There, in plain sight for all to read, the highly influential New York Times, in an article about the manipulative speculation in ethanol markets and the obscure but phenomenally profitable ethanol credits (having skyrocketed more than 20 times in the last six months) and in turn its impact on the price for gasoline brought us the following observation:
"While banks are by no means the largest players in ethanol credits, Wall Street's activities in this market reflects a larger effort by financial institutions to exert their influence over loosely regulated markets for basic commodities from aluminum to oil."
This from an opinion maker that has been virtually unbending in its proclamation that the price of such commodities as oil and myriad others is all about "supply and demand". This corner has been relentless in trying to squash this malign misnomer (please see my previous blogs on the subject).
According to a review by the Times "of nearly 1,500 businesses and individuals in the in the renewable fuel market, found big Wall Street banks (including Morgan Stanley, JP Morgan, Barclays among others) as well as a handful of people with troubled legal histories among the participants. Several high-profile cases of fraud have emerged." Over the years, be it ethanol credits or a full array of commodities and financial derivatives, it seems nothing basic has changed.
Morgan Stanley published a report in July that the cost of ethanol credits (RIN's) "would keep rising -- and eventually cause gas prices to spike later this year." And Bravo for Morgan Stanley! Doing what every bank being too big to fail should be doing with its open access to near zero cost of funds at the Fed Discount window, while sitting pretty with government insured depositors money and with its own 'TransMontaigne' subsidiary operating 21 blending and storage facilities, distributing gasoline and other petroleum products totaling 200,000 barrels a day. Exactly what we expect from our banks. That the Federal Reserve permits it to come to this is a scandal.
And then there is our institutionalized lame oversight of the commodities trading markets exemplified by the comment of one Scott Mixon, the acting chief economist of the Commodities Futures Trading Commission who was quoted in the Times article "that the issue of banks involvement in this market was something the agency might look into more deeply." What, "might look into more deeply"? -- Shhh don't wake up the CFTC from their slumbering oversight of the perverse trading in commodities and on the commodities exchanges. Here is something they have been able to relegate into studied slumber these past three and half years since Congress mandated they formulate a program of trading/holding limits to bring some sanity and fairness back to the commodities markets.
It is all a grim example of the extortionist cost of unmonitored commodity trading by banks and financial institutions -- trading that brings not an iota of economic benefit to society except the additional cost to the consumer that goes directly into the pockets as profits of the banks and the speculators.
Is this what free enterprise is meant to be? I think not!