The American Bear

Sunshine/Lollipops

A Marxist History of the World part 81: The Roaring Twenties | Neil Faulkner

This should sound familiar:

[…] The American Dream [of the 1920’s (and in the naughts)] was, in fact, a will-o’-the-wisp. A central contradiction of capitalism is that it imposes low wages in the workplace, but requires high spending in the marketplace.

You cannot have both. The one involves squeezing wages to reduce costs and raise profits. But then workers cannot afford to buy back the goods that their collective labour has produced.

But if wages are raised and profits cut, capitalists have no incentive to invest. The search for profit powers the system.

In America’s Roaring Twenties, farm incomes were depressed and wages did not rise. Demand in the ‘real economy’ was therefore depressed. Industrial investment was in consequence too sluggish to absorb the surplus capital with which the system was awash.

So it flowed into speculation. Specifically, it fed a self-sustaining speculative bubble on the Wall Street Stock Exchange.

Read on

Democracy Now! interview with William Black: Crony Capitalism: After Lobbying Against New Financial Regulations, JPMorgan Loses $2B in Risky Bet

I guarantee you’ll learn something you didn’t know. Here’s a snip from the transcript:

AMY GOODMAN: To discuss the implications of this latest Wall Street crisis, we go to Kansas City to speak with William Black, white-collar criminologist, former senior financial regulator, author of The Best Way to Rob a Bank is to Own One. He’s also associate professor of economics and law at the University of Missouri-Kansas City.

William Black, welcome to Democracy Now! Can you please explain what happened at JPMorgan?

WILLIAM BLACK: Well, I can try. One of the things about this kind of derivatives is that it’s extremely opaque, and we only have JPMorgan’s side of the story at this point, without any real investigation, and JPMorgan’s story doesn’t make a whole lot of sense. But here’s what the story that they’re telling is. They had about $15 billion in distressed European debt. As your, you know, listeners and viewers know, Europe has been in just a ton of trouble. And so, those investments were losing all kinds of value. Now, the story, which, again, doesn’t make a whole lot of sense, is that they decided to hedge this position. A hedge is something where you invest in a second asset that is supposed to offset losses that you suffer in the first asset. In this case, the first asset was that distressed European debt, and the second asset, the supposed hedge, was a derivative of a derivative. In this case, it was an index of credit default swaps, which are a form of derivative that blew up AIG. Now then, the story gets even murkier, but it—the claim from out of JPMorgan is nobody was looking very carefully at the supposed hedge, and the hedge didn’t perform to offset losses, instead it increased the losses and increased the losses dramatically. And supposedly, no one was looking, and no one adjusted for this. And they woke up, and they had a $2 billion loss. So that’s the story from JPMorgan, as I said, that doesn’t make sense, and I can explain that, if you wish.

AMY GOODMAN: Explain.

WILLIAM BLACK: OK, so first, if you have distressed European debt, you’re supposed to have already reserved against the losses in it. So, why hedge the position at all? Just sell it. Get rid of these incredibly risky assets before they can suffer any additional losses. If you’ve already got loss reserves, you don’t even have to recognize a loss, because you’ve already reserved for it. So, you shouldn’t have had to hedge, period.

Second, if you were going to hedge, he should have hedged. And the way you would hedge something like this is to buy a credit default swap protection against the bad assets. That would hedge. In other words, if you lost on the value of the European debt, the credit default swap would go up in value, and you would be protected against loss. Instead, they have allegedly bet in the opposite direction by buying this derivative of a derivative. If the European debt lost value, the derivative of the derivative was also likely to lose value. Well, that’s not a hedge. That’s a double speculation in the same direction. You’re doubling down on the bet.

And the reason you’re calling it a hedge is because it’s illegal, under the Volcker Rule, to speculate in this fashion. So the story coming out of JPMorgan doesn’t make any sense as a financial matter. It seems reasonably clear that this is faux hedges. This is, you know, to hedging like truthiness is to truth. So this is hedginess: not really a hedge, but you call it a hedge to evade the law.

Finance Expert Says Speculators Are Behind High Oil and Gasoline Prices | David Lightman

Witness the raw destructive (extractive) power of a fully “modernized" commodities market:

Financial speculators are gambling on oil the same way they gambled on the housing market a few years ago — a frightening prospect for the fragile economy, a Democratic congressional committee was told Wednesday.

“It is similar to the gambling Wall Street did on whether or not people would pay their subprime (below-market rate) mortgages in the mortgage meltdown,” said Michael Greenberger, a law professor at the University of Maryland and a former federal regulator of financial markets. “Now they are betting on the upward direction of the price of oil.” […]

The economy is slowly recovering, Greenberger said, but it could come to a halt unless oil prices come down. Gene Guilford, president of the Independent Connecticut Petroleum Association, told lawmakers that the recent oil price run-up has cost consumers an additional $10 billion a month since mid-December.

The House of Representatives’ Democratic Steering and Policy Committee, which consists of party leaders, called the hearing to spotlight Democratic efforts to promote lower oil and gasoline prices. No Republicans were present.

Today’s routine $4-and-higher prices for a gallon of gasoline have nothing to do with conventional supply-and-demand forces, Greenberger said. He formerly directed regulation of market trading in futures contracts and derivatives for the Commodities Futures Trading Commission.

“It is excessive speculation, which is a fancy word for saying that gamblers wearing Wall Street suits have taken these markets over,” he said.

Financial speculators such as investment banks and hedge funds account for at least 65 percent of purchases of contracts for future oil deliveries, more than twice their traditional share, while buyers who intend to actually take delivery of the oil and use it, such as airlines, make up only about one-third of demand. The speculators bid up contract prices, sending oil and gasoline prices higher and reaping them huge profits. The bidding is stoked by fear of possible violence in oil-producing countries, notably Iran.

Read the rest

Sen. Bernie Sanders (I-VT), along with Sens. Richard Blumenthal (D-CT), Sherrod Brown (D-OH), Ben Cardin (D-MD), Al Franken (D-MN), Amy Klobuchar (D-MN) and Bill Nelson (D-FL), unveiled legislation today that would force the Commodity Futures Trading Commission to begin limiting speculation in oil markets within the next two weeks. The CFTC was given the power to curb speculation in energy markets by the Dodd-Frank financial reform law, but has yet to begin doing so. Gas prices at the moment are rising despite the lowest demand for oil since 1997, and many experts point to excessive speculation as the cause. Progressive Senators Introduce Bill That Would Force Regulator To Start Limiting Oil Speculation Within Two Weeks (via underthemountainbunker)

(Source: underthemountainbunker.com, via underthemountainbunker)

The real way to hold down gas prices | Gary Weiss

Just rigorously enforce the law. Dodd-Frank, to be exact.

A little-noted provision of that 2010 law, which was passed in reaction to the 2008 financial crisis, requires an even littler-noticed federal agency, the Commodity Futures Trading Commission, to establish “position limits” for commodity and swaps traders. I’m something of an obscure-securities-law buff, but even I wasn’t aware of that Dodd-Frank provision until this week, when the dependably progressive Vermont senator, Bernie Sanders, got 67 congressional signatures on a letter calling on the CFTC to do its job.

If enacted in a sensible fashion, position limits would go a long way toward easing consumer pain at the gas pump. That’s because speculators have played a major role in driving up gas prices. That’s not just empty rhetoric, or conspiracist theorizing, but proven fact. A recently updated study by the staff of the St. Louis Federal Reserve (get your copy here), found that speculation “played a significant role in the oil price increase between 2004 and 2008 and its subsequent collapse.”

[…]

In his letter to the CFTC, Sanders points out that “It is one of your primary duties–indeed, perhaps your most important–to ensure that the prices Americans pay for gasoline and heating oil are fair, and that the markets in which prices are discovered operate free from fraud, abuse, and manipulation.” He’s right, but in fact there doesn’t even have to be manipulation for oil traders to have an adverse impact on oil prices.

[…]

[There are two problems:] First these limits just aren’t strict enough, as Sanders points out in his letter. Secondly, Wall Street trade groups filed suit in December—before the interim final rules were even published—arguing that even the modest contract limits that were imposed were actually too strict. The lawsuit has delayed implementation of the position limits that were put into effect. Another obstacle, his letter noted, is that there have been delays in gathering the data needed to put the limits into effect.

continue

Frankly, given their destructive impact on consumers, I’m not really clear why we even need an oil futures market in the first place, or why speculation can’t be banned from the oil market entirely. Oil futures were originally created to give heating oil dealers, gas retailers, aviation companies and other businesses a method of hedging against adverse price changes. Instead, they’ve become just another Wall Street plaything. Gary Weiss

Whatever happened to task force on oil speculation? | Kevin Hall

From McClatchy:

[The] latest Energy Department data, for the week ending Feb. 24, points to ample oil and gasoline inventories, on the high side of historical norms. That suggests oil and gasoline prices are disconnected from supply-and-demand market fundamentals. It’s led at least one regulator to conclude that excessive financial speculation is sharply driving up oil and gasoline prices again.

“There is currently ample supply and limited demand, which should not push prices to the places they are today,” said Bart Chilton, a Democratic commissioner on the five-member Commodity Futures Trading Commission, which regulates the trading of futures — contracts for future deliveries of oil and other commodities. “Financial regulators are not price setters, but we are supposed to ensure prices are fair, and I am concerned that today they are not. There is a speculative premium being paid by consumers and businesses alike.

Financial-sector trade groups are suing the Commodity Futures Trading Commission, trying to block the implementation of congressionally mandated limits on how many contracts any one trader or company can control. Historically, financial speculators who never take delivery of oil made up about 30 percent of the trading in oil futures contracts; today they’re about 65 percent of the market. That’s led Chilton and other critics to think that the reversed ratio explains the high and volatile oil and gasoline prices.

“The only tool regulators have in their utility belt to address excessive speculation is the ability to limit the number of contracts that a trader may control. Most of us know what too much concentration can do, and it usually isn’t very pretty,” he told McClatchy. “Our position-limit rule has yet to be implemented, yet at the same time, Wall Street banks are taking the regulator to court to stop the rule from going forward. They want the ability to speculate with no limits. That’s not good for markets, for our economy, or for consumers or businesses.”

Historically, financial speculators accounted for about 30 percent of oil trading in commodity markets, while producers and end users made up about 70 percent. Today it’s almost the reverse. A McClatchy review of the latest Commitment of Traders report from the Commodity Futures Trading Commission, which regulates oil trading, shows that producers and merchants made up just 36 percent of all contracts traded in the week ending Feb. 14 while speculators who will never take delivery of the oil made up 64 percent.

Blame Oil Speculators, Not Obama, For Rising Oil Prices

(via anticapitalist)

(Source: anticapitalist, via sarahlee310)

Oil jumps to 9-month high after Iran cuts supply | AP

Oil prices jumped to a nine-month high above $105 a barrel on Monday after Iran said it halted crude exports to Britain and France in an escalation of a dispute over the Middle Eastern country’s nuclear program.

By early afternoon in Europe, benchmark March crude was up $1.91 to $105.15 per barrel in electronic trading on the New York Mercantile Exchange. Earlier in the day, it rose to $105.21, the highest since May. The contract rose 93 cents to settle at $103.24 per barrel in New York on Friday.

Markets in the United States are closed Monday for the Presidents Day holiday.

Iran’s oil ministry said Sunday it stopped crude shipments to British and French companies in an apparent pre-emptive blow against the European Union after the bloc imposed sanctions on Iran’s crucial fuel exports. They include a freeze of the country’s central bank assets and an oil embargo set to begin in July.

Iran’s Oil Minister Rostam Qassemi had warned earlier this month that Tehran could cut off oil exports to “hostile” European nations. The 27-nation EU accounts for about 18 percent of Iran’s oil exports.

Robin Hood Tax Gains Traction | Adbusters

As Occupy gears up for the American Spring, our European counterparts will soon have one OWS victory to put in their cap. In France this past week, lawmakers put their backing behind a bill for a Robin Hood (Tobin) Tax. The tax, a fraction of a percent on all derivative, currency and securities transactions, will equate to billions of dollars for social programs (at a nominal cost to the markets) and will reign in the worst elements of speculative trading in Europe.

This marks the long beginning of the necessary radical shift in the economic paradigm of our age. Germany and the Eurozone states are already on board, leaving only the U.K. and the U.S. defending unbridled neo-conservative free market gains.

For all of us this side of the Atlantic, the obvious question is: why not a Tobin Tax here?

When the G8 meets in Chicago this May, lets make sure that Occupy is there to greet them with a demand for Robin Hood.

Iran-US tensions over Gulf send oil prices soaring | The Guardian

The price of oil jumped by $4 a barrel on Tuesday as tension between Iran and the US fuelled fears of disruptions to supply.

Brent crude spot prices rose from $107 to $111 after Iran threatened to take action if the US navy moves an aircraft carrier into the Gulf.

US light crude, which dropped below $100 a barrel before Christmas, hit $102.23 a barrel – a rise of $3.40 on the day.

Analysts said the jump in prices was likely to continue as long as Tehran appeared ready to use force against US warships patrolling the strategically vital strait of Hormuz at the mouth of the Gulf.

The top six financial institutions in this country own assets equal to more than 60 percent of our gross domestic product and possess enormous economic and political power. One of the great questions of our time is whether the American people, through Congress, will control the greed, recklessness and illegal behavior on Wall Street, or whether Wall Street will continue to wreak havoc on our economy and the lives of working families. Senator Bernie Sanders, “What Wall Street doesn’t want us to know about oil prices” (via ryking)

(Source: diadoumenos, via pieceinthepuzzlehumanity-deacti)

Wall Street's Secret Oil Games

kateoplis:

By Senator Bernie Sanders

Why have oil prices spiked wildly? Some argue that the volatility is a result of supply-and-demand fundamentals. More and more observers, however, believe that excessive speculation in the oil futures market by investors is driving oil prices sky high.

A June 2 article in the Wall Street Journal said it all: “Wall Street is tapping a real gusher in 2011, as heightened volatility and higher prices of oil and other raw materials boost banks’ profits.”

ExxonMobil Chairman Rex Tillerson, testifying before a Senate panel this year, said that excessive speculation may have increased oil prices by as much as 40 percent. […]

I released records last month that documented the role of speculators and put the information on my Web site for three reasons.

First, the American people have a right to know why oil prices are artificially high. The CFTC report proved that when oil prices climbed in 2008 to more than $140 a barrel, Wall Street speculators dominated the oil futures market. Goldman Sachs alone bought and sold more than 860 million barrels of oil in the summer of 2008 with no intention of using a drop for any purpose other than to make a quick buck. […] 

Second, Congress recognized last year that excessive oil speculation must end. The Dodd-Frank financial reform legislation required the CFTC to eliminate, prevent or diminish excessive oil speculation by Jan. 17, 2011. Months after that deadline, the commission still has failed to enforce the law, and speculators still are making out like bandits.

Third, the commodity regulators’ claim that they cannot end excessive oil speculation because they lack sufficient data is nonsense. As the information I released makes clear, the commission has been collecting this information for more than three years. The time for studying is over. It is time for action.

Leaked Documents Reveal Major Speculators Behind 2008 Oil Price Shock: Hedge Funds, Koch, Big Banks, Oil Companies | Lee Fang

Notably, the top speculators are noncommercial players, meaning they  are companies that simply and buy and sell crude contracts with no  interest in actually refining and selling the product. Each contract in  the list represents 1,000 barrels of oil. The documents show the total  volume of trades made on one specific day shortly before the record high  price of $148 per barrel.
The  data, though revealing, still does not give a complete picture of  trading strategies. Speculators invest in multiple private exchanges,  and trading tactics can shift from day to day. Moreover physical plays,  such as buying up large quantities of actual oil and storing it on  tankers or in large containers, are still largely hidden from public  view.
Tyson Slocum, an oil speculation expert at Public Citizen,  reviewed the documents and spoke with ThinkProgress. He said that this  data is important because it shows who the “big players are” and  underscores the need for transparency and regulation in these so-called  dark markets:

SLOCUM: What this tells us  is who the big players are, because volume equates market share in a  way, if you are driving volume, and if your volume is at a significant  enough amount you become a price setter or at least a price trender  where you’re going to have the effect of unilaterally influencing prices  and that’s very significant. And you’ve got sort of a cascading effect,  and the smaller traders are going to follow Goldman Sach and others  will chase the leader, which is why Dodd Frank said Congress shall set  position limits in these markets. Position limits would limit the market  share, limit the positions banks could take. Dodd Frank recognizes the  danger that one or two traders can have when they dominate the positions  in a given market.

Professor Michael Greenberger, a  former CFTC official, told ThinkProgress that the “short” positions  outlined by the document might cause confusion because in many cases  banks act simply as intermediaries for their clients. Critics will note  the net short positions and assume incorrectly that many of these  players were simply betting on prices to go down, not up. Greenberger  explained that if you look closer at the data, the trading shows banks  and other speculators were actually pushing the price up:

GREENBERGER:  When you look at it carefully, the speculative money has all been  heavily weighted in the favor of buying in the direction of the price  going up. […] They go in and buy long in the regular futures market,  which sends a long signal to the market, that there’s a supply problem  that really doesn’t exist. To keep their long bets in place, they have  to do something called the “Goldman Roll,” which is these contracts  don’t go on forever. They expire. So what they have to do is sell short  to get out of the contract when the expiration takes place, then roll  around and buy long again to keep the long bet on the books. So the long  bets are predicated on intermediate short bets, that are canceled out  within three or four days of each other.

Regardless  of the actual trading strategies, the volume makes clear that not only  were Goldman Sachs and Morgan Stanley, as well as pension and sovereign  wealth funds, among the top participants in the oil speculation bubble,  but so were politically connected hedge funds. Elliott Management, one  of the top hedge funds revealed by the documents, is led by Paul Singer, a billionaire investor and a major donor to Karl Rove’s network of attack groups and to Republicans on the Financial Services Committee.
As we have discussed on this blog, “all the major oil companies (Shell, BP, Occidental, etc) operate like Wall Street investment banks and use their privileged position in  the oil market to make speculative bets on the price of oil.” An  accidental leak of private Chevron data two months ago confirmed that the company relied on sophisticated speculation  strategies, just as much as drilling and refining oil, to make a profit.  This data seems to confirm that Koch Industries — a conglomerate that  has admitted that it is among the top five oil speculators in the world — participates in the oil speculation market on the level of big banks.

Leaked Documents Reveal Major Speculators Behind 2008 Oil Price Shock: Hedge Funds, Koch, Big Banks, Oil Companies | Lee Fang

Notably, the top speculators are noncommercial players, meaning they are companies that simply and buy and sell crude contracts with no interest in actually refining and selling the product. Each contract in the list represents 1,000 barrels of oil. The documents show the total volume of trades made on one specific day shortly before the record high price of $148 per barrel.

The data, though revealing, still does not give a complete picture of trading strategies. Speculators invest in multiple private exchanges, and trading tactics can shift from day to day. Moreover physical plays, such as buying up large quantities of actual oil and storing it on tankers or in large containers, are still largely hidden from public view.

Tyson Slocum, an oil speculation expert at Public Citizen, reviewed the documents and spoke with ThinkProgress. He said that this data is important because it shows who the “big players are” and underscores the need for transparency and regulation in these so-called dark markets:

SLOCUM: What this tells us is who the big players are, because volume equates market share in a way, if you are driving volume, and if your volume is at a significant enough amount you become a price setter or at least a price trender where you’re going to have the effect of unilaterally influencing prices and that’s very significant. And you’ve got sort of a cascading effect, and the smaller traders are going to follow Goldman Sach and others will chase the leader, which is why Dodd Frank said Congress shall set position limits in these markets. Position limits would limit the market share, limit the positions banks could take. Dodd Frank recognizes the danger that one or two traders can have when they dominate the positions in a given market.

Professor Michael Greenberger, a former CFTC official, told ThinkProgress that the “short” positions outlined by the document might cause confusion because in many cases banks act simply as intermediaries for their clients. Critics will note the net short positions and assume incorrectly that many of these players were simply betting on prices to go down, not up. Greenberger explained that if you look closer at the data, the trading shows banks and other speculators were actually pushing the price up:

GREENBERGER: When you look at it carefully, the speculative money has all been heavily weighted in the favor of buying in the direction of the price going up. […] They go in and buy long in the regular futures market, which sends a long signal to the market, that there’s a supply problem that really doesn’t exist. To keep their long bets in place, they have to do something called the “Goldman Roll,” which is these contracts don’t go on forever. They expire. So what they have to do is sell short to get out of the contract when the expiration takes place, then roll around and buy long again to keep the long bet on the books. So the long bets are predicated on intermediate short bets, that are canceled out within three or four days of each other.

Regardless of the actual trading strategies, the volume makes clear that not only were Goldman Sachs and Morgan Stanley, as well as pension and sovereign wealth funds, among the top participants in the oil speculation bubble, but so were politically connected hedge funds. Elliott Management, one of the top hedge funds revealed by the documents, is led by Paul Singer, a billionaire investor and a major donor to Karl Rove’s network of attack groups and to Republicans on the Financial Services Committee.

As we have discussed on this blog, “all the major oil companies (Shell, BP, Occidental, etc) operate like Wall Street investment banks and use their privileged position in the oil market to make speculative bets on the price of oil.” An accidental leak of private Chevron data two months ago confirmed that the company relied on sophisticated speculation strategies, just as much as drilling and refining oil, to make a profit. This data seems to confirm that Koch Industries — a conglomerate that has admitted that it is among the top five oil speculators in the world — participates in the oil speculation market on the level of big banks.

Big Oil Companies Made $200,000 Every Minute in the First Quarter

Listen, we have to kill these companies on the demand side. Even a little bit helps if everyone does something. My TDI gets 45 mpg.

  • Stop with the commuter trucks already.
  • Try to at least get yourself above 30 mpg.

The impression of greatness your F350 may give you is absolutely false.

Shell, ExxonMobil, ConocoPhillips, BP America and Chevron Corp—the “Big Five” oil companies—reported a cumulative total earning of $36 billion in the first quarter of this year. As Huffington Post writer Erich Pica points out that’s “more than $200,000 every minute.” This jaw-dropping number has been accompanied by a hike in oil prices, which averaged out at about $3.98 per gallon for regular unleaded gas across the country. This is more than a dollar increase from the $2.90 gas stations were charging one year ago, The Associated Press reports.

(Source: theatlantic, via lukehackney)