According to a reports in The Wall Street Journal, the CFTC will blame speculators for swings in crude prices a year ago. Previously, the agency had claimed supply and demand of crude had been the major culprit. The CFTC now says the data it used in its analysis was flawed.
The news gets to the heart of why the government has trouble making decisions on how to regulate markets and make them operate with more transparency and efficiency. Congress is beginning to look into legislation to curb speculation in the derivatives markets. Naked short selling was recently banned which is odd because the practice was already against the law. There has never been an effective system for monitoring short selling practices, which should be a part of any effective system to regulate it. There have also been several calls for laws to keep credit rating agencies from conflicts of interest between paper that they rate and who pays for those ratings.
Regulating or re-regulating part of the economic system cannot be effective if the analysis of the systems themselves is weak and is not in the process of being improved. Congress may want to look at the “quality of analysis” problem before it works on correcting market activity which may or may not be based on the abuses of the system depending on what data and interpretation practices are used.
Douglas A. McIntyre
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