WSJ: A Seinfeld Rerun

Americans are cynical about bureaucratic motives, but sometimes not enough. Consider that the Commodity Futures Trading Commission may go to court to defend its obligation to impose needless rules for nonexistent problems.

A federal judge ruled late last month that the 2010 Dodd-Frank law does not require the CFTC to impose new trading regulations if the CFTC doesn’t believe they are necessary. One would have thought this would be welcome news. Show of hands, how many people want to be forced to implement policies they don’t believe in? But now comes word that CFTC General Counsel Dan Berkovitz is recommending an appeal.

The rule in question, struck down by Judge Robert Wilkins of the District of Columbia Circuit, restricted the size of positions that traders could hold in derivatives related to commodities. The CFTC enacted its position-limits rule in 2011, ostensibly to limit speculation, which is believed by some to result in volatile markets when it isn’t the root of all evil.

But Democratic Commissioner Michael Dunn, who cast the deciding vote in a 3-2 decision to enact the rule, said he only did so because he believed Dodd-Frank required the CFTC to enact position limits.

Mr. Dunn added that “no one has presented this agency any reliable economic analysis to support either the contention that excessive speculation is affecting the market we regulate or that position limits will prevent the excessive speculation.” Instead, he continued, “position limits may harm the very markets we’re intending to protect.”

Commercial companies, energy producers and farmers use these contracts to eliminate the risks of price volatility. Republican Commissioner Jill Sommers said the rule might even “result in increased food and energy costs for consumers” as derivatives customers are prevented from constructing hedges to match their risks.

Judge Wilkins looked at this record and overturned the rule, concluding that “the Dodd-Frank amendments do not constitute a clear and unambiguous mandate to set position limits.” The judge didn’t restrict the CFTC’s ability to impose such limits. All he’s said is that if the commission doesn’t see a need, the law doesn’t force it to impose a new rule anyway. Taxpayers must wonder why on earth the CFTC would appeal. The judge has told the commissioners that they have more discretion than they thought to impose a rule or not.

So why would any regulators insist on a reading of the law that grants them less authority? Well, if the rule isn’t required by Congress, then the Commission would have to justify it on the grounds that it addresses a real problem with an effective solution. That would require the agency to show evidence that position limits work and explain why its rule is not arbitrary and capricious. We hope that neither CFTC Chairman Gary Gensler nor anyone else serving in the federal government would seek to enact rules regardless of their necessity or consequence.

Last April we told you about President Obama’s Seinfeld strategy on speculation in the oil market. Like the popular TV show that was famously “about nothing,” Mr. Obama’s speech on the topic lacked any specific evidence that speculators were driving up oil prices. The CFTC should abandon that strategy, along with its plans to appeal the federal case. Costly new regulations should be about something.

Found here.

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