House Republicans on the Appropriations Committee today voted to cut funding for the Commodity Futures Trading Commission, the regulator charged with overseeing Wall Street derivatives and commodities trading. The Obama administration has asked for $300 million for the agency for fiscal year 2013, but the GOP only approved $180 million, which is less than the $205 million that the agency received last year.

This funding cut would come just as the CFTC is attempting to implement huge portions of the Dodd-Frank financial reform law, including a new regulatory regime for derivatives, the complex financial instruments that were at the heart of the financial crisis. And Rep. Spencer Bachus (R-AL), chairman of the House Financial Services Committee, acknowledged today that the CFTC, along with the Securities and Exchange Commission, do not have the budgets to keep up with the tasks they’ve been given:

Let me say that there is agreement, I think, among all the panel that your agencies are all functioning under an increased workload, a greatly increased workload, and that you are facing many challenges with not only the economy, but with adopting new rules and increased supervision. And that you are functioning under a budgetary restraint, particularly, I think, the SEC and the CFTC. Your workload has greatly increased and your budget doesn’t reflect this.

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Bachus, who has said that Washington’s role should be to “serve the banks,” has led the charge to cut funding for Wall Street regulators, backed up by Senate Minority Leader Mitch McConnell (R-KY), who believes America is better off the less money regulators have.

CFTC Chairman Gary Gensler has said that the result of the House’s effort will be “to effectively put the interests of Wall Street ahead of those of the American public.” Rep. Barny Frank (D-MA) has added, “At a time when JPMorgan Chase has reported the loss of $3 billion or more in the derivatives markets, the Republicans are refusing to appropriate a small percentage of that amount to provide the protections we need against a return to financial chaos.”

Two of the nation’s top financial regulatory agencies don’t have enough funding to competently regulate the Wall Street banks they oversee, top regulatory officials told the Senate Banking Committee yesterday. The Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) both took on new regulatory responsibilities under the 2010 Dodd-Frank Wall Street Reform Act, but multiple rounds of Republican-led budget cuts aimed at neutering the new law have left them without sufficient funding to carry out those mandates.

As a result, the agencies are “outgunned” by the Wall Street banks they oversee, SEC head Mary Schapiro and CFTC head Gary Gensler told the committee Tuesday, the Huffington Post reports:

“We’re way underfunded at the CFTC,” Gensler told lawmakers, after a question on the subject from Senator Chuck Schumer (D- N.Y.). “Imagine if, all of a sudden, there are eight times the number of teams on the [football] field, but only seven refs,” Gensler said. “There would be would be mayhem on the field. The fans would lose confidence.”

SEC chief Schapiro echoed the point: “We’ve been asked to take on very significant new responsibilities,” she said. Though the SEC has made progress in hiring new staffers and improving its technological capabilities, Schapiro conceded that, in some areas, the efforts haven’t gone far enough.

As ThinkProgress noted in January, adequately funding the CFTC and SEC is imperative to successfully implementing new regulations and policing Wall Street. Republicans oppose those efforts and have repeatedly pushed for cuts to the agencies’ budgets. “The less we fund those agencies,” Senate Minority Leader Mitch McConnell said last June, “the better America will be.”

The SEC is funded by fees paid by banks, not by taxpayers, so cuts to its budget won’t affect the federal deficit. But it is prohibited from collecting more in fees than it is allocated in the budget, so the $225 million cut Republicans pushed last year amounts to a massive giveaway to Wall Street, which will save exactly that amount.

As the 2008 financial crisis demonstrated, failure to police Wall Street can have perilous consequences for American taxpayers and the economy. But when one party’s purpose, as Rep. Spencer Bachus (R-AL) said last year, is to “serve the banks,” preventing another such fiasco is apparently of little matter.

For decades, cotton farmers and buyers, like clothing makers, have used commodities futures markets to hedge against natural price volatility, which helps them to survive bad years. Now, however, Wall Street speculators like banks and pension fund have swamped the markets, controlling larger portions than the people who actually use the cotton, McClatchy reports.

These speculators, who have no intention of ever taking delivery of the product and treat futures contracts like a stock, have driven up prices and price volatility, making things harder for the people who grow the product, the companies that turn the raw material into finished goods, and the consumers who purchase those goods:

Such financial speculation helped drive an overheated cotton market to record levels of $2.17 a pound on March 7. Before peaking, cotton prices had risen by more than 140 percent in less than 18 months. … [T]his speculative money from investors who’ll never actually take delivery of cotton is distorting the futures market, driving up cotton prices, and thus raising prices for apparel retailers and consumers alike.

Sifting through CFTC historical data, McClatchy found that the total number of outstanding futures contracts grew by about 80 percent from 1990 to 2010. That’s big growth in a historically small market. Moreover, the number of contracts doubled between 2004 and 2010. This parallels the timeframe when institutional investors began to play seriously in commodity markets, aided by popular commodity indices developed by investment bank Goldman Sachs and the now-disgraced financial giant American International Group.

The problem with speculation in cotton can be seen across many commodities futures market, whether it’s for coffee, wheat, or oil, where speculation drives up the cost of gasoline for drivers.

Unfortunately, the agency that could help rein in speculators and address this problem, the Commodity Futures Trade Commission (CFTC), has been a frequent target of the GOP’s war on regulation. Despite the severity of the speculation problem across various markets, Republican lawmakers last month gave the commission a 2012 budget allocation one third lower than President Obama’s request. That, despite the fact that the CFTC is already stretched thin and will have to take on vast new responsibilities in implementing the Dodd-Frank Wall Street reform law. This funding level so the stingy that the agency may be forced to lay off 60 workers — 8 percent of its staff.

“Without limiting the total speculation in each market, farmers and consumers will continue to needlessly suffer from higher and volatile prices,” said Dennis Kelleher, president and CEO of Better Market, an organization which works for more transparent markets. “We have seen the results of an ill-funded and ill-equipped regulator. It isn’t a pretty picture,” said Bart Chilton, a Democratic commissioner for the CFTC.

The current round of funding for the federal government runs out on Friday, but House and Senate negotiators have reportedly agreed to a new funding package under the guidelines of the deal that raised the debt ceiling over the summer. One of the casualties of the budget cuts imposed by this agreement will be the Commodity Futures Trading Commission, a key financial market watchdog charged with implementing large swathes of the Dodd-Frank financial reform law:

Congressional lawmakers have agreed to give the Commodity Futures Trading Commission far less money than it requested for fiscal 2012, potentially limiting the agency’s ability to implement the expanded powers it received under the Dodd-Frank financial law.

Congressional aides on Monday said that the CFTC would receive $205 million for the year, $100 million less than the amount sought by the Obama administration, as part of a compromise dropping a number of proposed policy restrictions that could have delayed the implementation of Dodd-Frank rules even further. [...]

Senate Democratic lawmakers had pushed for a budget of $240 million for the agency, while the Republican-controlled House wanted to keep its fiscal 2012 budget broadly flat at $170 million, from the $169 million the agency had in fiscal 2011. The administration had sought $308 million for the CFTC for fiscal 2012.

According to a study by the Government Accountability Office, the CFTC needs $77 million above last year’s funding level to adequately fulfill its new duties under Dodd-Frank. Instead, the agency is receiving about half of that amount.

The CFTC is responsible for policing the nation’s commodities markets — including the oil market, where speculation has exploded in recent years — and is also tasked under Dodd-Frank with regulating derivatives, the complex financial instruments that were at the heart of the 2008 financial crisis. Refusing to give the agency enough funding to complete these tasks is just one more way that the GOP is hoping to slow down the implementation of new financial regulations.

“[Republicans are] trying to sabotage the situation by not giving money,” said House Financial Services Committee ranking member Barney Frank (D-MA). “These are complicated subjects that involve very smart people, and we need technology and resources for these agencies.” As the New Republic’s Timothy Noah suggested, perhaps its time for the Occupy protesters to visit House Appropriations Committee Chairman Hal Rogers (R-KY) and “ask why he’s starving the financial watchdogs.”