Congressional Leaders Tell Wall Street to “Can It”

Congressional Leaders Tell Wall Street to “Can It”

Merkley, Blumenauer, Bonamici Highlight Wall Street Speculation That Is Costing Middle Class Families

Portland, OR – Oregon Senator Jeff Merkley, Congressman Earl Blumenauer and Congresswoman Suzanne Bonamici visited Hopworks Brewery today to call attention to Wall Street speculation in commodity markets that is driving up the prices of aluminum, copper, gas, and electricity. This speculation is in turn raising the prices of everyday products that middle-class families use, including beer cans, home improvement products that contain copper and even gas for cars.


“Nothing gets an Oregonian madder than messing with our Oregon beer, and that’s just what Wall Street is doing,” said Merkley. “We can’t let Wall Street get away with rampant speculation in commodity markets that in turn hurts our middle class families and our Oregon brewers. That’s why I’m calling on our federal regulators to rein in this speculation.  Families shouldn’t have to pay a speculation ‘tax’ at the pump, the home repair store and the beer aisle.”

“I will continue working with Senator Merkley and Congresswoman Bonamici to shine a light on runaway speculation,” said Blumenauer.  “This unregulated gambling does little to serve the broader economy while burdening American families who have already suffered at the hands of Wall Street’s reckless behavior.”

“Small businesses are an important part of our economy and our communities.  it’s alarming to learn that commodity speculation is driving up costs for our local businesses," said Bonamici. "Federal regulators need to prevent these rising costs by moving quickly to enforce the Dodd Frank reforms, and members of Congress should be fighting attempts to undermine implementation through funding cuts and piecemeal repeal. We should be doing all we can to help families and small businesses in Oregon and across the country."

In recent days and months, it has been reported by various media outlets that:

  • Banks, hedge funds, and financial investors are dominating an opaque and convoluted aluminum trading market, which beer makers have testified is raising the price of beer cans by over $3 billion;
  • Speculation in the oil market by banks and financial investors is responsible for as much as $14 for every tank of gas purchased by American drivers;
  • Banks were manipulating electricity trading markets, taking millions of dollars out of ratepayers pockets;
  • The copper market is at risk of being dominated by a bank-sponsored investment fund; and
  • Financial speculation in grain commodities is driving up the price for bread and rice for hungry families in the U.S. and around the world. 

During a Senate Banking committee hearing two weeks ago, major beer manufacturers testified about how the aluminum market has drastically changed over the past few years driving aluminum prices up through a convoluted exchange and warehouse system. This has resulted in long wait times to acquire aluminum and an increased price.  

“Hopworks Urban Brewery’s investment in canning its organic beer created job growth as well as increased support for local, regional and national suppliers,” said Ettinger. “Small businesses face many challenges.  And while we certainly understand increased material costs, we are compelled to add our voice in calling out questionable market speculation driving increased prices.” 

Today, Merkley, Blumenauer and Bonamici joined together to send a letter to financial regulators calling on them to take the necessary steps to end the speculation driving up the prices for middle-class families. The full text of the letter sent to regulators is below. 

Dear Messrs. Bernanke, Tarullo, Curry, Gensler, and Gruenberg, and Ms. White: 

In light of a series of revelations about the relationship between our financial sector and physical commodities, we call on you to use your full regulatory authorities to rein in excessive speculation in commodities and restore the principle that our financial system serves the real economy, helping us build our economy “from the middle class out.” 

In recent days and months, the American public has learned that:

  • Banks, hedge funds, and financial investors are driving up the cost of aluminum, costing brewers and beer drinkers a combined $3 billion.[1] 
  • Speculation in the oil market by banks and financial investors is responsible for as much as $14 for every tank of gas purchased by American drivers.[2]
  • Banks are manipulating electricity markets, costing ratepayers millions of dollars in higher utility bills.[3]
  • The copper market is at risk of being dominated by a bank-sponsored investment fund.[4]
  • Even the price of bread and rice – staple foods for American families and hungry children around the world – is being driven up by financial speculation in grain commodities.[5]

Something is very wrong with America’s current system of finance. 

Middle class families and businesses want an economy that powers us all into the future, with a financial system that invests in new and innovative businesses, that helps states and local governments repair roads and bridges, that allows families to buy homes and go to college, and facilitates investments in the clean energy future we need.  The job of the financial system is to take the savings that families and businesses work hard to earn and return it to the real economy through investments that create jobs, enhance productivity, and raise living standards.  Banks, in particular, have a special role in taking deposits and making loans, while capital markets investors play a critical role in helping companies grow and expand productive capacity. 

To be sure, healthy commodities markets are critical to ensuring manufacturers have the materials they need, when they need them.  But when financial speculation dominates these markets, it overwhelms the farmers, trucking companies, and airlines that use these commodity markets as a hedge against their actual commodity use.  In short, a healthy financial system is critical to robust economic growth, but when allowed outside of its proper channels, commodity speculation can be a drain on and a risk to businesses, families, and the economy in general. 

The economy needs tough cops to keep Wall Street in its lane.

American free markets have a long tradition of robust regulation of Wall Street to ensure that capital efficiently flows to productive commercial investments, and not into bubbles and busts.  President Teddy Roosevelt broke up the Wall Street “trusts,” President Franklin Roosevelt separated banks, securities, and insurance companies and established strong limits on financial speculation in commodities, and President Dwight Eisenhower solidified the principle that ordinary commercial businesses should be separate from financial businesses like banks.[6]  Unfortunately, over the last three decades, these basic rules of the road have been weakened.[7]  The result has been that far too much investment flows takes forms that are unproductive for investors, risky for our banking system, and damaging for manufacturers, service providers and the real economy overall.[8]  

The Dodd-Frank Wall Street Reform and Consumer Protection Act does much to help restore the focus that Wall Street should have on serving the real economy.  It mandates strong limits on commodity speculation, separates banks that take deposits and make loans from high-risk hedge fund-like trading, and puts in place other key protections to prevent bailouts and collapses.  But the law’s protections are not yet fully in place, and we are far from finished with the reforms we need. 

We believe that the events of the last several months regarding commodities and banks demands that you speed up your efforts to implement the law and its full range of authorities, as well as use the other authorities you have, to ensure that American families’ savings and investments power our real economy. We appreciate your attention to these matters and look forward to your reply.

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[1] Joe Richter, MillerCoors Sees Metal-Warehouse Delay Costing Buyers $3 Billion, Bloomberg, July 22, 2013 http://www.bloomberg.com/news/2013-07-22/lme-rules-seen-by-millercoors-costing-aluminum-buyers-3-billion.html.

[2] Bart Chilton, Speculators and Commodity Prices—Redux, Feb. 24, 2014, http://www.cftc.gov/PressRoom/SpeechesTestimony/chiltonstatement022412 ; Speculators and the Gas Pump, N.Y. Times, April 18, 2012, http://www.nytimes.com/2012/04/19/opinion/speculators-and-the-gas-pump.html

[3] Brian Wingfield & Danw Kopecki, JPMorgan to Pay $410 Million in U.S. FERC Settlement, Bloomberg, July 30, 2013, http://www.bloomberg.com/news/2013-07-30/jpmorgan-to-pay-410-million-in-u-s-ferc-settlement.html.

[4]  Josephine Mason, SEC again rejects copper users’ challenges to JPMorgan ETF, Reuters, March 29, 2013, http://www.reuters.com/article/2013/03/29/us-etf-copper-jpmorgan-idUSBRE92S0HV20130329.

[5]   Kharunya Paramaguru, Betting on Hunger: Is Financial Speculation to Blame for High Food Prices?  Time, (Dec. 17, 2012), http://science.time.com/2012/12/17/betting-on-hunger-is-financial-speculation-to-blame-for-high-food-prices/.

[6] See John Krainer, The Separation of Banking and Commerce, Federal Reserve Bank of San Francisco (2000), http://www.frbsf.org/economic-research/publications/2000/article2-4.pdf.

[7] See, e.g., Saule T. Omarova, Large U.S. Banking Organizations’ Activities in Physical Commodity and Energy Markets: Legal and Policy Considerations, July 2013, http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=cca72cb5-a8fd-427a-978a-a51140a75cb0.

[8] See Wallace Turbevile, Cracks in the Pipeline:  Restoring Efficiency to Wall Street and Value to Main Street, Demos, Dec. 5, 2012, http://www.demos.org/publication/cracks-pipeline-restoring-efficiency-wall-street-and-value-main-street.