Goldman Sachs & JP Morgan on board

The FT reports that two major US investment banks are supporting the CFTC's plan for stringent limits on speculation in energy commodities.

The CFTC seems ready to put a ceiling on traders' positions, as a reaction to the surge in crude oil prices last summer that brought them to $147 per barrel.

The FT quotes Blythe Masters, the head of global commodities for JP Morgan, saying, "It would make sense to impose position limits across all markets," but that the limits should look through to the end-market participant.

That quote, and the accompanying black-and-white photo of Ms Masters, drew my attention to the story rather forcibly. I knew that I had read about Blythe Masters recently. It is a striking name, and so draws attention to itself. "Ah, that's it!" I said after a moment of head scratching. "She was featured in Gilliam Tett's book!"

Tett's recent book, FOOL's GOLD, was aout (in the words of her subtitle), "how the bold dream of a small tribe at J.P. Morgan was corrupted by Wall Street greed and unleashed a catastrophe." Ms Masters was a central figure in that tribe, and he disillusionment is one of the threads that runs through Tett's tale.

The "bold dream" in question was the aggressive use of credit derivatives as a risk management instrument and their marketing as such. It was Masters who said, in 1997: “Credit derivatives will fundamentally change the way banks price, manage, transact, originate, distribute, and account for risk.”

Masters, too, was one of those within the truibe who felt discomforted by the way other institutions soon employed credit derivatives in the context of mortgages. She said, "We [at JPM] just could not get comfortable" with such an application.

Perhaps her eagerness now to embrace government re-regulation of energy derivatives should be considered a new step in her continued disillusion with her own youthful boldness. If so, it is a pity.