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January 11, 2012 Author: Matt Taibbi Taken from: Rollingstone.com - Revolving Door: From Top Futures Regulator to Top Futures Lobbyist While America focused on New Hampshire, a classic example of revolving-door politics took place in Washington, going almost completely unnoticed. It’s a move that ranks up there with the hire of Louisiana congressman Billy Tauzin to head the pharmaceutical lobbying conglomerate PhRMA -- at a salary of over $2 million a year -- immediately after Tauzin helped ram through the Medicare Prescription Drug Bill, a huge handout to the pharmaceutical industry. In this case, the hire involves Walter Lukken, who toward the end of the Bush years was the acting head of the Commodity Futures Trading Commission. As the chief regulator of the commodities markets, it was Lukken’s job to spot and combat speculative abuses and manipulations that might have led to artificial price hikes and other disruptions. In 2008, the last full year of his tenure, Lukken presided over some of the worst chaos in the commodities markets in recent history, with major disruptions in the markets for food products like wheat, cotton, soybeans, and rice, and energy commodities like oil. Most notoriously, 2008 saw a historic spike in the price of oil futures, an enormously destructive speculative bubble that peaked in July of that year at the lunatic high price of $146 per barrel (Goldman, Sachs at the height of the mania was telling investors oil might go to $200 a barrel). It was Lukken’s job to spot the speculative abuses leading to disruptions like that bubble, but he didn’t do it. Instead, he repeatedly insisted that there was nothing untoward going on, most notoriously through testimony before the House and the Senate at the height of the oil boom. In testimony that summer, Lukken continually insisted that the price surge was due to normal supply-and-demand forces, ignoring the far more obvious explanation of a massive inflow of cash from commodity index speculators. Despite data showing that the amount of commodity index speculation had grown from $13 billion in 2003 to more than $260 billion as of March 2008 -- in other words, the amount of money betting on a rise in commodity prices had risen by a factor of twenty during that time -- Lukken on May 7, 2008 told the Senate that a more likely explanation for the surge could be found in the growth of industrial demand from places like China, and also, get this, in changes in the weather:
By insisting that the spike was “not a result of manipulative forces,” Lukken helped Wall Street in its efforts to avoid reforms that might have prevented such abuses, like the closing of a series of loopholes and exemptions that allowed a handful of major speculators to play a lopsided role in the setting of commodity prices. So what was Lukken’s reward for helping the financial services industry avoid such reforms? Well, Lukken has just been named to head the Futures Industry Association, or FIA, the chief lobbying arm of futures investors. This follows the Tauzin pattern of revolving-door hires: a government official carries water for a powerful industry, then moves on to take the cushy job with the industry’s lobbying arm once he leaves office. Among people who follow these markets for a living, the Lukken hire had an embarrassingly over-the-top quality, like a CEO who goes the appearances-be-damned route and puts his 23 year-old secretary/mistress on the board of directors. Mike Masters is head of the Masters Capital Management hedge fund and also chairman of Better Markets, a new non-profit advocacy group that promotes the public interest in the labyrinthine vagaries of the financial markets, and especially the commodities markets. He describes the hiring of Lukken as an extreme example of revolving-door politics. “It’s not the revolving door. It’s the express elevator,” he says. Masters remembers Lukken because the two men both testified before the Senate in that summer of 2008; he recalls watching the CFTC chief, aghast, when the latter continued to insist that there was nothing abnormal going on in the commodities world, despite a historic series of disruptions. “And it wasn’t just oil,” Masters says. “There was the debacle in the wheat markets, with cotton, with soybeans and corn, there were riots in the Phillipines over the rice markets. And Lukken was saying everything’s okay. It was crazy.” It was a see-no-evil, hear-no-evil approach to government oversight, which had far-reaching consequences in that crisis year. The CFTC, remember, also has purview over derivatives, meaning the failure to prevent the disastrous swap positions accumulated by the likes of AIG also falls, in part anyway, at the CFTC's doorstep. A Dow Jones news story contained a hilarious summary of Lukken’s blase administrative style, in which he was described as having downplayed the whole being-a-stickler-for-rules aspect of regulation:
Obviously this kind of thing has been going on forever in Washington, but some revolving-door hires feel worse and more shameless than others, and this is one of those. But really it's the same old story: regulators keep falling down on the job, and keep getting rewarded for it by Wall Street, and nothing gets done about it. |