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Crackdown urged on speculation in commodities markets Diana B. Henriques In Washington, financial speculators have a fat target on their backs. They are being blamed for high gasoline prices, soaring grocery bills and volatile commodity markets, and lawmakers are lashing out at market regulators for not cracking down on them more vigorously. "You study it, but you don't act against this incredible increase in speculation," Senator Carl Levin complained to a senior official of the Commodity Futures Trading Commission at a recent Senate hearing. "Unless the CFTC is going to act against speculation, we don't have a cop on the beat." Just this week, Senator Joe Lieberman, the Connecticut independent, said he was working on a proposal to ban large institutional investors from the commodity markets entirely. The same day, the administration of President George W. Bush approved another Senate proposal for the creation of a federal interagency task force to investigate commodity speculation. At least four public hearings have explored the topic in just the past two months, and Lieberman has scheduled another session on June 24.
(Article continues below) This escalating rhetoric against speculators is starting to worry people with years of knowledge about how commodity markets work. Because without speculators, they note, these markets simply do not work at all. Speculators, people willing to risk their capital in search of high profits, are so central to healthy commodity markets, they say, that the broad-brush restrictions now being considered could inadvertently damage a market that is already under pressure from rising global demand for food and fuel. Even in Washington, there is widespread agreement that no single factor is responsible for rising food and energy prices. The hungry, high-growth economies of India and China are fundamentally affecting worldwide demand, while uncooperative weather, and government policies on trade and ethanol, are among the many factors affecting supply. And commodities, priced in dollars, tend to rise in price as the dollar weakens, making commodities a haven for investors fearful of future inflation. But beneath all these external factors is the simple see-saw of the marketplace: For every person trying to buy oil at $130 a barrel, there must be another person willing to sell at that price - and, odds are, one of them will be a speculator, taking a risk in hopes of profiting from the next big price move.
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