Lawmakers' zeal versus speculators could backfire

By Russell Blinch - Analysis

WASHINGTON (Reuters) - With a zeal fueled by rocketing oil and food prices, U.S. Congress is suddenly determined to bring rampant trading under control.

But rather than looking at excess consumption and demand, Congress is entering the murky waters of trying to control soaring prices, mulling bills that could well backfire and drive funds to less transparent but more accommodative bourses offshore.

In just one of a slew of bills, the House of Representatives overwhelmingly passed largely symbolic legislation on Thursday ordering regulators to "curb immediately" excessive speculation in commodity markets.

"It opens up a set of new tools they are not using," said Maryland Democratic Rep. Chris Van Hollen, referring to the Commodity Futures Trading Commission's emergency powers.

Chimed in House Speaker Nancy Pelosi: "The American people should not be punished at the pump for the actions of oil speculators."

Of all the bills, market players are most concerned about the Senate's End of Speculation Act which calls for an increase in margin requirements as a blunt tool to tackle price speculation. That bill has yet to be debated.

It is not clear what laws, if any, will emerge from Congress, especially with the White House adamant that it is inadequate supplies rather speculation causing the price shocks. But a White House veto could well be overridden if enough Republicans join the angry Democratic majority, as happened with Thursday's vote ordering the CFTC to take action.

Members of Congress will no doubt be facing an angry electorate over the Fourth of July break. Summer vacation will take a much bigger bite out of family budgets, with gasoline firmly above the $4 a gallon mark and oil doubling over the past year to above $140 a barrel.

Many Democrats in the House and Senate are blaming loopholes in the regulatory system and want the CFTC to lower the boom on the Las Vegas world of commodities trading.

"And these days, the problem is not only the number of people making these bets, but where they are making them on unregulated markets and easy-to-find loopholes," said Democrat Rosa De Lauro, speaking in favor of the bill that directs the CFTC to use its emergency authority to rein in the speculators.

MISSED OPPORTUNITY

But analysts believe Congress is missing the real culprit behind soaring commodity prices -- American consumers' addiction to oil.

James Angel, a professor at Georgetown University, said the Congress is feeling intense pressure and is casting about for solutions.

"The idea is, 'Oh, let's go and do something to get those evil speculators out of the market.' Personally I don't think the reforms are going to do a whole lot of good in that respect."

"But I think the thing that can change the market is for us to send a strong signal to the rest of the world that we are seriously going to transition away from import petroleum. Once the petroleum producers figure that out, prices will fall dramatically.