Congress Blames the Hedge Funds—Yeah, That’s It!
I got a call from a Congressman recently.
I’d met with his staff early last year after testifying before Barney Frank’s Financial Services Committee, which was looking into hedge funds and whether the presence of so many big hedge funds was a destabilizing influence on the American economy.
[Full disclosure: I once worked for Senator Ed Brooke of Massachusetts, then under a cloud over matters arising from the fallout of his divorce—a divorce that was, as America now knows, triggered by the Senator’s affair with Barbara Walters. Barney Frank back then was the only politician with enough guts to stand by Brooke. I still like him for that.]
My colleagues and I told Frank’s committee, in essence, “No, hedge funds aren’t destabilizing—in fact they help provide liquidity.” And that’s pretty much how it worked in the ensuing credit crisis that began about three months later, although it was clear at the time that a few on the committee weren’t convinced.
Now, this particular Congressman I spoke with recently was in no way the least intelligent of the bunch asking questions in that room. (Carolyn Maloney was what might politely be termed the “least value-add,” from what we saw: she read a statement that basically indicated she wasn’t going to listen to a word of what we said, asked a question that indicated she wouldn’t know a hedge fund from a tomato, and then headed out the door for something else.)
This particular guy seemed bright and interested in what we had to say, and his call this week wasn’t completely out of the blue (I’d made friends with a staffer, who was working on energy policy). He sincerely wanted to know what I thought was driving oil prices higher.
I explained the fact that a) world oil demand is up 12 million barrels a day since 2000, and non-OPEC oil supply is up only 4 million barrels a day since 2000, and b) America decided to convert food into ethanol at the very moment that c) China’s demand exploded. That’s pretty much the whole story, but the Congressman wasn’t buying it.
What about hedge funds, he wanted to know. What about all these traders carrying all these contracts?
I asked him how they had anything to do with it.
“Well there’s so much more oil traded than really exists,” he said. “Isn’t that driving up the price?” I explained that’s pretty much the way it is with anything…stocks, bonds, oil, you name it.
He didn’t believe it. Then he said Congress is considering reducing the amount of oil contracts traders can buy and sell. “Won’t that reduce the price of oil?”
I explained that maybe if Congress had taxed gasoline and funded mass transit instead of giving tax breaks for SUVs and ethanol we wouldn’t be forced to go begging the Saudis for more oil.
It went downhill from there.
I figure maybe he’s been having coffee with Carolyn Maloney.
Let’s hope my Congressman isn’t.
Jeff Matthews I Am Not Making This Up
© 2008 Not Making This Up LLC
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