The Great Debate

Massad: Taking the reins on derivative reforms

The Senate Agriculture Committee met Tuesday to approve the nomination of Tim Massad as chairman of the Commodity Futures Trading Commission, even as the agency fumbles over the definition of a “swap.”

When Massad testified at Senate hearings last month, he stated flatly that speculation can affect prices. Then, he hedged. “There are many, many factors that affect prices,” Massad added, “and sometimes it’s difficult to measure what the impact is of any particular factor.”

While he pledged to pass limits on the number of contracts that commodities speculators can hold, this hazy testimony reflects how little is really known about how the new CFTC chairman, if confirmed, will shape the derivatives market.

Massad’s hedging also reveals how difficult it is to pass reform. Of course, any official following in former Chairman Gary Gensler’s footsteps would seem restrained and even-keeled. Gensler seemed to delight in ramming through rules that made bankers cringe.

When compared to Gensler, Massad seems even more tepid. As a partner in the corporate finance group of Cravath, Swaine and Moore, Massad’s appointment has also raised questions about his ability to impose tough regulations. Other revolving-door public servants have also been suspected of continued private-sector loyalty.

The real reason for spikes in food prices

Spikes in grain prices are regularly blamed on oil shocks, droughts and emerging markets’ hunger for meat. The real culprit in the three bubbles-and-busts of the last five years, however, isn’t the weather. It’s financial speculation.

The Midwest drought this summer, the worst in a half-century, produced a bumper crop of profits for derivatives traders like Chris Mahoney, the director of agricultural products for Glencore, the world’s largest commodities trading firm. Mahoney noted during one August conference call that tight grain supplies and the resulting arbitrage opportunities “should be good for Glencore.”

They’ve been a disaster, however, for the world’s poor.

More than 40 percent of grain futures can now be traced to financial institutions, which nearly doubled their commodity bets over the last five years — from $65 billion to $126 billion.

Senators press tough line on commodity rules


Prominent senators have put Gary Gensler’s nomination to head the Commodity Futures Trading Commission (CFTC) on “hold” in a bid to force the administration to take a tougher line on commodity regulation.

Gensler’s nomination was approved by the Senate Agriculture Committee on March 16, but almost immediately put on ice before it could reach a vote on the Senate floor by Senator Bernie Sanders (Independent, Vermont) and one other unidentified senator.

Holding a nomination is a relatively common procedure allowing any senator to request a delay before it moves to a vote on the Senate floor, ostensibly to seek more information or testimony from the nominee.