nor one silver bullet that will solve it. We know that the causes include political instability in the Middle East, the relative weakness of the dollar, the failure of oil companies to use their record profits to invest in new refinery capacity, and of course the outpacing of global demand to global supply.
“President Bush said yesterday: ‘there is no immediate fix. This took us a while to get in this problem; there is no short-term solution.’
“Democrats agree that nearly eight years of Bush-Cheney oil-happy energy policy has created a crisis that the American people will face well past this Administration. We also agree that this is a long-term problem that requires long term solutions, including tax cuts for innovators who are developing the clean, alternative fuels – like solar, wind and geothermal – that could end our addiction to oil forever.
“But there are steps we can take right now to lower gas prices and ease the burden of this crisis for American families. Today, we are introducing one part of that plan – the Stop Energy Speculation Act of 2008. This legislation attacks a major reason for record gas prices: excessive speculation among Wall Street traders – which economists estimate causes 20-30% or more of the price we pay at the pump.
“Eight years ago, former Senator Phil Gramm, who now serves as Senator McCain’s economic advisor, championed legislation called the ‘Commodity Futures Modernization Act.’ Among other things, this legislation allowed traders to buy and sell oil without ever actually taking physical delivery of it. Because of this new law, a ‘mouse-click’ energy market was born overnight.
“That means that right now, Wall Street traders can raise oil and gas prices simply by logging onto their computers and executing a few trades. Without regard for anything but their own profits, traders are bidding up prices by buying huge quantities of oil just to resell at an even higher price. The result has been a new class of investor getting rich by buying oil only to turn around and sell it at an ever higher price, only to stick consumers with the bill.
“Sadly for American consumers, the Commodity Futures Modernization Act also rendered toothless the federal watchdog that is supposed to prevent this kind of excessive speculation. Similarly, the Bush-Cheney Administration has turned a blind eye to this increasingly excessive speculation.
“Our legislation will finally hold the energy futures market to the same standards of accountability that other futures markets are held. This is a matter of fairness and common sense. We’re not saying that all speculation is bad. It can be healthy in a well-functioning market. It can help the market find the most efficient price.
“But with the watchdog asleep, speculation has gotten out of hand and is driving oil prices sky high. That is why the American people so desperately need this legislation, which contains several important components:
- Closes what some call the ‘London loophole’ – which allows oil traders to use a foreign exchange with loose rules on speculation to evade tougher U.S. laws.
- Requires the Commodities Futures Trading Commission (CFTC) to set position limits on the purely speculative traders of energy commodities — those who aren’t hedging or ever intending to take delivery of the physical commodity. We don’t think any single entity should be able to hold enough futures contracts to warp the market and make prices skyrocket.
- Develops more information on large energy commodities traders in over-the-counter markets. Traders would be required to file regular reports, with the CFTC required to intervene whenever these large traders’ activity causes a major market disturbance.
- Continues the CFTC’s important efforts to collect regular information about the activities of index traders and swap dealers, and how their actions affect the commodities market. This will allow us to be sure they are not adversely impacting price discovery.
- Requires the CFTC to hire an additional 100 employees to improve enforcement and transparency.
- Finally, our legislation helps the Department of Energy collect the information it needs to make more accurate predictions on oil prices and directs the Federal Energy Regulatory Commission to examine how financial institutions might be affecting natural gas markets.
“Is this legislation a silver bullet to solving our energy crisis? Of course not. But it is one step – an important step that we can take now to lower prices and ease the burden of this crisis for the American people. And we believe it is a step Republicans should have no problem supporting.”