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Why Elizabeth Warren Is on the Warpath This Week

This is how big business fights government regulations—from the inside.

Alex Wong/Getty Images

One of the many ways that you can discern how unserious Washington is about strong oversight and enforcement of big business is through the spectacle of “advisory committees.” Many federal agencies rely on these assemblies of experts to review policies and formulate recommendations. But the committees can also become an enhanced form of lobbying, where industry participants with a direct motive to loosen regulatory reins get a direct line to policymakers. 

That’s exactly what’s going on with a long-delayed rule by the Commodity Futures Trading Commission (CFTC), designed to curb runaway speculation in oil, gas, and other energy markets. The CFTC’s Energy and Environmental Markets Advisory Committee recommended Wednesday that the agency abandon the so-called “position limits” rule. But the members of the committee almost all come from companies and trade groups that would stand to profit if the CFTC followed their advice.

“It is no surprise that a skulk of foxes has decided that chicken is delicious,” said Sen. Sherrod Brown in a statement. “What is surprising is that the CFTC would create a committee designed to undermine the law it’s charged with enforcing.” Sen. Elizabeth Warren called the report “little more than a list of talking points for an industry that hopes to escape meaningful regulation.” And Hillary Clinton, through her campaign’s chief financial officer Gary Gensler (himself a former head of the CFTC), said that she “rejects these recommendations,” adding that the rules “are a critical tool in curbing excessive speculation and protecting the integrity of markets.

The Dodd-Frank Wall Street Reform Act required the CFTC to establish limits on the amount of futures contracts that speculators could hold in any one commodity. Many blame excessive speculation for the spike in oil prices in 2008, when it moved from $60 to $147 a barrel in the space of a year. Even Saudi officials say speculation added up to $40 a barrel to the price at the height of the bubble.

The CFTC finalized the position limits rule in 2011, one that senators Bernie Sanders and Maria Cantwell derided as too weak. Nonetheless, the International Swaps and Derivatives Association and other trade groups sued CFTC to block the rule, enlisting Eugene Scalia, the late Supreme Court justice’s son, as lead counsel. And they succeeded in getting the rule tossed out.

The CFTC tried again in 2013, proposing a tighter rule that responded to the judicial order by citing the legal necessity for curbing excessive speculation. The rule was on the verge of being finalized when the Energy and Environmental Markets Advisory Committee (EEMAC) deemed it unnecessary this week. “There is little to no evidence that excessive speculation exists or has existed,” the EEMAC report’s authors write. In fact, they add, “the problem is insufficient speculative activity,” which is creating problems for legitimate market participants who want to lock in lower prices and hedge risk. (This appears to be incorrect, as there has been record trading recently.)

The committee, which was established by Dodd-Frank, has nine members. Though it is supposed to express a “wide diversity of opinion” and “a broad spectrum of interests,” eight of the nine members represent companies or industries with a financial interest in killing the position limits rule, or have a personal financial interest themselves. 

Committee member James Allison is a longtime retired oil executive with ConocoPhillips. Lopa Parikh is a lobbyist with the Edison Electric Institute, a utility trade group; Dena Wiggins is the president of the Natural Gas Supply Association. Michael Cosgrove (Vectra Capital) and William McCoy (Morgan Stanley) work for proprietary traders that buy and sell commodity futures. Benjamin Jackson (ICE) and Bryan Durkin (CME) represent for-profit exchanges and clearinghouses for commodity trades. 

The recent inclusion of Craig Pirrong on the committee is perhaps the most flagrant example. Pirrong, who co-wrote the first draft of the report with James Allison, is a professor of finance at the University of Houston, who has been paid by several industry participants and trade groups for his research into commodity speculation. He was also a paid research consultant for the International Swaps and Derivatives Association, the very group that got the initial rule overturned by the courts.

The CFTC report relies mostly on Pirrong’s research and a presentation he made to the committee last year, which did not include the opinion of anyone who believes in the dangers of excessive commodity speculation. In fact, 10 of the 13 witnesses at EEMAC meetings came from industry, two were representatives of CFTC, and the other was Pirrong. The meetings never mentioned that there would even be a final report.

As Public Citizen’s Tyson Slocum, the only non-industry committee member and the only one to dissent from the recommendation, points out, Pirrong was not on the committee until after he co-authored the report. Pirrong “is so new to the EEMAC,” Slocum wrote in a minority dissent, “that I only learned he was a member when he was listed as a co-author.” 

Christopher Giancarlo, a Republican CFTC commissioner who formerly worked for a derivatives brokerage firm, inexplicably presides over the EEMAC meetings, which are supposed to provide independent insight to the agency. Instead of sending the draft recommendation to the committee members for their collaborative input, the report got sent to Giancarlo, according to Slocum. Afterwards, Giancarlo distributed the report to the committee members, seeking support for the recommendation within two weeks. There was no public discussion of the report’s conclusions and no public vote. Giancarlo did not address this at a meeting of the EEMAC on Thursday, saying only, “I believe it would be imprudent for the CFTC to move forward with the current proposal without lessening its adverse impact.” Efforts to reach Giancarlo have been thus far unsuccessful. 

It’s clear that this advisory committee is just a dressed-up lobbying shop designed to perpetuate industry views, laundered through a non-industry setting. In a scathing letter to Giancarlo released on Thursday, Warren asked that he withdraw the report because EEMAC did not comply with the law. “The EEMAC appears to have reached its conclusions without hearing from a single objective economic expert witness without ties to the industry, let alone anyone representing the interests of consumers or the general public,” Warren wrote.

The EEMAC report recommends that, instead of the position limits rule, the industry implement an “accountability regime” for excessive speculation, one that was already in place prior to Dodd-Frank’s position limits provision. “In other words,” Warren wrote, “the industry should just police itself.”

The for-profit exchanges (ICE and CME) who would enact this self-regulation hold two slots on the EEMAC. Slocum questioned whether companies that profit from additional trading would have any incentive to hold down speculation. The report promises they would be able to do so. In reality, the CFTC recently fined ICE $3 million for data reporting violations and not responding to inquiries from CFTC staff.

This kind of lobbying-in-disguise is all too commonplace in Washington. Advisory committees often get an unearned respect for providing objective viewpoints on key issues. As the Washington Post reported in 2014, the advisory committees to the U.S. Trade Representative, which gave key advice on the Trans-Pacific Partnership, are mostly composed of industry players whose companies would benefit from new trade agreements. 

The CFTC doesn’t have to listen to its advisory committee; they could instead follow the congressional mandate to set position limits. But it’s shocking to see a committee report with the imprimatur of the CFTC that does nothing but regurgitate industry talking points. It makes it harder to trust advisory committees across the government.