by Steve Suppan • 11/25/08 • In U.S. political vernacular, the legislative period following an election but before the victorious take office is called a “lame duck” session—defeated members being the “ducks.” Often, little legislative progress is made during the “lame duck” interim. What a difference a global financial crisis makes!
On November 13, IATP released a short report, “Commodities Speculation: Risk to Food Security and Agriculture.” The report anticipated that the U.S. Senate would take up some time in 2009 to discuss the “Commodity Markets Transparency and Accountability Act” passed by the House of Representatives in mid-September. But on November 20, Senator Tom Harkin, chair of the Senate Agriculture Committee, announced that he would introduce the “Derivatives Trading Integrity Act of 2008” and hoped to hold hearings in December. Rather than allow the continued existence of an unregulated and privatized “shadow” banking system pioneered by the likes of Goldman Sachs, the American Insurance Group and Lehman Brothers, Harkin said in his bill that “every swap, every derivative, every [commodities] future [contract] will have to be traded on a regulated exchange.”
Not to be outdone, also on November 20, Representative Collin Peterson, chair of the House Agriculture Committee, held hearings on credit default swaps (CDS), a financial derivative instrument that witness Eric Dinallo characterized as price-risk creating, rather than a risk-reducing transaction. The insolvency of major CDS traders and investors led to the $1.3 trillion and counting congressional bailout of Wall Street investment banks and other financial institutions. Chairman Peterson and ranking Republican Representative Bob Goodlatte rejected a proposed merger of the Commodities Futures Trading Commission (CFTC) and Securities Exchange Commission (SEC). They argued that the CFTC has the legislative authority to regulate CDS and other financial derivatives, and needs only adequate resources to do so. The creation of a new agency would cause delays and loopholes that could further destabilize financial and agricultural markets. Peterson said that committee members would travel to London and Brussels to discuss further how to best regulate financial and agricultural derivatives markets. The Peterson and Harkin bills are likely to get a rapid response from the Obama administration, since CFTC Commissioner Bart Chilton is a member of the Obama transition team for agriculture.
Because, as numerous reports have indicated, commodities speculation has been a factor in exacerbating global food insecurity, new legislation and regulation of U.S. commodity markets could include a food security ombudsperson to ensure that food security has a seat at the regulatory table. Coinciding with World Food Day, on October 16, U.S. Representative Jim McGovern proposed that the next U.S. president create a new office to reduce growing global food insecurity, i.e., a “food czar.” Though the proposal has been overshadowed by the global financial crisis, McGovern’s proposal has the backing of powerful senators who are proposing more international food assistance in the context of overall U.S. agricultural trade policy. U.S. international food assistance has traditionally not only served humanitarian and diplomatic purposes, but, given the absence of government agricultural inventory management, has also served as a way to dump U.S. agriculture surpluses without increasing raw materials costs to agribusiness. Putting a “food czar” on the CFTC and adding food security criteria to the legislative definition of “excessive speculation” would be one way for Congress to ensure that commodities speculation not continue to make food insecurity worse.