Are commodity funds skating on thin ice?

David Einhorn is one of those people Americans love to hate. Einhorn is a hedge-fund manager whose company, Greenlight Capital Inc., handles more than $6 billion in investments.

But Einhorn is a different breed from the “Gordon Gekko-type” character many of us associate with Wall Street. (Gekko was the investment banker made famous in the 1987 movie “Wall Street.”)

Einhorn was featured in a recent Time magazine article as a voice crying out that the financial regulatory system in this country is flawed and must be fixed. He first attracted media attention with a 2002 speech in which he said he was short selling a finance company, Allied Capital.

In the speech, Einhorn said Allied Capital was understating its loan losses. In the furor that followed, Allied Capital claimed Einhorn was trying to manipulate the market. (During the speech, Einhorn announced he was donating 50 percent of any profit from the short sale to charity.)

Einhorn has also spoken out against the boom in subprime loans and the re-packaging of those into mortgage-backed securities — before they became widely publicized as the reason for the current mortgage-lending debacle.

“The authorities are good at cleaning up fraud after the money’s gone,” he writes in a new book, Fooling Some of the People All of the Time. But they “really don’t know what to do about fraud when they discover it in progress.”

What does this have to do with agriculture? The commodity markets could use a David Einhorn, someone willing to say the system is flawed and needs to be fixed.

A few weeks ago, the Commodity Futures Trading Commission held a hearing on why the prices of some commodities had reached unprecedented levels.

After taking some time to sift through the testimony, the CFTC announced that the sharp run-up in prices was due to market fundamentals and a weak dollar and not to rampant speculation by commodity fund managers as witnesses at the April 22 hearing suggested.

Is the CFTC erring on the side of caution or is the commission simply unable to respond to the sharp rise in speculative influence on the market in an effective manner?

Farmers certainly are excited about the current prices, but many are concerned about the negative impacts: Grain elevators have been forced into liquidation because they were unable to respond to margin calls brought on by sharply higher prices, and farmers have become the whipping boys for rising food costs.

The problem isn’t confined to the agricultural markets. Some analysts say up to 40 percent of the meteoric rise in oil prices of the last year can be blamed on commodity speculators.

I once heard a commodity trader say you had to be prepared to lose $250,000 a day if you wanted to trade futures. The amount of money being risked by commodity funds these days staggers the imagination. Will those funds be the next “subprime mortgage” fiasco we read about?

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