The regulation of excessive speculation in commodity markets: what’s at stake

Civil society event at the World Bank spring meetings, 13 April 2011

14 April 2011 | Minutes

Professor Greenburg of Johns Hopkins University

  • Price volatility is not a demand situation but an issue with casino culture in banks
  • Speculative fever does not represent real demand and leads to price distortion
  • Supply and demand equilibrium remain the same despite price volatility
  • Limits imposed on speculative practices internationally are not enough
  • Speculation leads to significant price volatility leading to inability to effectively hedge prices
  • In 1991 Goldman Sachs invited wealthy people to bet against the market: they hedge their position by shorting markets; the paper market on oil was 13 times actual oil market
  • French, Japanese and Germans are committed to regulating speculation
  • Middle East crises has nothing to do with oil price volatility
  • Purely based on speculative attack

Sean Cota, advisor to US Congress on regulatory reform

  • "You measure bubbles after they collapse, until then it’s supply and demand"
  • Botswana to host unregulated markets
  • Leverage is good if used correctly otherwise can be destructive; it is a key component of speculation.  Market players can get infinite leverage.
  • There is a major glut of oil yet prices remain high, demonstrating market distortion of speculation
  • Over-financialisation and unregulated markets tend to create disequilibrium and major market distortion
  • Regulatory infrastructure needs to be developed

David Frank, financial analyst

  • Need to follow evidence
  • Level of commodity speculation is unprecedented
  • Speculators often engage in spreading investments to make up losses
  • Argument that speculation increases liquidity is specious at best
  • Amount of hedgers have actually declined while speculators have increased
  • Best solution is to allow 30% speculation maximum and to eliminate index funds