Bart Chilton discusses position limits and commodity price manipulation with Becky Quick and her assistant.
Silver is mentioned at about 5:35 on the tape.
'Speculators' might be confused with 'investors' if you come from the land of the privileged hedge and vulture funds.
Speculators look for market inefficiencies and exploit them, thereby contributing to price discovery in a healthy market. Investors take longer term positions and tend to be involved in fundamental production and distribution of goods and services.
The problem comes when speculation becomes too large and over-leveraged, and runs out of natural market inefficiencies, and starts to create its own market opportunities by cornering markets, naked short selling, and other forms of price manipulation.
The hot money tends to drive the investment money out of the market and price discovery fails. The distortions caused by malinvestment over periods of time can have significant effects on the real economy.
The Street knows this, and so do the economists and politicians and spokesmodels. They just pretend not to notice because the money is too good to stop, and the painful consequences too remote to care.
Still, 'progressive' economists like Thoma and Krugman continue to believe that speculation does not result in high commodity prices in this case oil. For an example read it here.
I think they are victims of their own lack of understanding of how real markets, versus their theoretical models of markets, work. They say they have never seen any evidence of speculation as a factor in the commodity markets. Have they ever spoken to a regulator like Bart Chilton? I think not. Why burden one's mindset that largely ignored the housing and credit bubble while it was forming under Greenspan? At the time Brad DeLong said that 'Greenspan had NEVER made a policy decision with which I disagreed' and censored my comments about the bubble because 'he knew that I was wrong.'
The abuse of the speculative element and its ability to move any paper markets, particularly in a hot money environment, is almost overwhelming in the available historical examples. I think their romance with paper money makes them blind to its corrosive effects on the real economy.
And it is easy to say that one has seen no proof if all one reads are papers, and do not go out and talk with those working to reform the markets and are closer to the action. That is why they 'do not understand the passion.'
More likely is it the inertia of thought that seems to plague the ivory towers. They seem to lag the current trends in finance and the economy by about ten to fifteen years.
I remember being in grad B-school in the late 1980's, and arguing with a few of my profs about 'the Japan miracle' and where it was likely heading. I had been doing business there, learned the language and business culture in particular, and they were tossing around theories and 'facts' that had little or no connection to the reality of what was going on there, with the rampant monetization of real estate and speculation in paper asset bubbles.
They were enthralled by the myths of 'Japan Inc.' that were so popular in their circles of the day, too often promulgated by grant-seeking, honorific econo-whores. By the time the rest of them figure it out the crisis is safely past and we're on to the next. I found an ally in my old macro prof who took me aside and said, "They're young, they'll learn. Money never lies, but you must learn its language, or chase illusions."
And this is why economics is a disgraced profession, and continues to be so.
