sorry about the bad link GB...i'll post the rest of his written testimony below...here is a link to his spoken testimony:
YouTube - Hearing on Energy Speculation, Gas Prices: Masters Testimony


continuation of written testimony (charts available at link):

http://hsgac.senate.gov/public/_files/052008Masters.pdf

Index Speculator Demand Is Driving Prices Higher
Today, Index Speculators are pouring billions of dollars into the commodities futures
markets, speculating that commodity prices will increase. Chart One shows Assets
allocated to commodity index trading strategies have risen from $13 billion at the end of
2003 to $260 billion as of March 2008,
and the prices of the 25 commodities that
compose these indices have risen by an average of 183% in those five years!

According to the CFTC and spot market participants, commodities futures prices are the
benchmark for the prices of actual physical commodities, so when Index Speculators
drive futures prices higher, the effects are felt immediately in spot prices and the real
economy.

So there is a direct link between commodities futures prices and the prices
your constituents are paying for essential goods.
The next table looks at the commodity purchases that Index Speculators have made via
the futures markets. These are huge numbers and they need to be put in perspective to
be fully grasped.
In the popular press the explanation given most often for rising oil prices is the
increased demand for oil from China. According to the DOE, annual Chinese demand
for petroleum has increased over the last five years from 1.88 billion barrels to 2.8 billion
barrels, an increase of 920 million barrels.
Over the same five-year period, Index
Speculatorsʼ demand for petroleum futures has increased by 848 million barrels.
The
increase in demand from Index Speculators is almost equal to the increase in demand
from China!

In fact, Index Speculators have now stockpiled, via the futures market, the equivalent of
1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own
stockpile as the United States has added to the Strategic Petroleum Reserve over the
last five years.

Let??s turn our attention to food prices, which have skyrocketed in the last six months.
When asked to explain this dramatic increase, economists?? replies typically focus on the
diversion of a significant portion of the U.S. corn crop to ethanol production.

What
they overlook is the fact that Institutional Investors have purchased over 2 billion
bushels of corn futures in the last five years. Right now, Index Speculators have
stockpiled enough corn futures to potentially fuel the entire United States ethanol
industry at full capacity for a year.
That??s equivalent to producing 5.3 billion gallons of
ethanol, which would make America the world??s largest ethanol producer.
Turning to Wheat, in 2007 Americans consumed 2.22 bushels of Wheat per capita.

At
1.3 billion bushels, the current Wheat futures stockpile of Index Speculators is enough
to supply every American citizen with all the bread, pasta and baked goods they can eat
for the next two years!

Index Speculator Demand Characteristics
Demand for futures contracts can only come from two sources: Physical Commodity
Consumers and Speculators. Speculators include the Traditional Speculators who have
always existed in the market, as well as Index Speculators. Five years ago, Index
Speculators were a tiny fraction of the commodities futures markets. Today, in many
commodities futures markets, they are the single largest force.

The huge growth in
their demand has gone virtually undetected by classically-trained economists who
almost never analyze demand in futures markets.
Index Speculator demand is distinctly different from Traditional Speculator demand; it
arises purely from portfolio allocation decisions. When an Institutional Investor decides
to allocate 2% to commodities futures, for example, they come to the market with a set
amount of money. They are not concerned with the price per unit; they will buy as many
futures contracts as they need, at whatever price is necessary, until all of their money
has been ??put to work.? Their insensitivity to price multiplies their impact on commodity
markets.

Furthermore, commodities futures markets are much smaller than the capital markets,
so multi-billion-dollar allocations to commodities markets will have a far greater impact
on prices. In 2004, the total value of futures contracts outstanding for all 25 index
commodities amounted to only about $180 billion.

Compare that with worldwide
equity markets which totaled $44 trillion
, or over 240 times bigger. That year, Index
Speculators poured $25 billion into these markets, an amount equivalent to 14% of the
total market.

One particularly troubling aspect of Index Speculator demand is that it actually
increases the more prices increase. This explains the accelerating rate at which
commodity futures prices (and actual commodity prices) are increasing. Rising prices
attract more Index Speculators, whose tendency is to increase their allocation as prices
rise. So their profit-motivated demand for futures is the inverse of what you would
expect from price-sensitive consumer behavior.

You can see from Chart Two that prices have increased the most dramatically in the first
quarter of 2008. We calculate that Index Speculators flooded the markets with $55
billion in just the first 52 trading days of this year.

That??s an increase in the dollar
value of outstanding futures contracts of more than $1 billion per trading day. Doesn??t it
seem likely that an increase in demand of this magnitude in the commodities futures
markets could go a long way in explaining the extraordinary commodities price
increases in the beginning of 2008?

There is a crucial distinction between Traditional Speculators and Index Speculators:
Traditional Speculators provide liquidity by both buying and selling futures. Index
Speculators buy futures and then roll their positions by buying calendar spreads. They
never sell. Therefore, they consume liquidity and provide zero benefit to the futures
markets.

It is easy to see now that traditional policy measures will not work to correct the problem
created by Index Speculators, whose allocation decisions are made with little regard for
the supply and demand fundamentals in the physical commodity markets. If OPEC
supplies the markets with more oil, it will have little affect on Index Speculator demand
for oil futures. If Americans reduce their demand through conservation measures like
carpooling and using public transportation, it will have little affect on Institutional

Investor demand for commodities futures.
Index Speculators?? trading strategies amount to virtual hoarding via the commodities
futures markets. Institutional Investors are buying up essential items that exist in limited
quantities for the sole purpose of reaping speculative profits.

Think about it this way: If Wall Street concocted a scheme whereby investors bought
large amounts of pharmaceutical drugs and medical devices in order to profit from the
resulting increase in prices, making these essential items unaffordable to sick and dying
people, society would be justly outraged.
Why is there not outrage over the fact that Americans must pay drastically more to feed
their families, fuel their cars, and heat their homes?

Index Speculators provide no benefit to the futures markets and they inflict a
tremendous cost upon society. Individually, these participants are not acting with
malicious intent; collectively, however, their impact reaches into the wallets of every
American consumer.

Is it necessary for the U.S. economy to suffer through yet another financial crisis
created by new investment techniques, the consequences of which have once again
been unforeseen by their Wall Street proponents?

The CFTC Has Invited Increased Speculation
When Congress passed the Commodity Exchange Act in 1936, they did so with the
understanding that speculators should not be allowed to dominate the commodities
futures markets. Unfortunately, the CFTC has taken deliberate steps to allow certain
speculators virtually unlimited access to the commodities futures markets.
The CFTC has granted Wall Street banks an exemption from speculative position limits
when these banks hedge over-the-counter swaps transactions.

This has effectively
opened a loophole for unlimited speculation. When Index Speculators enter into
commodity index swaps, which 85-90% of them do, they face no speculative position
limits.

The really shocking thing about the Swaps Loophole is that Speculators of all stripes
can use it to access the futures markets. So if a hedge fund wants a $500 million
position in Wheat, which is way beyond position limits, they can enter into swap with a
Wall Street bank and then the bank buys $500 million worth of Wheat futures.

In the CFTC??s classification scheme all Speculators accessing the futures markets
through the Swaps Loophole are categorized as ??Commercial? rather than ??Non-
Commercial.? The result is a gross distortion in data that effectively hides the full impact
of Index Speculation.
Additionally, the CFTC has recently proposed that Index Speculators be exempt from all
position limits, thereby throwing the door open for unlimited Index Speculator
??investment.?

The CFTC has even gone so far as to issue press releases on their
website touting studies they commissioned showing that commodities futures make
good additions to Institutional Investors?? portfolios.
Is this what Congress expected when it created the CFTC?
Congress Should Eliminate The Practice Of Index Speculation
I would like to conclude my testimony today by outlining three steps that can be taken to immediately reduce Index Speculation.

Number One:
Congress has closely regulated pension funds, recognizing that they serve a public
purpose. Congress should modify ERISA regulations to prohibit commodity index
replication strategies as unsuitable pension investments because of the damage that
they do to the commodities futures markets and to Americans as a whole.

Number Two:
Congress should act immediately to close the Swaps Loophole. Speculative position
limits must ??look-through? the swaps transaction to the ultimate counterparty and hold
that counterparty to the speculative position limits. This would curtail Index Speculation
and it would force ALL Speculators to face position limits.

Number Three:
Congress should further compel the CFTC to reclassify all the positions in the
Commercial category of the Commitments of Traders Reports to distinguish those
positions that are controlled by ??Bona Fide? Physical Hedgers from those controlled by
Wall Street banks. The positions of Wall Street banks should be further broken down
based on their OTC swaps counter-party into ??Bona Fide? Physical Hedgers and
Speculators.

There are hundreds of billions of investment dollars poised to enter the commodities
futures markets at this very moment.
If immediate action is not taken, food and
energy prices will rise higher still. This could have catastrophic economic effects on
millions of already stressed U.S. consumers. It literally could mean starvation for
millions of the world??s poor.

If Congress takes these steps, the structural integrity of the futures markets will be
restored. Index Speculator demand will be virtually eliminated and it is likely that food
and energy prices will come down sharply.