THE BLOG
04/01/2014 01:38 pm ET | Updated Jun 01, 2014

Wall Street Market Manipulation Example 3,789: Ethanol

I write a lot about the ways the powers that be on Wall Street abuse their power; commit financial fraud without going to jail; get billions of dollars in subsidies and tax loopholes; and generally hurt the Main Street economy. One of the most significant things they do to mess things up for the rest of us is to use their enormous size and market power to manipulate markets. They do it all the time and in all different kinds of economic sectors. What makes this market manipulation even worse is when they do it in conjunction with government-subsidized markets, because they use our tax dollars to create big profits for themselves.

I wrote about this a couple of times last fall, but this Reuters piece stirred me up again. Because of rampant Wall Street in what's called the RIN (which stands for Renewable Identification Numbers) market, taxpayers are once again helping Wall Street traders get rich. And to compound the problem, the biggest oil companies are colluding with the Wall Street guys to make extra money at our expense as well.

RINs speculation has the potential to raise food and gas prices; kill jobs; and squeeze small businesses. Here are some of the big issues involved:

Wall Street Speculation Is Driving Up RINs Prices. Wall Street has been at least partially responsible for the uptick in RINs prices over the last year. Hedge funds and bankers realized years ago that there is easy money to be made in the RINs market, and have been provoking an artificial shortage to incite desperation among certain refiners, who need the credits to meet federal guidelines. Meanwhile, the government has turned a blind eye while data on who is trading what is kept from the public. Without action to curb these reckless practices, RINs prices will continue to spiral out of control.

Big Oil Is Protecting Its Profits By Hoarding RINs. Like Wall Street traders, executives at BP and ExxonMobil have been closely watching as RINs numbers have crept up. In this case, Big Oil wants to protect its bottom line. Oil companies know that if RINs continue to soar, the additional costs will begin to cut into their profits, which have reached record levels in recent years. They have been hedging their bets by hoarding RINs in preparation for more severe shortages in the future, but their actions have the perverse effect of making it even more likely that the price of RINs will continue to boom.

High RINs Prices Will Soon Raise Food And Gas Prices. Americans who think RINs prices are a topic best reserved for economics professors may change their minds when they have to start paying even more for a gallon of gas and at the grocery store. The increased price of RINs hasn't translated to the rest of the market yet but if the current trend continues, the ripple effect will surely be felt soon. Big oil producers have already threatened to raise the price of their gas if nothing is done to stem the alarming increase. And food producers, which depend on low transportation costs, will be unable to keep the price of their products low if the cost of gas jumps. The result will be a major hit to Americans' pocketbooks.

Small Businesses Are In Danger. While the production of oil is often associated with major conglomerates, there are plenty of small oil refiners operating in this country -- refiners that provide middle-class jobs to many Americans. Many of these small businesses -- and the thousands of jobs they provide -- may have to shut down if they are forced to devote more of their revenues to purchasing ever-costlier RINs.

Ethanol Policies Are Not Sustainable. The breakdown in the RINs market is further proof that the ethanol mandate was a bad idea to begin with and that Congress should shift its focus to a truly sustainable energy policy, one that puts wind and solar energy front and center rather than a diluted version of oil.

I grew up in the agrarian Midwest, and always thought ethanol tax credits were a good idea. But Wall Street and Big Oil have figured out a way to manipulate the market to screw the rest of us, and we desperately need to reform this program.