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The Enron loophole has been closed and goes into effect on Sept 30, 2009

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LSK Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:04 AM
Original message
The Enron loophole has been closed and goes into effect on Sept 30, 2009
Edited on Thu Jun-19-08 10:55 AM by LSK
The Commodity Futures Modernization Act of 2000 or CFMA (Public Law 106554, 1(a)(5) , December 21, 2000, 114 Stat. 2763, 2763A365, 7 U.S.C. 1), was passed by the United States Congress and signed by President Bill Clinton in December 2000 in large part to allow for the creation of U.S. exchanges for the listing of a new sort of derivative security, the single-stock future.

The "Enron Loophole"

The CFMA has received criticism for the so-called "Enron Loophole," 7 U.S.C. 2(h)(3) and (g), which exempts most over-the-counter energy trades and trading on electronic energy commodity markets. The "loophole" was drafted by Enron Lobbyists working with senator Phil Gramm <1> seeking a deregulated atmosphere for their new experiment, "Enron On-line".

The prohibition on single-stock futures and narrow-based indices that had been in effect until the passage of this act was known as the Shad-Johnson Accord because it was first announced in 1982, as part of a jurisdictional pact between John S.R. Shad, then chairman of the U.S. Securities and Exchange Commission and Phil Johnson, then chairman of the Commodity Futures Trading Commission.

http://en.wikipedia.org/wiki/Enron_loophole




The Enron loophole fix has been included in the Farm Bill HR 2419: Farm, Nutrition, and Bioenergy Act which on May 22 was passed on a Veto override:
http://clerk.house.gov/evs/2008/roll315.xml and http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=110&session=2&vote=00140

SEC. 13106. PORTFOLIO MARGINING AND SECURITY INDEX ISSUES.

(a) The Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve System, the Chairman of the Securities and Exchange Commission, and the Chairman of the Commodity Futures Trading Commission shall work to ensure that the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), or both, as appropriate, have taken the actions required under subsection (b).

(b) The SEC, the CFTC, or both, as appropriate, shall take action under their existing authorities to permit--

(1) by September 30, 2009, risk-based portfolio margining for security options and security futures products (as defined in section 1a(32) of the Commodity Exchange Act); and

(2) by June 30, 2009, the trading of futures on certain security indexes by resolving issues related to foreign security indexes.



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SoFlaJet Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:07 AM
Response to Original message
1. I'm glad to see this finally getting some play
Randi was all over this in her classroom last week, and this week we saw Keith doing a special comment on it...
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Richardo Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:10 AM
Response to Reply #1
4. Was featured on 'Marketplace' on NPR the other day
Excellent, understandable piece.
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Muttocracy Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 02:50 PM
Response to Reply #4
22. is this it?
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Richardo Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 03:16 PM
Response to Reply #22
25. Yes!
:patriot:
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Ian David Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:09 AM
Response to Original message
2. Energy prices would drop 25% to 50% overnight with the stroke of a pen. n/t
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sam sarrha Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:09 AM
Response to Original message
3. tax them 90%.. and its over... use the money for a national solar project>LINK>>
Edited on Thu Jun-19-08 10:14 AM by sam sarrha


1. speculation looting 60% of Food....AND 60% of OIL and causing the mortage bubble.. who'd a known
http://www.onlinejournal.com/artman/publish/article_3252.shtml
snip"..."Perhaps 60 percent of oil prices today pure speculation

Goldman Sachs and Morgan Stanley today are the two leading energy trading firms in the United States. Citigroup and JP Morgan Chase are major players and fund numerous hedge funds as well who speculate.

In June 2006, oil traded in futures markets at some $60 a barrel and the Senate investigation estimated that some $25 of that was due to pure financial speculation. One analyst estimated in August 2005 that US oil inventory levels suggested WTI crude prices should be around $25 a barrel, and not $60.

That would mean today that at least $50 to $60 or more of todays $115 a barrel price is due to pure hedge fund and financial institution speculation. However, given the unchanged equilibrium in global oil supply and demand over recent months amid the explosive rise in oil futures prices traded on NYMEX and ICE exchanges in New York and London, it is more likely that as much as 60 percent of the today oil price is pure speculation. No one knows officially except the tiny handful of energy trading banks in New York and London and they certainly arent talking.

By purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $115 per barrel, if the futures price is even higher. As a result, over the past two years crude oil inventories have been steadily growing, resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices.

Compelling evidence also suggests that the oft-cited geopolitical, economic, and natural factors do not explain the recent rise in energy prices can be seen in the actual data on crude oil supply and demand. Although demand has significantly increased over the past few years, so have supplies.

Over the past couple of years, global crude oil production has increased along with the increases in demand; in fact, during this period global supplies have exceeded demand, according to the US Department of Energy. The US Department of Energys Energy Information Administration (EIA) recently forecast that in the next few years global surplus production capacity will continue to grow to between 3 and 5 million barrels per day by 2010, thereby substantially thickening the surplus capacity cushion.

http://www.star-telegram.com/ed_wallace/story/651928.html
snip"...Fiddling While We Burn

There it is in plain sight for everyone to see, exactly what Ive been reporting for the past few years: Many individuals who are investing in oil and natural gas futures are going out in the media and trying to convince the American public that either we are out of oil or there is a serious supply shortage of crude against worldwide demand. The question is: Does it surprise you to discover that the US Senate investigated the rigging of the oil market by speculators in the summer of 2006 and concluded that there was no supply and demand problem with oil? Did you know that their conclusion was that speculators were responsible for a 70 percent overcharge in the price of oil in the months leading up to the summer of 2006?

This from page 1 of the Executive Summary of that Senate investigation, there is this one troubling line: "Today, U.S. oil inventories are at an eight-year high, and OECD (Organization for Economic Co-operation and Development) oil inventories are at a 20-year high."

Thats odd because, in 2006, just like today, the media reporting covered the serious international shortage of oil and justified oils high price. Even more troubling is that the House of Representatives held a hearing this past December, ominously titled "Energy Speculation and Price Manipulation." How did it pass under the radar that both the Senate and the House studied the issue of price manipulation in our energy markets and both concluded that it was unregulated, massive trading in one futures market that was really driving up the price of oil and natural gas? And given that conclusion, why has Congress done nothing about it?"...

http://www.star-telegram.com/ed_wallace/story/659081.html
snip"...The Love of Money

Record high prices without record low oil inventories, analysts saying that so much money flows into oil commodities that it gives the impression of shortages, when in fact no shortage exists. That mirrors the situation in the commodities market for food, as Bloomberg pointed out in its April 28 article, "Wall Street Grain Hoarding Brings Farmers, Consumers Near Ruin": "Commodity investors control more U.S. crops than ever before, competing with governments and consumers for dwindling food supplies." Thats right; food, oil and gasoline have become an "asset class." No longer are you fighting a neighbor at the supermarket over the last box of Cheerios; now youre fighting the futures traders, who are actually determining what you will pay for that cereal. "


http://www.star-telegram.com/ed_wallace/story/541726.html
snip"...1. There Is No Shortage!

Gasoline reserves on hand have built up to the highest levels since the early nineties, which is remarkable considering that the nations refineries have been cutting back on the production of gasoline because their margins on gas have declined. In fact, gasoline reserves on hand have risen for 19 straight weeks, while oil reserves in this country have gone up in eight out of the last nine weeks and would have gone nine for nine if fog in the Houston Ship Channel two weeks ago hadnt kept oil tankers from unloading their crude.

In the same Bloomberg article that quotes Bodman from his CNBC appearance on March 4, he also said that thanks to ethanol the gasoline problem isnt worse. He then added that the fact that making ethanol is forcing up the prices of other farm commodities, including hog and chicken feed, is nowhere near as important as trying to relieve pressure on supplies.

Of course, there is no pressure on gasoline supplies in this country as of today, but Bodmans statement must have made eyes roll among the executives at Pilgrims Pride; they announced 1,100 layoffs on March 13, closing one processing plant and six of their 13 distribution centers because their companys price for chicken feed went up $600 million last fiscal year and was on track to increase by another $700 million this year.

Heres the scorecard, in case you missed it. Theres no shortage of gasoline or oil in the U.S. today, and we have near-record reserves on hand. Meanwhile, the Congressional mandate for ethanol has jacked up the price of chicken feed for Pilgrims Pride by $1.3 billion and thats just one companyprocessing chicken. This is what passes for acceptable to our Energy Secretary?
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malaise Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:13 AM
Response to Original message
5. This was done already - in the farm bill
Edited on Thu Jun-19-08 10:14 AM by malaise
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LSK Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:15 AM
Response to Reply #5
6. did it pass or did it get stripped out?
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malaise Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:17 AM
Response to Reply #6
8. Highlights of the New Provisions
from the link

Closing the Enron Loophole

The CFMA included a provision exempting from CFTC regulation energy and other exempt commodity contracts traded on over-the-counter (OTC) electronic exchanges by eligible commercial participants. Dubbed the Enron Loophole, this exemption allegedly enabled Enron Corporation to engage in manipulative trading practices undetected through EnronOnline. Amaranth Advisors LLC also allegedly was able to carry out its manipulative scheme because it maintained a large portion of its position in a market outside of the CFTCs jurisdiction. Driven by the fallout from Enron and Amaranth, as well as increased volatility in energy markets, Senator Feinstein, Levin and others repeatedly have tried to close the loophole.

The Reauthorization Act of 2008 brings energy commodities and metals traded on electronic exchanges that are exempt commercial markets (ECMs) within the purview of the CFTC by requiring ECMs to follow certain prescribed core principles with respect to contracts that the CFTC determines serve a significant price discovery function. These principles include the following:

* Listing only contracts that are not readily susceptible to manipulation
* Monitoring trading to prevent manipulation
* Obtaining and providing the CFTC with information on trader positions
* Adopting where necessary and appropriate speculative position limits or accountability rules
* Making price and volume information available to the public
* Adopting rules whereby the board of trade can exercise emergency authority

In addition, the CFTC Reauthorization Act of 2008 requires traders of such significant price discovery contracts (SPDCs) to maintain books and records of positions and transactions on electronic trading facilities and provide large trader reports to the CFTC.

-------------
What I want to know is whether this goes far enough!
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LSK Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:18 AM
Response to Reply #8
9. I just found the bill text on thomas
SEC. 13106. PORTFOLIO MARGINING AND SECURITY INDEX ISSUES.

(a) The Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve System, the Chairman of the Securities and Exchange Commission, and the Chairman of the Commodity Futures Trading Commission shall work to ensure that the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), or both, as appropriate, have taken the actions required under subsection (b).

(b) The SEC, the CFTC, or both, as appropriate, shall take action under their existing authorities to permit--

(1) by September 30, 2009, risk-based portfolio margining for security options and security futures products (as defined in section 1a(32) of the Commodity Exchange Act); and

(2) by June 30, 2009, the trading of futures on certain security indexes by resolving issues related to foreign security indexes.
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malaise Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:20 AM
Response to Reply #9
10. Why the fugg isn't this immediate? n/t
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LSK Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:20 AM
Response to Reply #10
11. that explains why prices have not gone down yet and may go higher this summer
They will probably get as much out of it as they can while they can.
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lonestarnot Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 11:04 AM
Response to Reply #10
21. Yeah why should we have to wait a fucking year? 1500 out of every American's pocket before they
shut it down. Fuck that!!
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Raksha Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 03:38 PM
Response to Reply #10
26. That's what I want to know too--Sept. 30, 2009 is over a year from now.
Edited on Thu Jun-19-08 03:40 PM by Raksha
Why couldn't it take effect immediately? Why let them continue gouging us for over a year?
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pink-o Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:15 AM
Response to Original message
7. Olbermann did a whole segment on it last night
...also talking about Wendy Gramm, wife of (McCain's economic advisor and former Texas Senator)Phil Gramm. Wendy was on the board of Enron, and with her husband and his Washington connections, suddenly that "loophole" ended up in a Congressional bill! The Enron loophole was the reason my state got screwed in 2001 with rolling blackouts and the "Grandma Millie" scandal, and we lost our Dem Gov (although, by hindsight, I don't miss Gray Davis at all).

So now here's McCain talking about offshore drilling, ignoring the Enron Loophole that he clamored to close just a couple of years ago.

And it's true: The only way to drive down oil prices now is to short-sell it on the market. Close the loophole, tax the obscene profits and get cracking on alternative sources!
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skids Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:46 AM
Response to Reply #7
13. link to olbermann
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LSK Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:47 AM
Response to Reply #13
14. yeah, I just saw it
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LSK Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:44 AM
Response to Original message
12. kick for revised title and information
Edited on Thu Jun-19-08 10:45 AM by LSK
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malaise Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:52 AM
Response to Reply #12
15. Is that September 9th of this year
or next year?
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LSK Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:56 AM
Response to Reply #15
18. I just realized it says September 30, 2009
Why so long???

:banghead:
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ThomWV Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:53 AM
Response to Original message
16. Maybe someone can explain just what part of that text does what?
Is it in (b)(1). I realize that context is necessary but I don't see anything in that text that causes anything to happen other than to permit greater latitude in creating future's products.
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malaise Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:55 AM
Response to Reply #16
17. I've been asking for help since last night
Does this bill go far enough? What does it really mean?
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LSK Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 10:58 AM
Response to Reply #16
19. try reading it like this:
The SEC, the CFTC, or both, as appropriate, shall take action under their existing authorities to permit-- by September 30, 2009, risk-based portfolio margining for security options and security futures products (as defined in section 1a(32) of the Commodity Exchange Act); and by June 30, 2009, the trading of futures on certain security indexes by resolving issues related to foreign security indexes.

These people seem to think its fixed:

http://www.closetheenronloophole.com
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malaise Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 11:02 AM
Response to Reply #19
20. Thanks a million
and they did override the veto at the end of May.
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SoCalDem Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 02:54 PM
Response to Original message
23. Why not do it NOW??
Why give the crooks a YEAR and 3 months to rip us all off some more..?

And with the gravy train coming to an end, they will be aggressive at grabbing all the last moolah they can:grr:
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malaise Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Jun-19-08 02:55 PM
Response to Reply #23
24. It makes no fugging sense n/t
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