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Bad Ideas Never Die

Sometimes you'll see a proposal mentioned by a politician that sounds appealing based on emotion. Unfortunately, many of these proposals exist for no other reason than to say to the electorate "We Care!". And such is the case with the Commodity Futures Trading Commission's (CFTC) announcement that it will investigate the idea of clamping down on speculative trading positions in futures markets contracts for energy and other commodities of finite supply.

Speculators get no love, but they serve a vital function by helping market participants to price oil and other commodities today based on prospective supply and demand conditions. Geoffrey Styles provides a good rundown as to why he sees this as a witch hunt against speculators based on flawed assumptions about how futures markets actually work. Oil prices have been volatile as of late, but Michael Giberson of Knowledge Problem adds that much of this recent volatility reflects uncertainty over the economic outlook (green shoots, anyone?) and impeding the flow of information provided by energy futures markets could have the same consequences as the Congressional ban on onion futures trading did back in the 1950s.

Posted 07-10-2009 3:13 PM by Brian Lego
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