Lieberman puts up ideas for quashing ‘excessive’ speculation in oil and other commodity markets

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With no relief in sight from record commodity prices, Sen. Joe Lieberman (I-Conn.) has launched another salvo against speculators in those markets.

He’s holding a news conference in Washington right now to unveil three ‘draft proposals’ that he says would ‘stem excessive speculation in commodities.’

Lieberman says he wants the proposals to serve as discussion points for a hearing Tuesday by the Senate Homeland Security and Governmental Affairs Committee, which he chairs.

Lieberman, recall, held a hearing in May that helped stoke the debate over the influence that pension funds and other big investors may be having on commodity prices, as they push more money into that sector to cash in on the global boom in raw materials.

His three proposals range from moderate to severe (some would say draconian) in terms of the effect they would have on who can play in commodity markets, and how. Here they are:

-- Have the Commodity Futures Trading Commission establish overall limits on the share of the commodity market that can be held by financial investors, including pension funds and other institutions. The limits would apply on a commodity-by-commodity basis.

‘Specifically, the limits would cap the combined net ‘long’ position, as a percentage of open interest on the futures markets, which may be held by all persons not engaged in bona fide hedging activities,’ the proposal reads.

-- Clarify that current CFTC rules limiting individual speculative positions in commodities would apply to any position not related to genuine hedging. This would be an attempt to corral certain ‘derivative’ securities that big investors have been using to ride the commodity bull market, including so-called swap contracts with major investment banks.

Under current rules, Lieberman’s proposal notes, ‘A bank may enter into an over-the-counter commodity swap agreement with a financial investor in which [the bank] agrees to provide a financial return based on the price appreciation of a commodity index, in exchange for a fixed payment from the investor.’ Current position limits don’t apply to over-the-counter trading in commodities, ‘which has experienced dramatic growth in recent years.’

-- Prohibit pension funds and university endowments with more than $500 million in assets from investing in agricultural and energy commodities, period, whether traded on a U.S. futures exchange, a foreign exchange, or over-the-counter.

Again, none of this is in bill form -- it’s just being tossed onto the table for discussion at next week’s hearing.