Felix Salmon had an op-ed in New York Times on Hollywood’s opposition to the trading of future’s contracts based on box office receipts. Salmon said:
In the 1950s, onion growers were often shocked at the low prices they were getting. Casting around for a villain to blame, they alighted on derivatives traders, and they persuaded Congress to ban any futures trading in onions.
Today onions are the only commodity for which futures trading is banned. Not coincidentally, onion prices remain extremely volatile: they doubled in 2008, and then fell by 25 percent in 2009.
Today, no one is silly enough to ask a member of Congress to simply outlaw futures trading in a certain type of contract — no one, that is, except Hollywood film producers. Under the proposed financial-reform legislation making its way through the Senate, the bit of the 1958 bill saying “except onions” would be amended to read “except onions and motion picture box office receipts.”
Looking back at 2008-2009 commodity prices, we see a number of other goods for which prices were extremely volatile, some of which were traded on futures market. (Consider natural gas prices, which began 2008 at $7.80 per mmbtu, rose to over $13.50 mid-year, then tumbled as low as $2.51 in September 2009.) So Salmon’s brief nod to data on volatility leaves much out. Fortunately, the onion futures trading ban has been much studied, and analysis pretty strongly comes to the conclusion that the onion futures trading ban has increased spot price volatility.
But Salmon’s observation is more to the point that advocates of bans in futures trading don’t always get what they want, even if, as Salmon said, it isn’t very clear why most of Hollywood seems opposed to the markets.
HT Chris Masse.