The Government Sometimes Does SOME Good Things!

You may have missed both the late May announcement and then today's press coverage of investigation of the effect that futures traders were having in influencing the price of oil with their extremely short-term, computer-driven manipulation of the oil futures markets.

In May of this year, surging oil prices which reached a record above $135 a barrel causing gas to go to close to $4 a gallon, prompted inquiries from members of Congress about the commission's oversight of energy markets. At the time, there was no logical relationship between the supply and demand for oil and the wildly escalating price. Congress approved a measure to strengthen CFTC oversight of electronic energy trading, and said they would consider increasing margin requirements to reduce speculation in oil markets. Banking lobbyists were successful in blocking passage of laws to increase margin requirements, but the regulations themselves were tightened significantly.

It's been quiet for a couple of months. Apparently the CFTC was doing some early investigation of who was doing the market-moving trading in oil futures. Then today, Deutsche Bank AG announced that it is closing a popular exchange-traded leveraged oil fund amid a clampdown by regulators on the holdings and trading patterns of leveraged funds.

Deutsche Bank said Tuesday it plans to redeem all shares of the $425 million PowerShares DB Crude Oil Double Long exchange-traded notes on Sept. 9.

The fund closure marks the first casualty of the increased regulatory scrutiny of exchange-traded investment funds that use leverage to invest in commodities markets. Word from Wall Street indicates that several other leveraged commodities funds would be announcing closure within days.

I know the trading of commodity futures and other derivatives might be some pretty exotic stuff for many to understand. But when gas went to close to $4 a gallon it hurt all of us, even though some Wall Street commodity futures traders were getting filthy rich.

Some may say that the free markets are always the best choice and produce the best economic results. That may have been the case before Wall Street invented some pretty exotic and hard-to-understand financial products and created the markets to trade them. In a competitive free market, price will function to equalize the quantity demanded by consumers, and the quantity supplied by producers, resulting in an economic equilibrium of price and quantity. But when financial derivative products are added to the supply-demand formula, the results are often badly distorted to favor those attempting to manipulate the markets. Now, stringent government regulation is about all that stands between a few greedy Wall Street traders and the rest of us, who have little knowledge of how what they do affects us. The world is a whole lot more complicated than when Adam Smith extolled the virtues of supply and demand at the time our nation was founded.

In this case, props to both the Congress and the CFTC for promptly taking regulatory action to protect the public from the greedy Wall Streeters and foreign banks.

You won't hear me complement our dysfunctional Congress very often. But in this case, they should get a pat on the back.