When It Comes to $100 Oil, It's Every Man for Himself

Oil topped $100 a barrel for the first time Wednesday since 2008, the same year that Wall Street and Washington brought the nation to the brink of financial Armageddon.

But that was then. Surely both camps are much more prepared to deal with the fallout now, right?

Not so fast.

All appearances to the contrary, both camps have wasted very little time getting back to business as usual. Only in this case, Americans know for certain one thing they did not know back in 2008: If anything goes wrong, they'll likely be the ones to foot the bill.

And that changes everything. Here is what you do not know about how the Powers That Be have been handling high energy prices and the ongoing credit crisis, more popularly known in Washington these days as "the recent unpleasantness."

Oil and gas traders continue to bet on the market for almost no money down. That means they stand lose only 5 to 10 percent of their total investment for taking monumental positions in a market of crucial strategic importance to the nation; and the world.

If you think letting your teenager go on a $1,000 shopping spree with only $50 in his or her pocket is a good idea, then no problem. Otherwise, why would anyone even consider letting Wall Street do it, especially knowing what we know now about its tendency toward self-restraint?

When Congress was given an opportunity to rein in traders' ability to make big bets with almost no down payment, guess what it did? It backed off and decided to march Big Oil into Washington for a public berating instead.

Incredibly, that decision was made just before oil prices hit their last record high of nearly $150 a barrel on the New York Mercantile Exchange and gas streaked past $4 a gallon. Since then, little has changed.

Did you know there is a watchdog agency in Washington responsible for keeping an eye on the oil market? It is called the Commodity Futures Trading Commission (CFTC).

But rather than do its job, its chairmen have mostly used it as a way of cozying up to Wall Street executives in exchange for the high-paying jobs they really want. Indeed, as oil shot to its peak on the New York Mercantile Exchange in July 2008, the CEO presiding over that market was none other than James Newsome, the previous chairman of the CFTC.

Beware the 'Enron Loophole'

Energy trading, as a rule, is rife with loopholes, indulgences and special dispensations granted to some but not all. And that's the rub.

Rather than ensuring all participants compete on a level playing field, allowing only the best to win in a process some might call "real capitalism," our government has made it a practice to dole out what are essentially get-out-of-jail-free cards for certain big banks, hedge funds and oil companies that curry favor before going on to dominate the market.

This is where political savvy and market know-how stealthily meet. Not surprisingly, the privileges granted aren't well monitored.

The main special privilege that all banks, hedge funds and oil companies clearly desire is something called the Bona Fide Hedging Exemption, first proposed by Goldman Sachs in 1991 in a letter sent to the CFTC, which, to this day, the CFTC will not disclose.

This privilege, which exempts its recipients from certain trading rules, was approved by then-CFTC Chairwoman Wendy Gramm, who also pulled strings for Enron before leaving the agency to join its board.

The "Enron loophole," endorsed by Gramm while she ran the CFTC, turned out to be one of the most significant contributors to what became the global financial crisis. The loophole barred the United States from regulating many of its riskiest markets.

In 2008, Congress announced it had closed the Enron loophole when, in truth, it had not. Even now, long after Enron's demise, the Enron loophole remains open.

Regrettably, the CFTC did not have the power to apprehend any proven fraud in the largest swath of the energy market until last year; a hangover of the Enron loophole.

This was not by mistake; it was by design. But the agency is still struggling to decide how it wants to use its newfound powers, received as part of the Frank-Dodd Act.

The Frank-Dodd Act, meant to introduce much-needed financial reform to our country, is being rolled out at a glacial pace. More alarming, the CFTC's Obama-appointed chairman, Gary Gensler -- a former Goldman banker who retired before age 40 -- says the agency lacks the funds it needs to properly do its job. And it likely won't get them.

Only the Beginning for Higher Oil and Gas

Bottom line, while fears about supply and demand ultimately rule oil and gasoline prices, the United States has done little to nothing to tame those gaming the system and even less to encourage alternative energy resources.

If the nation's energy market is a ticking time bomb and Washington is supposed to play bomb detonator that effectively makes Wall Street the proverbial goblin whispering, 'Do you really want to yank the red wire?' or 'I wouldn't touch the green one, either!'

In the end, the dummy wire gets pulled and waved before the peanut-munching crowd as proof of a job well done, and no one's the wiser.

But the job has not been done and won't be until Washington and Wall Street wise up.

Until then, Americans can expect more $100 oil and more $4 gasoline, and worse.

Change will not come unless we insist on it. If watching U.S. energy prices spike on unrest in Egypt and Libya seems surreal, stick around. This is only the beginning.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

Leah McGrath Goodman's book, "The Asylum: The Renegades Who Hijacked the World's Oil Market," is out this month from HarperCollins. She is a Ted Scripps Journalism Fellow at the University of Colorado at Boulder.