The US Federal Trade Commission's rule prohibiting oil-market manipulation culminates a witch hunt in a land of no witches.
It manages to be silly and dangerous at the same time—silly because it bans nonexistent behavior and dangerous because it subjects honest business people to whimsical enforcement.
The rule subjects manipulation of the wholesale oil market through "fraud or deceit" to stiff penalties. Except in rare cases involving obvious crooks, such manipulation doesn't exist.
Lawmakers and regulators ceremoniously launch investigations whenever oil prices stirred political passions. They've never found evidence of widespread manipulation or anything hinting of systemic chicanery.
Oil, in fact, changes hands in the most aggressively monitored market in the country. Yet the juvenile supposition persists that when consumers feel stressed by oil prices the reason must be that oil companies, contrary to overwhelming evidence, are cheating them.
So the FTC will, according to Chairman Jon Leibowitz, "police the oil markets—and if we find companies that are manipulating the markets, we will go after them."
It would seem that all anyone has to do to elude civil penalties of up to $1 million/day/violation is to continue not manipulating the oil market.
But to show its heroic determination to crush soap bubbles, FTC includes in its list of potential offenses "omissions of material information that are likely to distort petroleum markets."
A refiner or jobber thus faces trouble for "making an untrue statement of material fact" that deceives someone as well as for not making any statement at all. Furthermore, the commission excused itself from having to prove that an enforcement target intended manipulation or that the alleged misbehavior affected prices.
Logical responses to these traps are to limit commerce to transactions with trusted customers unlikely to be—or claim to have been—deceived and to communicate as little as possible.
The effect can only be to limit market activity. This is no way to protect oil consumers.
The new rule plays to the political exploitation of American suspicion repeatedly shown by FTC and other investigatory agencies to be unfounded. It's more than dangerous silliness. It's hypocrisy.
(Online Aug. 7, 2009; author's e-mail: [email protected])
