Democrats on Energy - A Rebuttal

Following is a rebuttal to the blog post titled Democrats on Energy.

• $4 gasoline is caused as much or more by speculators than supply constraints.
• The rise of speculation in the oil business was caused by deregulation--the Commodity Futures Modernization Act of 2000 in particular, also known as the Enron Loophole.
• The Enron Loophole was written by lobbyists from Enron and introduced by Phil Gramm, who tacked it on to an 11,000-page reauthorization bill mere hours before a Christmas break.
• The Enron Loophole is directly responsible for the current credit crises (housing meltdown) AND energy prices.
• Phil Gramm wrote John McCain's economic plan--before he stepped down for calling America a nation of whiners.
• Offshore drilling has also been opposed by real estate developers, tourism industries, environmentalists, and Florida politicians, including former governor Jeb Bush. Even John McCain opposed offshore drilling up until June 2008.
• Oil companies themselves are not drilling the 68 million acres that are currently available for offshore drilling. For example, 498 out of Chevron's 796 leases are undeveloped.
• The impact on prices will be "insignificant" and wont be seen until 2030, according to the Energy Department's Energy Information Administration.
• Even T. Boone Pickens, a Texas oilman, recognizes this is a problem that we can’t drill ourselves out of. “Did you know America uses 25% of the worlds oil but only has 3% of the worlds oil reserves? And the big debate in Washington now is whether or not to drill. I say, ‘drill, drill, drill.’ The debate misses the point. Either way, we’ll still be dependent on foreign oil and on the way to the largest transfer of wealth in the history of mankind.”

Read on to learn more about the role Phil Gramm played in crafting legislation that put us in this mess today, including his monumental moral and ethical lapses in doing so. Then ask yourself, what does it say about John McCain that he selected this man to chair his campaign and write his economic plan?

---

"In the early evening of Friday, December 15, 2000, with Christmas break only hours away, the U.S. Senate rushed to pass an essential, 11,000-page government reauthorization bill. In what one legal textbook would later call 'a stunning departure from normal legislative practice,' the Senate tacked on a complex, 262-page amendment at the urging of Texas Sen. Phil Gramm."

"Financial wizard Warren Buffett has labeled the risky new investment instruments Gramm unleashed 'financial weapons of mass destruction.'"

"Gramm created what Wall Street analysts now refer to as the 'shadow banking system,' an industry that operates outside any government oversight, but, as witnessed by the Bear Stearns debacle, requiring rescue by taxpayers to avert a national economic catastrophe."

"That Gramm is now advising the Republican nominee for president on economic matters 'shouldn’t give people a lot of comfort,' says University of Maryland law professor Michael Greenberger, a senior official at the Commodity Futures Trading Commission in the late 1990s. 'Gramm has been a central player in two major economic crises -- the credit crisis and the incredibly high price of energy. ... He’s got his fingerprints all over legislative efforts that led to this.'"

"The impact of the 'Enron loophole' has been enormous. Since its passage, the Senate Permanent Subcommittee on Investigations has concluded that the loophole contributed to inflated energy prices for American consumers. In 2006, its report found credible expert estimates that the loophole--by encouraging speculation--accounted for $20 of the price of a barrel of oil, then at $70. In 2007, the same committee blamed the loophole for excessive speculation by hedge fund Amaranth Advisors that led to the distortion of the natural gas market."

- The Texas Observer, May 30, 2008


"For most of the past century, regulators put limits on financial actors to prevent them from dominating commodity exchanges, which were much smaller than the bond or stock markets. Only commercial operations, such as farms, airlines, manufacturers and the middlemen that handle their trading activities, were allowed to buy nearly unlimited quantities. The goal was to allow these businesses to minimize the effect of price swings.

"The first major change to this regulatory framework occurred in 1991, when Goldman Sachs, through a subsidiary called J. Aron, argued that it should be granted the same exemption given to commercial traders because its business of buying commodities on behalf of investors was similar to the middlemen who broker commodity transactions for commercial firms.

"The CFTC granted this request. More exemptions soon followed, including one to the Houston-based energy trader Enron.

"When the CFTC granted the 1991 hedging exemption to J. Aron (a division of Goldman Sachs), it signaled a major shift that has since allowed investors to accumulate enormous positions for purely speculative purposes," said Rep. Bart Stupak (D-Mich.) Now, he added, "legitimate businesses that hedge and take physical delivery of oil are being trampled by the speculators who are in the market purely to make profit."

"A second turning point came when Congress passed the Commodity Futures Modernization Act of 2000. The law formally allowed investors to trade energy commodities on private electronic platforms outside the purview of regulators. Critics have called this piece of legislation the "Enron loophole," saying Enron played a role in crafting it.

-- washingtonpost.com, August 21, 2008

---

http://www.washingtonpost.com/wp-dyn/content/article/2008/08/20/AR2008082003898.html?hpid=topnews

http://www.texasobserver.org/article.php?aid=2767

http://www.time.com/time/politics/article/0,8599,1824538,00.html?xid=rss-topstories

http://www.washingtonpost.com/wp-dyn/content/article/2008/07/13/AR2008071302052.html

http://www.washingtonpost.com/wp-dyn/content/article/2008/06/16/AR2008061602731.html http://pickensplan.org/index.php