Commodities had little to do with the financial crisis. As a result, it might seem surprising that the Commodities Futures Trading Commission, the central U.S. commodities regular, would be looking for vastly more funding. After all, if Washington is going to increase regulation, it should probably do so in the areas hit by the crisis. The Wall Street Journal explains today that new initiatives will create new expenses for the regulator.

The Journal reports:

Gary Gensler, the agency's chairman, said in an interview that winning a bigger budget for the CFTC is a top priority, as the agency plans to expand its oversight to include trading outside exchanges and on what could become a nationwide market for carbon-dioxide credits.



The first part of that is the over-the-counter commodities trading market. The CFTC wants additional oversight. That's no small task, so will surely cost more money.

The second part is cap and trade. It makes sense this would give the CFTC a lot more to do. So if that's the excuse for a bigger budget, then it's pretty hard to argue against. I would, however, make a few observations about this.

First, cap and trade should provide plenty of government revenue to set aside a little for regulating energy trading. As a result, some extra funding for the CFTC shouldn't be particularly difficult to find. If there's any legitimate use for cap and trade revenue, then that seems like as relevant as any.

This also shows, however, that not all cap and trade revenue will be pure gravy for the government. Some of that revenue will have to provide a sort of infrastructure for the program itself. Energy trading has room for a significant amount of fraud -- just ask Enron. As a result, paying for its regulation probably won't be cheap.

This story also underscores a general worry I have about the increased financial regulatory environment proposed by Washington. Its goal is presumably to eliminate virtually all fraud and prevent other kinds of "wrongdoing" in the financial community. That is a very difficult task. In order to really succeed effectively, the cost might exceed the benefit. That benefit, obviously, would be the elimination of harm to society that otherwise would have occurred. Such calculus is hard to perform accurately or verify.

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