Leaders push bills targeting speculators

Look for Sens. Dick Durbin (Ill.) and Charles Schumer (N.Y.), two Democratic leaders with ties to the financial industry, to be at the center of a coming crackdown on energy speculators when it hits the Senate on Wednesday.

Among several pending Senate bills aimed at the issue, a proposal from Durbin and supported by Schumer seems to have the most consensus among Democrats, and at least quiet compliance by some parts of the financial industry.

{mosads}Republicans are not opposed to the ideas but are pressing to broaden the bill to include expanded offshore drilling.

Durbin, the chamber’s majority whip, represents a state that is home to the Chicago Mercantile Exchange. Schumer, chairman of the Democratic Senatorial Campaign Committee, wants to influence whatever ideas emerge since his state is home to Wall Street.

Majority Leader Harry Reid (D-Nev.) said the chamber will take up debate Wednesday, and that he would not allow amendments on offshore drilling during the speculation debate.

“We know that speculation is not the problem, but it certainly is a significant problem,” he said.

Watching closely are financial industry lobbyists who say that so far Durbin’s legislation, while not final, may be the least drastic at a time of rising panic over oil and gas prices and the impact on the business community.

“Anything that doesn’t restrict speculators but focuses instead on supply-and-demand solutions seems to be able to thread the political needle,” said Scott Talbott, chief lobbyist at the Financial Services Roundtable.

Durbin’s bill is co-sponsored by his Illinois colleague, Democratic presidential candidate Sen. Barack Obama, as well as Democratic Sens. Carl Levin of Michigan and Byron Dorgan of North Dakota. It would arm the Commodity Futures Trading Commission (CFTC) with more resources to research and root out speculation by funding an extra 100 CFTC positions, requiring more transparent reporting to the commission, and requesting a Government Accountability Office study of existing regulations.

But it would not take more severe steps, such as raising margin requirements on futures trading — a measure many in the industry staunchly oppose.

Durbin said Democratic staffers are negotiating the fine points behind the scenes.

“I’m working with Sen. Dorgan and the industry to find a reasonable way to make sure we don’t have excessive speculation,” he said. “It’s gone beyond anyone’s bill, so it’s going to be a combination. There are good ideas in all of them.”

Schumer isn’t a leader in the negotiations — he hasn’t co-sponsored any of the bills — but he is a key participant. He supports increased margin requirements, but wants the CFTC to set the specific limits instead of Congress.

However, Schumer is also hearing an earful from Wall Street and large investment firms who are lobbying vigorously against a crackdown. Last month, the Wall Street Journal blasted him in an editorial titled “Dubai’s Favorite Senators,” suggesting that higher margin requirements would cause oil futures traders to move overseas where regulation is looser. Schumer fired back with a letter saying he understands the concerns but that he is pursuing “reasonable and thoughtful checks.”

Schumer has fought for the industry many times in the past, even against his own party, such as when he opposed new taxes targeting private-equity and hedge-fund managers last year. In the current crisis, he says speculators deserve part of the blame, but prefers to focus on oil companies for driving up prices.

“I think if you solely blame them, it would be wrong,” Schumer said of speculators. “Should they [take] part of the blame? Probably.”

Securities and investment firms have donated about $1.4 million to Schumer’s political action committee this cycle, according to the Center for Responsive Politics.

The Chicago Mercantile Exchange and the Chicago Board of Trade, which merged in 2007, have been among Durbin’s heaviest political donors. The Board of Trade has donated $86,700 since 1989, while the CME has donated $70,000, according to the center.

Some believe the Senate has simply become more educated in recent weeks, and that Durbin and Schumer’s go-soft approach reflects that. Talbott, for one, said “the pendulum has swung” as more senators realize many of their earlier ideas would be counter-productive.

“Speculators are still out there, but Congress’s body of knowledge on this has deepened about the role speculators play,” Talbott said.

Durbin’s bill still faces an uphill climb. Congress only has less than three weeks left before its August recess, and more disgruntled quarters of the financial industry are mounting a pushback.

Those pressures, coupled with the need for support from some of the Senate’s 49 Republicans, make some skeptical.

“I don’t know if anything will get through the 110th Congress,” said Tyson Slocum, energy research director for Public Citizen. “I think it depends on drilling. Republicans will try to link the two, and if anything gets through on drilling, it will have something about speculation.”

Indeed, Republicans are already making that link. GOP senators already based part of their Gas Price Reduction Act on Durbin’s bill, and are resisting a standalone speculation bill. Don Stewart, a spokesman for Minority Leader Mitch McConnell (R-Ky.), notes that bill has the support of 44 of the 49 GOP senators.

“I don’t think anyone believes that a speculation bill is all we should do,” Stewart said.

Schumer’s New York colleague, Sen. Hillary Rodham Clinton, strikes a similar stance to his, suggesting she would be open to moderate regulation that does not harm the financial markets.

“I think there are some needed reforms that would be good for the market and good for the consumer, and that’s what I’m looking for,” Clinton said.

Manu Raju contributed to this article.