[Ip-health] Revolving Door: From Top Futures Regulator to Top Futures Lobbyist
Riaz K Tayob
riaz.tayob at gmail.com
Thu Jan 12 11:56:03 PST 2012
Revolving Door: From Top Futures Regulator to Top Futures Lobbyist
POSTED: January 11, 4:50 PM ET
walter lukkenWalter Lukken returns to the witness table before the start
of the Senate Appropriations Committee Financial Services and General
Government Subcommittee and Senate Agriculture, Nutrition and Forestry
Committee joint hearing.
Bill Clark/Roll Call/Getty Images
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
-- 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
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
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
<http://hsgac.senate.gov/public/_files/052008Masters.pdf> -- 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,
2008told the Senate
<http://www.cftc.gov/PressRoom/SpeechesTestimony/opalukken-39> 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:
These are extraordinary times for our markets with commodity futures
prices at unprecedented levels. In the last three months, the
agricultural staples of wheat, corn, soybeans, rice and oats have
hit all-time highs. We have also witnessed record prices in crude
oil, gasoline and other related energy products. Broadly speaking,
the*falling dollar, strong demand from the emerging world economies,
global political unrest, detrimental weather and ethanol mandates*
have driven up commodity futures prices across-the-board.
On top of these trends, the emergence of the sub-prime crisis last
summer led investors to increasingly seek portfolio exposure in
commodity futures. As the federal regulator of these products, the
CFTC is closely monitoring these growing markets to ensure they are
working properly for farmers, investors, and consumers. To date,
*CFTC staff analysis indicates that the current higher futures
prices generally are not a result of manipulative forces*.
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
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 <http://www.bettermarkets.com/>, 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
"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:
When Lukken headed the CFTC, he backed a more flexible,
"principles-based" approach to regulation, different from what was
seen as the prescriptive and "rule-based" methods employed by the
Securities and Exchange Commission, which polices stock markets.
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.
More information about the Ip-health