Here we go again. The same Financial Class that brought us to the edge of economic meltdown is now pressing its well connected pals and cronies on Wall Street, in Congress as well as its allies in the press and our OPEC cheering oil industry, to lay hands off the continued stripping America's wealth through the gamed racket and egregiously profitable world of oil futures trading.
This week the Commodity Futures Exchange Commission (CFTC), responding to a national and international outcry that enough is enough, and in keeping with the Obama administration's goal of tougher oversight, has finally decided to act. Reacting to Congressional pressures, a struggling industrial landscape and a beleaguered public, the CFTC announced that a series of restrictions on energy trading would be set forth. And here the CFTC and the American public's outrage is not alone. Earlier this week the Wall Street Journal printed an Op-ed Essay (July 8,2009) jointly written by Prime Minister Gordon Brown of Great Britain and President Nicolas Sarkozy of France calling for "transparency and supervision of the oil futures market in order to reduce damaging speculation" (The WSJ, signaling its take on the issue placed the piece at the bottom of its pg.15 Opinion column).
To arrest the clear evidence of speculation driven trading by financial/non-commercial interests (by "non-commercial" meaning neither oil producers nor oil users) speculating heavily and erratically, pushing markets usually higher, the CFTC has committed itself to take the issue in hand. A glaring example of runaway speculation was reported as recently as July 3rd by the Financial Times(FT) that a rogue trader in London moved the market by over $2. a barrel , and according to the FT,"without apparent justification" (which please read as having had no commercial interest other than rank speculation).
The CFTC has announced it was ready to place volume limits on energy futures by pure financial traders/investors, tougher information requirements to identify the role of hedge funds and traders who swap contracts on the barely regulated nor visible over the counter markets.
Thereupon, almost immediately, the New York Times ("U.S. Weighs Curbs..." 07.08.09) cautioned "...proposals could encounter fierce opposition from big banks and Wall Street firms, which each are big traders in the commodity markets"
Who are these "big traders in the commodity markets"? They include Morgan Stanley and Goldman Sachs, both colossi in the field. And both, once "Investment Banks" are now "Bank Holding Companies" having turned themselves into Bank Holding Companies with the Fed's blessing on September 22, 2008 in the wake of the chaos in the financial world following Lehman's demise.
As Bank Holding Companies they became eligible for Tarp funds and other emergency loan programs set up by the Fed and Treasury, an array of new Fed lending facilities including access to the Fed's discount window, as well as access to bank deposits that would be insured by the Federal Deposit Insurance Corporation (FDIC).
Both banks reported enormous gains from their trading activity over this second quarter, enough for Goldman, according to the WSJ ("Big Pay Packages Return to Wall Street" O7.02.09) to be on track to pay out $20 billion this year or $700,000 per employee nearly double the firm's $363,000 average last year! All this after it was reported that Goldman had received billions in counter party funds from AIG that the Fed had made available to AIG permitting AIG to bail out Goldman's speculative derivative positions of CDS' and similar toxic paper worth probably less than 30 cents on the dollar at the time, for 100 cents on the dollar. Thereby covering what otherwise would have been billions upon billions of dollars in Goldman losses (Talk about a "good ole boys" network. How many homeowners were as fortunate and escaped foreclosure, how many small business' could have made their payrolls had they had equally accommodative banking relationships?).
All this raises an even bigger question. What are these Bank Holding Companies doing using Fed monies and programs, with access to the Fed's discount window, and FDIC insured deposits, speculating in the commodity futures markets? The irony is that Fed monies, instead of going to business lending and real estate mortgage financing which is what the economy desperately needs, goes to provide exceedingly cheap and voluminous funding to play the commodities casino. Thereby the American public is hit twice.
-First, taking away funds that are desperately needed in the economy and making them available at practically no cost to the 'futures commodities market' gamblers who have virtually no commercial interest in the commodities being traded being neither consumers nor producers.
-Second, by enabling and fueling speculation by the likes of the Bank Holding Companies they are helping to drastically distort the market's pricing mechanism, driving the cost of commodities higher than they would be by large measure in many cases, placing enormous further strains on the general public and the economy through significantly higher commodity prices reflected in day to day cost of goods and gasoline.
Clearly given the prodigious profits they enjoy from the current construct the casino players will fight tooth and nail to turn back the CFTC initiatives. They will be allied with the oil industry espousing the need for a futures market as a tool to manage price risk, never whispering their delight in a market that assigns their product immeasurable more value than it should be. And our sad Congress, while giving lipservice to the best interests of the nation's citizens, will in too many cases abide by the influence and campaign largesse of K Street lobbyists.
But consider, at present Bank Holding Companies the likes of Citigroup, JPMorgan, Morgan Stanley as well as such as Barclays are exercising their "banking responsibilities" to assist this difficult economy by playing what is termed the "contango" game. Misusing their access to cheap money, acting as principals (i.e. for their own account and risk) they are chartering supertankers for months to a year at a time, loading them with hundreds of millions of barrels of crude oil and oil products, taking the oil and oil products off the market thus helping to sustain and propagate ever higher oil prices at vast additional cost and burden to the nation's consumers. The oil is held at sea for months, thereby tying up hundreds of millions of dollars, in anticipation of yet higher prices for the oil/oil products cargo at the end of the tanker charter period. What has this to do with banking as we had come to understand it, especially in this time of crisis?
There is too much at stake here, not least of which determining the role of banks, especially Bank Holding Companies, after the disasters of the past year. Are banks meant to help the economy or to go back to business as usual in helping to destroy it?!