Loony Bird Lieberman and commodity speculation

Meanwhile, the other senator from Connecticut, Loony Bird Lieberman wants to ban institutional investors from commodity speculation, a proposal which demonstrates his almost total ignorance of how markets work. While speculation is certainly part of it, increasing demand and flat-to-declining supply is the more probable driver of price rises.

Speculators can and do provide a bottom in declining markets, buying when others are afraid to, thus stabilizing prices. Plus, some speculators now are undoubtedly betting prices will fall, are they now the Good Guys fighting for the American Way (AKA cheap oil) against the evildoers who heartlessly scheme for more price rises? Stay tuned for the next exciting installment from Lieberman World.

A better plan would be to increase the amount of margin necessary to make trades and cap the amount of open contracts permissible. But banning institutional investors completely would almost certainly destabilize the markets at a time they don’t need more uncertainty and probably create all manner of unintended and negative consequences. Not that that matters to the loose cannon senator from Connecticut.

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