This week, the House plans to vote on the fiscal year 2012 Agriculture appropriations bill, which provides funding to, among other agencies, the Department of Agriculture, the Food and Drug Administration, and the Commodity Futures Trading Commission (the nation’s commodities market watchdog). House Republicans have been crowing that this bill cuts agriculture funding by nearly $3 billion from last year’s level, and is coming in $5 billion below President Obama’s 2012 budget request.

“This legislation reflects hard decisions to cut lower priority programs, reduce spending in programs that can be scaled back, and target funds where they are needed most so that our nation continues on the path to fiscal recovery,” said House Appropriations Committee Chairman Hal Rogers (R-KY). Evidently, the House GOP finds nutrition assistance for low-income women and their children to be a “lower priority program,” as the bill cuts the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) to such an extent that 325,000 to 475,000 currently eligible women and children will be denied help.

The bill also cuts funding for the CFTC, despite that agency’s new responsibilities to police derivatives and oil speculation under the Dodd-Frank financial reform law. However, among the GOP priorities in the bill are ensuring that the National Arboretum maintains its azalea collection and calling for regulators to not apply the Animal Welfare Act on movie sets. Here are some of the bill’s highlights:

– MAINTAINING NATIONAL AZALEA COLLECTION: “The Committee directs the National Arboretum to maintain its National Boxwood Collection and the Glenn Dale Hillside portion of the Azalea Collection. The Committee encourages the National Arboretum to work collaboratively with supporters of the National Arboretum to raise additional funds to ensure the long-term viability of these and other important collections.” [Pg. 13]

– ENSURING THAT THE ANIMAL WELFARE ACT DOESN’T APPLY TO MOVIE SETS: “While the Animal Welfare Act’s intent is to establish minimally acceptable standards in the treatment of animals in research, exhibition, transport, and by dealers, the law was not aimed at regulating companion animals used as extras in the background of movies and television productions. The Committee urges the agency to use the Secretary’s discretionary authority to seek alternative means of meeting its statutory mandate, including the option of issuing exemptions or master exhibitor licenses to these pet owners.” [Pg. 19]

– $4 MILLION INCREASE IN WILDLIFE DAMAGE MANAGEMENT: “Wildlife Damage Management – The Committee provides $72,500,000 for Wildlife Damage Control, approximately $4 million above the President’s request…. Special emphasis should be placed on those areas such as livestock protection…predator control, and other threats to agriculture industries.” [Pg. 20]

Ensuring that an azalea collection is maintained and giving more funding to wildlife damage management are fine goals, but the GOP is trumpeting this bill — which cuts off hundreds of thousands of women and children from nutrition assistance and prevents regulators from reining in oil speculation that is out of control — as a reflection of their priorities. If that is true, it’s a pretty stark statement as to what House Republicans find important.

This week, Commissioner Bart Chilton of the Commodity Futures Trading Commission — the federal agency charged with overseeing the nation’s commodities markets — said that consumers are paying a “Wall Street speculative premium” at the gas pump. “I think there’s good evidence that excessive speculation is heating up the market and prices have gotten out of line as a result,” he said. In a speech yesterday, CFTC Chairman Gary Gensler confirmed this analysis, releasing data showing that nearly 90 percent of traders betting that oil prices will rise are speculators, not traders interested in ever holding actual oil:

Based upon CFTC data as of May 31, 2011, only about 12 percent of gross long positions and about 20 percent of gross short positions in the WTI crude oil market were held by producers, merchants, processors and users of the commodity. [...]

Based upon CFTC data, the vast majority of trading volume in key futures markets – up to 80 percent in many markets — is day trading or trading in calendar spreads. Thus, only a modest proportion of average daily trading volume results in reportable traders changing their net long or net short futures positions for the day. This means that only about 20 percent or less of the trading is done by traders who bring a longer-term perspective to the market on the price of the commodity.

As McClatchy explained, “that means that 88 percent of bets on price hikes for oil were held by financial players — mainly Wall Street banks and hedge funds that invest for the ultra wealthy — not interests seeking to use the oil.” Since 1990, oil speculators have more than doubled their share of the oil market, making up 68 percent of oil traders last month. Even ExxonMobil CEo Rex Tillerson admitted that speculation is driving up the price of oil, estimating that the price of a barrel should be closer to $60 if governed exclusively by supply and demand.

Under the Dodd-Frank financial reform law, the CFTC was given the ability to crack down on excessive speculation in the oil market, but it has yet to act, due in part to reluctance on the part of conservative members of the commission. However, Gensler said yesterday that “it is essential to complete the task of implementing the aggregate position limits regime, Congressionally mandated to guard against the burdens of excessive speculation.” Last month, the CFTC finally charged traders for artificially driving up the price of oil in 2008.

Republicans have, for the last several weeks, been lambasting President Obama for the nation’s high gas prices, while promoting so-called solutions — like authorizing more offshore oil drilling — that won’t bring down gas prices. At the same time, House Republicans are actively undermining the agency charged with policing manipulation in the oil markets.

ExxonMobil CEO Rex Tillerson admitted earlier this month that, according to traditional supply and demand, oil should cost about $60 or $70 per barrel, instead of hovering around $100. Analysts at Goldman Sachs estimated that speculation was adding roughly $27 per barrel earlier this month. Instead of addressing this clear problem, House Republicans have proposed cutting the budget of the Commodity Futures Trading Commission — which oversees trading in energy markets — by 15 percent from its 2010 level:

The CFTC’s budget would fall to $172 million from $202 million under the plan to be considered tomorrow by the agriculture subcommittee of the House Appropriations Committee. It “provides the necessary resources” for the CFTC to fulfill its duties, Representative Jack Kingston, a Georgia Republican and subcommittee chairman, said in a statement. President Barack Obama had requested $308 million in his 2012 budget proposal.

Since 1990, speculators have more than doubled their share of the oil futures market. Back then, they composed roughly 30 percent of the market; they make up nearly 70 percent today. According to the CFTC, speculative positions in energy markets — oil and otherwise — are at an all-time high.

As Mike Masters and Dennis Kelleher of the nonprofit Better Markets wrote in Politico today, “excessive speculation defeats the purpose for the commodity markets, which have been largely taken over by new speculators from the capital markets gambling on future price moves. If this practice stops, prices for commodities such as oil — and gasoline — will fall.” However, House Republicans are more interested in scoring cheap political points off of unworkable solutions than actually allowing regulators to police the marketplace and protect consumers.

And, of course, cutting the CFTC’s budget not only allows speculations to continue running rampant, but also furthers the GOP’s goal of undermining the Dodd-Frank financial reform law. “We went to the brink of economic disaster. Congress gave us the directives in Dodd-Frank to ensure that doesn’t happen again, and now there are those who would keep us from having the budget to do the job,” said CFTC Commissioner Bart Chilton.

President Obama last week announced a task force that will “investigate to see if fraud or manipulation in oil markets is behind the spike in gasoline prices,” which has significantly cleared $4 per gallon in several parts of the country. Sen. Richard Blumenthal (D-CT) has also raised the notion of a grand jury investigation into oil market speculation.

According to the Commodity Futures Trading Commission — the government’s commodity markets watchdog — speculative positions in energy are currently at an all-time high and several analysts (including those at Goldman Sachs) have concluded that speculation is pushing up gas prices. Thanks to the Dodd-Frank financial reform law that was signed by President Obama in July 2010, the CFTC is allowed to set “position limits” on such speculation, but the final regulations won’t be implemented until early 2012.

But the CFTC could have gotten started on its rulemaking two years earlier were it not for Senate Republicans. In July 2008, the House overwhelmingly passed a bill directing the CFTC to limit speculation in the oil market. However, Senate Republicans filibustered the bill in the Senate, preventing it from ever coming up for a final vote:

Senate Republicans on Friday blocked a vote on legislation to rein in speculation in the energy markets, instead calling for energy votes that would expand domestic petroleum production and more nuclear power development. Democrats, in a 50-43 vote, failed to gain the 60 votes needed to bring the speculation bill forward for consideration on the Senate floor.

Amongst Republicans, only Sens. Olympia Snowe (R-ME) and Susan Collins (R-ME) voted for the legislation (while Senate Majority Leader Harry Reid (D-NV) voted against it as a procedural matter, allowing him to bring the bill up for consideration later). At the time, Senate Minority Leader Mitch McConnell (R-KY) said that “we don’t have a problem with taking a look at speculation,” but that the GOP would refuse to move forward unless the bill included opening up more federal land for drilling (which would have a negligible effect on gas prices).

Having the CFTC begin in July 2008 the work that it began last July would have brought limits on speculation online this summer, instead of next, if the CFTC were working on the same timetable it is now. Technically, Dodd-Frank called for speculation limits to be in place three months ago, but the CFTC missed its deadline, in part due to conservative opposition to the limits.

The price of oil closed yesterday at $101.19 per barrel, and analysts have been predicting that rising gas prices may stunt America’s slow economic recovery and cause the loss of as many as 600,000 jobs. Unrest in the Middle East is just one of many factors behind the recent rapid rise in oil prices.

But as ThinkProgress’ George Zornick pointed out last week, “one question remains unanswered — to what extent are commodity traders influencing these high gas prices?” Many experts point to speculative trading, not simple supply and demand, as one of the causes of the 2008 spike in oil prices. And today, the Commodity Futures Trading Commission — which is responsible for policing energy markets — said that energy speculation is at an all-time high:

Hedge funds and other speculators have increased their positions in energy markets by 64 percent since June 2008 to the highest level on record, according to data released by U.S. Commodity Futures Trading Commissioner Bart Chilton. Speculative positions accounted for more than one million energy futures equivalent contracts as of January, according to the data.

CFTC Commissioner Bart Chilton said in a speech today that high speculation is skewing prices. “We could have helpful limits in place that could guard against markets being adversely impacted by excessive speculation. We could do that now if we wanted. And, as you can tell, I want,” Chilton said.

The CFTC was given the power to restrict speculation in the oil market by the Dodd-Frank financial reform law. But the agency has yet to implement the regulations, with its two Republican commissioners and one Democrat, Michael Dunn, expressing reservations. The CFTC actually missed the January 13 deadline to put speculation limits into place. As Zornick reported, Dunn’s term is ending this summer, giving the Obama administration an opportunity to appoint someone ready to fully implement the speculation restrictions included in Dodd-Frank.

However, even assuming the CFTC follows through with implementing the law, it will be hard pressed to enforce any limits if the budgets cuts envisioned by House Republicans are actually enacted. H.R. 1, the House Republican approved spending plan for the remainder of 2011, includes a nearly one-third cut in the CFTC’s budget. Such a draconian cut would require the CFTC to lay off more than 30 percent of its staff. “We’d have to have significant curtailment of our staff and resources,” CFTC Chairman Gary Gensler said. “We would not be able to police…or ensure transparent markets in futures or swaps.”

The federal government agreed today to provide an additional $30 billion in assistance to the thrice-bailed out American International Group (AIG), on the same day that the company announced “it lost $61.7 billion in the [2008] fourth quarter, the biggest quarterly loss in U.S. corporate history”:

The government intervention would be the fourth time that the United States has had to step in to help A.I.G., the giant insurer, avert bankruptcy. The government already owns nearly 80 percent of the insurer’s holding company as a result of the earlier interventions, which included a $60 billion loan, a $40 billion purchase of preferred shares and $50 billion to soak up the company’s toxic assets.

The $30 billion is not going to be used by AIG right away, but is meant to appease credit agencies that were “preparing to sharply downgrade A.I.G.’s credit ratings on Monday because of the record quarterly loss.” A downgrade would have forced AIG to default on its debt, sending a shock through the financial system. As the Treasury Department noted today, AIG holds insurance policies for “more than 100,000 entities…who together employ over 100 million Americans,” and it would be catastrophic for a company that entangled to collapse into dust.

That said, what have we learned from the AIG debacle? AIG’s downfall was hastened by its inability to honor $40 billion in credit default swaps (CDS), after taking advantage of a CDS market that went “from zero” in 2005 to a peak of $62 trillion. So maybe the place to begin is by figuring out which regulator should watch CDS. No less a culprit of the economic crisis than former SEC Chairman Christopher Cox acknowledged as much when testifying before Congress:

The $58 trillion national market in credit default swaps — double the amount outstanding in 2006 — is regulated by no one. Neither the SEC nor any regulator has authority over the CDS market, even to require minimal disclosure to the market…As the Congress considers fundamental reform of the financial system, I urge you to provide in statute the authority to regulate these products to enhance investor protection and ensure the operation of fair and orderly markets.

Another step to take in sorting out who regulates what is getting regulation of financial derivatives — instruments used to mitigate economic risks — out of the hands of the Commodity Futures Trading Commission (CFTC). As we noted last week, regulatory reform may be most effective if focused on some of the smaller agencies, and the CFTC is a prime example.

The CFTC was meant to regulate trading in the agricultural sector, not trading of debt instruments derived on Wall St. Giving those who police the rest of the financial sector oversight of derivatives — instead of spreading the responsibility around — as well as placing CDS under someone’s supervision would be a positive response to AIG’s implosion.

Our guest blogger is Ed Paisley, Vice President for Editorial at the Center for American Progress Action Fund.

Six months ago, the U.S. housing and global credit crises seemed manageable to the Bush administration. So manageable, in fact, that U.S. Treasury Secretary Henry Paulson unveiled a widely discussed blueprint for U.S. financial regulatory reform that called for less supervision of Wall Street by the Securities and Exchange Commission, more of the same lax supervision of the financial derivative products at the heart of today’s global market meltdown by the Commodity Futures Trading Commission, and much more risk to taxpayers to be taken on board courtesy of expanded powers for the Federal Reserve.

Back then, Mr. Paulson said in a speech that the plan detailed the administration’s desire to ease financial regulation. Bush administration spokeswoman Dana Perino seems to have forgotten the details in the plan when she told reporters yesterday that the administration “had a regulatory blueprint for them to follow, and they declined not to”—the “they” being Congress.

Perino was responding to a question from a reporter about whether the ultimate responsibility for today’s massive financial meltdown rests with the deregulatory philosophy of the Bush Administration and Congress, under the leadership of conservatives for more than a decade until two years ago. She gamely tried to deflect the question by blaming the regulators—as if these officials were not proposed by conservatives and in large part confirmed overwhelmingly by a conservative Congress that wanted to know they would do as little supervisory work as possible.

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