Real Regulation
17 July 2007
Editor, The Boston Globe
Dear Editor:
James Collura complains that energy-market speculators are "unregulated" and that this lack of regulation enables speculators to profit at the expense of innocent consumers ("How traders gamble with your energy dollars," July 17). But the lone example he gives of alleged wrongdoing by speculators is of a company, Amaranth Advisors, that suffered severe losses. Amaranth went long in natural-gas futures and then lost big when the price of natural gas plummeted.
Obviously, this large speculator could not control the price of natural gas. And just a bit less obviously, the risk of such large losses is the market's very effective way of regulating speculators.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Editor, The Boston Globe
Dear Editor:
James Collura complains that energy-market speculators are "unregulated" and that this lack of regulation enables speculators to profit at the expense of innocent consumers ("How traders gamble with your energy dollars," July 17). But the lone example he gives of alleged wrongdoing by speculators is of a company, Amaranth Advisors, that suffered severe losses. Amaranth went long in natural-gas futures and then lost big when the price of natural gas plummeted.
Obviously, this large speculator could not control the price of natural gas. And just a bit less obviously, the risk of such large losses is the market's very effective way of regulating speculators.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Posted by Don Boudreaux on
Wednesday February 13, 2008 at 5:24pm