This is interesting, posted by Yves Smith on Naked Capitalism.
Lieberman Proposes Barring Institutional Investors From Commodities
by Yves Smith
"Whether it comes to fruition is to be determined, but taken at face value, Connecticut senator Joseph Lieberman’s proposal to bar institutional investors such as pension and index funds from investing in commodities is a Nixon-goes-to-China moment, a significant indicator of Wall Street’s fallen standing.
Lieberman has been a staunch defender of the securities industry and repeatedly stymied the efforts of the last pro-enforcement SEC chairman, Arthur Levitt. But now he’s not simply willing to support legislation that will put a crimp in the financial services money machine, he’s leading a charge.
Now this move could be deeply cynical. Opponents may argue that this will simply drive investing in commodities overseas. Perhaps, but funds regulated under the Investment Company Act of 1940 (most US fund managers) don’t have that sort of latitude, and ERISA investments could similarly be reined in quite easily…
As a move to drive any speculative froth out of commodities, this one isn’t bad (but one wonders how all those commodities index funds get unwound). Although some have called for increases on margins at commodities exchanges, that hurts commercial actors as well as speculators. A move like this focuses on the underlying issue more directly.
Goldman in particular would suffer, since as the biggest manager of commodities funds based on its index, GSCI, it not only earns fees, but as we have discussed elsewhere, earns even more from an unsavory but hugely profitable practice called "date rape" around the monthly futures contract roll…"
From the New York Times:
"A prominent Washington lawmaker said Wednesday that he would propose next week to ban large institutional investors, including index funds, from the nation’s booming commodity markets.
The idea is one of several outlined by Senator Joseph I. Lieberman, independent of Connecticut, who is chairman of the Senate Homeland Security and Governmental Affairs Committee. That committee will hold a hearing on June 24 to continue examining whether financial speculation is affecting the prices of crops and fuel.
“There is excessive speculation in the commodity markets that is driving up the cost of food and energy,” the senator said in an interview. “The question is, do large institutional investors play a positive role?” His concern, he said, is that they do not….
And he plans to propose barring investment banks from using the regulated futures markets to hedge speculative bets their clients are making in the vast unregulated global swaps market — what he called “the swaps loophole.”
