The NY Times focuses on Craig Pirrong, and the response is fast and harsh

I have a Google alert set to Craig Pirrong. It’s been busy the past few days.

Late last week, while a lot of interested parties might not have been paying attention due to the Christmas/New Year’s holiday, The New York Times published a story spelling out what it saw were links between Pirrong’s work — and that of University of Illinois professor Scott Irwin — and payments the two received from Wall Street-related companies.

(Full disclosure: I know Pirrong, a professor at the University of Houston, mostly through a limited amount of email correspondence, met him when we both testified in front of an FTC panel on oil prices several years ago, and chaired a Platts conference in Houston where he spoke. Pirrong also comments regularly on energy commodity markets in which Platts is a leading source of pricing. I do not know Irwin.)

The heart of the Times’ David Kocieniewski’s argument can be pretty much summed up here:

Do financial speculators and commodity index funds drive up prices of oil and other essentials, ultimately costing consumers? Since 2006, Mr. Pirrong has written a flurry of influential letters to federal agencies arguing that the answer to that question is an emphatic no. He has testified before Congress to that effect, hosted seminars with traders and government regulators, and given countless interviews for financial publications absolving Wall Street speculation of any appreciable role in the price spikes.

What Mr. Pirrong has routinely left out of most of his public pronouncements in favor of speculation is that he has reaped financial benefits from speculators and some of the largest players in the commodities business, The New York Times has found.

Later on, the writer notes that his review shows that “major players on Wall Street and elsewhere have been aggressive in underwriting and promoting academic work.” The story also noted specifically, without figures on the level of compensation, that Pirrong has worked for the Chicago Mercantile Exchange and Trafigura, among others.

As I was reading the story — which isn’t short — I kept waiting for some smoking gun. But the further it went along, it had a sort of “yeah, no kidding” aspect to it. (Or as another commentator on the story noted, a Casablanca-like “shocked, shocked” tone to the revelations.)

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Academics get a reputation for having a certain set of beliefs, and Pirrong’s views on the role of speculation and a general skepticism of heavy regulation are well-known.

But this doesn’t just go on in with commodities regulation. It goes on in all fields. An expert has a set of beliefs; an academic title gives that person an imprimatur of respectability and detached observation of the issue. An interest group that would generally benefit from the policies that academic/expert is espousing hires that person to provide research — much of which they already did — to be presented in some sort of thought leadership forum. And the expert is paid for his/her views.

That was a fairly muted thought on my part. Pirrong’s vitriol in his response on his blog, Streetwise Professor, is not.

You can read it in full. But in summary, his key points are:

–He’s done little paid work regarding the impact of speculation on the price of commodities.

–Most of his work has been adverse (his italics) to Wall Street’s interest.

–His views on the lack of impact of speculation on commodity prices haves been long-established, and shared with the public on his blog since 2006. He cites basic agreement with the thoughts of Paul Krugman to demonstrate that he isn’t simply mouthing a client’s desires. (If a conservative wants to show independence and give proof of their bona-fides, the new way of doing it, when possible, is saying “See? Even Paul Krugman agrees with me!”)

–“Therefore, to suggest some connection between my paid outside work and my opinions on speculation is misleading, deceptive, and plainly libelous.”

Where Pirrong really gets angry, however, is in charging The New York Times as essentially putting together a hatchet job as an outgoing gift for CFTC chairman Gary Gensler, who has presided over a significant increase in commodity regulation, a position at odds with much of Pirrong’s writing.

“The NY Times has been Tiger Beat effusive in its praise for Gary Gensler of the CFTC,” Pirrong writes. (Ed. note: Tiger Beat is a long-time magazine for young teenage girls, drooling over pictures of heartthrobs from The Monkees to Justin Bieber.) “This piece attacking two of the most prominent academic critics of Gensler’s efforts to impose a speculative position limits rule comes out days after the Commission approved a new version of the rule, and is in the midst of the comment period leading up to the formulation of a final rule. Gensler fought for this rule for 5 years, and he views it as an important part of his legacy. That is, there is a clear political agenda at work here: to kneecap those who have the audacity to oppose the regulatory agenda of Gensler and his media acolytes.”

What’s been interesting is that Google alert for Pirrong has been filling my mailbox with plenty of pieces defending the professor and ripping The New York Times, but none that have gone the other way. This piece is typical, and contains links to others.

In the end, of course, Pirrong and others have fallen on the losing side of this argument in Washington. A revised proposed rule on speculative position limits has been adopted by the CFTC (after the first set of proposed rules was thrown out in court), and other aspects of Dodd-Frank have become law. The proposal includes new position limits on NYMEX gas, light sweet crude oil, RBOB and ULSD futures contracts, as well as five metal contracts, 19 agricultural contracts and “economically equivalent” futures and swaps.

But full implementation of the limits have a long way to go. Outgoing commissioner Bart Chilton, in an interview with Platts’ Brian Scheid late last year,  said he would have preferred a proposal with narrower limits, but added that he thinks the proposed rule is solid because it includes adjustable formulas and should stand up to a potential legal challenge.

And opposition will continue, Chilton said. “This rule won’t require a lot of changes,” he said. “That doesn’t mean people aren’t going to want to change it.”

As those specifics gets determined, Craig Pirrong is unlikely to be silent.

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  1. Simon Jacques at January 21, 2014 8:00 pm

    Paper/physical ratio is irrelevant. Liquidity should never be seen as problem for price discovery in a market. It is only when liquidity dries-up in a market that you have a problem. Try for example to trade oil like the 70′s when bid-ask spreads were more than 5$ a barrel and get back to us with price volatility.

  2. Charles at January 20, 2014 12:40 pm

    The point perhaps is yes,custumers have to pay but they should not have to pay unreasonable amounts.

    If speculators can drive up prices unjustly during war time obviously the same can happen in peace time.


  3. steve from virginia at January 4, 2014 6:10 pm

    What silly nonsense. The customers have to pay so that drillers can drill. If the customers cannot come up the the needed funds who will? Drillers can borrow from Wall Street for awhile but eventually the customers have to step up … and borrow in the drillers’ place!

    Don’t like the drillers’ price? Simple: don’t buy!

    That drillers are extracting crude from 10,000 feet of ocean water, in the arctic, from tight shales and limestones, from worked-over depleted fields, using steam/water/nitrogen floods, mining bitumen in Alberta and asphalt from Orinoco belt, harvesting beets and corn for fuel … all these barrel-scraping endeavors speak for themselves as to cost.

    We have a world market that does not answer to Wall Street, the traders or the New York Times.


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