Did anyone watch the 60 Minutes story last night, titled Did speculation fuel oil price swings? If not, you can read the transcript at the link. I don’t even play an economist on TV, but what did you think of it?
…Asked who was buying this “paper oil,” Masters told Kroft, “The California pension fund. Harvard Endowment. Lots of large institutional investors. And, by the way, other investors, hedge funds, Wall Street trading desks were following right behind them, putting money – sovereign wealth funds were putting money in the futures markets as well. So you had all these investors putting money in the futures markets. And that was driving the price up.”
In a five year period, Masters said the amount of money institutional investors, hedge funds, and the big Wall Street banks had placed in the commodities markets went from $13 billion to $300 billion. Last year, 27 barrels of crude were being traded every day on the New York Mercantile Exchange for every one barrel of oil that was actually being consumed in the United States.
“We talked to the largest physical trader of crude oil. And they told us that compared to the size of the investment inflows – and remember, this is the largest physical crude oil trader in the United States – they said that we are basically a flea on an elephant, that that’s how big these flows were,” Masters remembered.
Yet when Congress began holding hearings last summer and asked Wall Street banker Lawrence Eagles of J.P. Morgan what role excessive speculation played in rising oil prices, the answer was little to none. “We believe that high energy prices are fundamentally a result of supply and demand,” he said in his testimony…
Well that’s the gist of why oil prices were so volatile. And how did the regulatory environment become so ridden with holes so that it could happen that way?
“Who was responsible for deregulating the oil future market?” Kroft asked Michael Greenberger.
“You’d have to say Enron,” he replied. “This was something they desperately wanted, and they got.”
Greenberger, who wanted more regulation while he was at the Commodity Futures Trading Commission, not less, says it all happened when Enron was the seventh largest corporation in the United States. “This was when Enron was riding high. And what Enron wanted, Enron got.”
Let that soak in for a moment; Enron was the seventh largest corporation in the United States. They didn’t produce anything; they bought and sold stuff, and manipulated markets. And left a mess that blew up in our faces (again) last summer. Think of all the poor SUV owners who were tricked into buying a Prius when they could have just waited out the high fuel prices!
Damn that Enron.
Seriously though, what other booby-traps lie in wait for us from that era?
Notes:
- Enron: The Smartest Guys In The Room
- My review of that movie
So when Congress was holding hearings, they couldn’t nail down that it was speculators (eventhough everyone, even Joe the Plumber, suspected it) so we continued to get screwed and the trader boys kept their profits … but the firms that went belly up screwed their shareholders or got bailed out by our moeny … which really is not money but debt for our children and grandchildren … because we are bankrupt due to those very companies who bought the Republican part and stole two elections.
Got it.
So the problem is as old as mankind: ethics or lack thereof.
What justifies acquiring money is the acquiring of money. The more you acquire, the more you justify the methods by which you acquired it.
So, as a group, those who add the least value to society become the richest, for the most part. Why? Because the “best and the brightest” learned how to (were taught to) manipulate the financial systems of the world.
I still wouldn’t trade my Prius in…even though it was a bit on the expensive side.
It’s a lovely little car and 10,000 miles on our cross country trip cost us around 900 bucks during the peak of the gas prices. Not too shabby.
Fortunately, one result of all this is that I think there has been a real shift in perspective. Whether out of raw fear or revelation, I think a lot of people now understand the age of oil needs to, will, end.