Following on this earlier cue, NY Times business columnist Gretchen Morgenson contends in this column (Times Select, registration required) that Amaranth Advisors, LLP’s loss of $6 billion or so last week on the natural gas trading market is conclusive proof that energy markets are in need of more government regulation:
Many of Amaranthís monster trades in the natural gas markets were conducted on over-the-counter markets or with so-called voice brokers and so were not on regulatorsí radar screens.
It is too soon to tell what role Amaranthís gamble had on natural gas prices. But speculators played a significant role in the astonishing rise in energy prices in recent years.
Such is the conclusion of a compelling Congressional report produced in June by the Senateís Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs. The 49-page report detailed the explosion in energy speculation on unregulated trading markets and recommended eliminating the so-called Enron loophole that put electronic energy trading off the regulatory reservation.
See how easy that was? Just associate “Enron” with a company that suddenly lost about 2/3rd’s of its assets and, presto! — you have the need for more government regulation of trading markets without any analysis whatsoever of whether such regulation would ultimately be more expensive than the cost of the allowing markets to allocate loss. Indeed, how one earth would it have helped had Amaranth made filings with the CFTC? Does anyone really think that such a requirement would have prompted Amaranth to modify its trading practices?
As noted earlier here and here, allowing investors to make bets in energy trading markets — although not widely understood by the general public — is tremendously beneficial in forecasting energy prices. Not only will greater regulation of those markets likely undermine those benefits, Morgenson’s dubious assertion that speculation in energy markets has caused an increase in natural gas prices is based upon a Senate report that, as noted earlier here, is a sham that was essentially produced by the regulators to feather their nest.
