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Ban on hedge fund oil investments considered - Oil & energy- msnbc.com…
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Marketplace But a growing number in Congress are convinced this "excessive
speculation" is responsible for record food and gas prices. After weeks
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via MSNBC Shopping of hearings on the issue, lawmakers are rolling out proposals to rein in
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On Wednesday, Sens. Joe Lieberman, I-Conn., and Susan Collins, R-
Start a business
Entrepreneur.com Maine, offered the harshest -- and to some observers, most misguided
Homes for Sale -- approach yet: banning pension funds, index funds and other large $7 trades, no fee IRAs
via HomePages.com investors from commodities markets.
Investments
$7 online stock trades The Homeland Security and Government Affairs Committee, which
Career Center Lieberman chairs, will discuss that approach and several others at a
via Monster hearing next week.
Autos
via MSN Autos The California Public Employees Retirement System, the nation's largest
public pension fund, has $1.3 billion, or 0.5 percent, of its total assets in
commodities, according to spokesman Clark McKinley. He added that
the fund's managers are still considering the Lieberman-Collins' plan
and would not comment.
Ban on hedge fund oil investments considered - Oil & energy- msnbc.com Page 2 of 4
The draft proposal is particularly surprising coming from Lieberman,
since Connecticut is home to hundreds of hedge funds, which are pools
of capital that traditionally have catered to institutional investors and
wealthy individuals.
A Lieberman spokeswoman said no hedge funds have called to complain
about the plan.
But experts said there is no precedent for such a sweeping ban on an
entire group of investors.
Politicians are "deluding themselves if they think these actions will lower
oil prices," said Craig Pirrong, who directs the University of Houston's
energy management institute.
If the market is allowed to run its course, Pirrong said, industry will
respond to natural incentives and develop alternatives to oil.
The latest proposal in Congress one-ups a bill introduced last week by
Sen. Dick Durbin, D-Ill., which would gather more information on
unregulated trades and tighten restrictions on those made over foreign
markets.
"Once we have disclosure of who's trading there -- pension funds,
hedge funds, banks -- then we'll be in a position to decide whether this
type of action is needed," Durbin said in a telephone interview
Thursday.
Analysts said intervention by Washington could actually push
commodity prices higher. That's because investment funds add liquidity
to the market, helping oil producers and consumers buy and sell freely
rather than horde scarce supplies.
"If they take that away, they make the market more unstable," said Phil
Flynn, an analyst at Alaron Trading Corp. in Chicago.
The regulators charged with overseeing commodity trading say a host of
factors are driving up costs, including higher demand for fuel,
geopolitical tensions and low interest rates.
But the economic analysis of bureaucrats is competing against the high-
volume rhetoric of consumers, farmers and now gas sellers. All blame
excessive speculation for rising prices.
On Tuesday, the largest association of U.S. gas stations rolled out a
campaign that directly targets Wall Street investors for drivers' pain at
the pump. The Petroleum Marketers Association of America is urging
Congress to "stop oil speculators," with cards and signs distributed to its
100,000 members.
With drivers already traveling less, gas station owners are afraid to raise
their prices higher and that is eating into their profits.
"We have members who are barely breaking even or even selling at a
loss," said Sherri Cabrera, a spokeswoman for the petroleum marketers
group. "Many are only profiting from their convenience store business."
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The Lieberman-Collins proposal would address most of the group's
concerns, though analysts doubt it will go very far.
"If there was any evidence that showed manipulation, rather than
speculation, was behind these higher prices then I think there's a small
chance this could pass," said Kevin Book, an analyst for Friedman,
Billings, Ramsey Group Inc. "In the present environment though, I think
it's a bit of a reach."
At a hearing Tuesday, Commodity Futures Trading Commission Acting
Chairman Walter Lukken could not rule out speculation as the source of
Ban on hedge fund oil investments considered - Oil & energy- msnbc.com Page 3 of 4
rising oil prices. The CFTC last month said it was investigating potential
abuses in the way crude-oil is purchased, shipped, stored and traded
nationwide, but did not reveal details.
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