Commentator Robert Reich
Commentator Robert Reich - 
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Bob Moon: You've heard us talk about the efforts of federal regulators to reign in the speculation in the commodities market. Oil futures regulators in Britain and the U.S. have now come to an agreement. They'll plug what's referred to as the London Loophole that allows traders to step around regulations.

Commentator and economist Robert Reich has taken a look at all the factors at play in the speculation market. He says the problem isn't the speculators, it's the enablers.

Robert Reich: If it were just supply and demand, gas would probably be selling for around $3.50 a gallon, not $4, and food would be 20 percent cheaper. The difference is due to speculation.

Of course, all markets are speculative to some degree. Every time we purchase a share of stock, we're speculating. Problems occur when prices are bid upward not because underlying values are rising but because investors expect other investors to make the same gamble. This can create a bubble.

And whether it's crude oil or corn, houses or financial derivatives or the stock market before the Great Crash of 1929, speculative bubbles cause huge market disruptions, both when they fill up and when they pop.

Sometimes bubbles are manipulated. Prominent investors who hold certain stocks or commodity futures will publicly predict when those prices will rise, and then they profit when others act on the predictions. Alternatively, certain institutional investors are so large they move the markets, prompting other big investors to make the same move. That's why some members of Congress want to ban large institutions from commodities futures markets or at least limit the size of stakes each investor can hold.

But the biggest speculative bubbles happen when investors don't need to use their own money and can borrow to the hilt for whatever looks promising. That's why margin requirements were imposed on individual investors after the Great Crash, proving that another way to prevent excessive speculation is to require certain minimum levels of collateral.

The failure to require down payments from home buyers when mortgages became dirt-cheap beginning in 2003 contributed to the housing bubble. The failure to require investment banks to risk their own capital when they made risky bets on derivatives led to the credit crisis. So what about minimal collateral for investments in commodities futures like oil?

You see, the problem isn't speculation per se. Whether it's oil or food, financial derivatives or houses, the real problem is the failure of government to curb excessive speculation.

Moon: Robert Reich teaches public policy at the University of California Berkeley.