FORTUNATELY, MARKETS CAN'T STAY FIXED:

Reining In the Oil Speculators: Oil prices have subsided, but some in Congress say more regulation of the futures markets is still needed (Moira Herbst, 9/11/08, Business Week)

Institutional investors drove oil prices to all-time highs this summer, and the same players are also responsible for much of the $44-per-barrel loss since then, according to a Sept. 10 report that is being used to bolster calls for greater trading regulation.

The report from a hedge fund investor who has grown prominent in the oil speculation debate, Michael Masters, comes as crude oil has staged a 28% retreat in the past two months. [...]

According to Masters' report, an influx of "long-only" investors—large investors like pension funds and endowments that bet prices would rise—poured into the oil market in recent years. Their investments reached a peak on July 11, when oil prices hit an all-time high above $147 per barrel. Then, beginning on July 15, institutional investors "began a mass stampede for the exits" of commodities indexes like the S&P Goldman Sachs Commodity Index, according to Masters. Investors withdrew about $39 billion from the index, resulting in the selling of about 127 million barrels of West Texas Intermediate crude futures. The report says that crude futures have dropped by about $29 per barrel as a result of this selling.

We all have an obvious interest in barring pension funds from Ponzi schemes. Harvard can take care of itself.

Posted by Orrin Judd at September 11, 2008 7:32 AM