Oil Price run-up in 08 caused by speculation - 60 Minutes and they actually mentioned "deregulation"

[JohnWxy]

60 Minutes reported sunday on the extreme run-up of the price of oil from 07 to 08. They Interviewed a number of knowledgeable people (especially M. Masters, Hedge Fund manager who testified before congress on this matter last year) and inclued some illuminating facts.


"Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors that are looking to make money from their speculative positions," Gilligan explained.

Gilligan said these investors don't actually take delivery of the oil. "All they do is buy the paper, and hope that they can sell it for more than they paid for it. Before they have to take delivery."

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They referred to a recent report by MIT that concluded that the "basic fundamentals of supply and demand could not have been responsible for last year's run-up in oil prices." and Masters pointed out that

"From quarter four of '07 until the second quarter of '08 the EIA, the Energy Information Administration, said that supply went up, worldwide supply went up. And worldwide demand went down. So you have supply going up and demand going down, which generally means the price is going down," Masters told Kroft.
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It's impossible to tell exactly who was buying and selling all those oil contracts because most of the trading is now conducted in secret, with no public scrutiny or government oversight. Over time, the big Wall Street banks were allowed to buy and sell as many oil contracts as they wanted for their clients, circumventing regulations intended to limit speculation. And in 2000, Congress effectively deregulated the futures market, granting exemptions for complicated derivative investments called oil swaps, as well as electronic trading on private exchanges.
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What they did not say was the law that deregulated the futures market for energy futures (traded using electronic media) was the Commodity Futures Modernization act which was passed by Congress in 2000 but it was attached as a rider to the Omnimbus Funding Bill of 2000 passed in the waning hours of that session of Congress. Actually, almost nobody knew it was in there. They didn't even know they were deregulating the energy futures. BUT THAT'S NOT ALL THE DEREGULATED - THE CFMA ALSO MADE TRADING IN CREDTIT DEFAULT SWAPS LEGAL AND COMPLETELY WITHOUT REGULATION OF OVERSIGHT BY THE GOVERNMENT. IN FACT THE LAW SPECIFICALLY PROHIBITED THE cftc (COMMODITY FUTURES TRADING COMMISSION FROM GATHERING OR EVEN ACCEPTING INFORMATION ABOUT TRADES IN THESE EXOTIC DERIVATIVE INSTRUMENTS).

It was the trade in CDSs that lead to the Credit Catastrophe which is now threatening to take us into a Depression ( the "Deregulation Depression").

When the interviewee was asked who was responsible for the deregulation of energy futures trading he said "you'd have to say Enron" -- What was not mentioned was that it was Sen. Phil Gramm who sneaked the CFMA in as a rider to the Omnibus Funding Bill(an 11,000 page document). The CFMA was written by Wall Street lawyers. Phil Gramm's wife Wendy after her tenure weakening regulatory oversight as the chairman of the Commodities Futures Trading Commission took a position on the board of directors of ENRON.


While the 60 Minutes report stayed away from mentioning Gramm and the Commodities Futures Modernization Act and how it was sneaked into law by Gramm they did say the word that seems to be taboo in M$M: "deregulation". This is why the financial system went into melt-down mode and is now threatening to take us into a depression as bad or, as some say, maybe worse than that on the 1930's.



So much for the wonders of deregulation. In a mere seven years since enactment it has nearly brought our whole economy to a halt.





But over-all it was as good a report as you will find on M$M and I applaud CBS for airing it. I just wish they had shown the guts to identify the CFMA and who was promoting deregulation so as to really inform the viewers how we got in the dire economic situation we now find ourselves in.

http://www.cbsnews.com/stories/2009/01/08/60minutes/main4707770.shtml


FOR more on the Commodities Futures Modernization Act : http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=114&topic_id=46775

[chill_wind]

1. And yet

those of us angry and citing the testimony of guys like Masters *months ago* were routinely shot down as know-nothings. Imagine that.

[JohnWxy]

5. I was "with you" on this - Masters has provided the most meaningful testimony on this matter

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=115&topic_id=171073

[chill_wind]

2. (( crickets ))

[D-Lee]

3. "The greatest good for the smallest number" -- horrifying economics

Thanks for this important post.

And these are the folks who complain about pork-barreling, which at least support jobs.

The Enron model keeps on bringing benefits, doesn't it?

[chill_wind]

4. Yes indeed. n/t

[JohnWxy]

6. Remember this was all unleashed by one piece of legislation: The Commodities Futures Modernization

act introduced(as a rider tothe Omnibus Spending Bill, 2000 - an 11,000 page document) by Phil Gramm. This bill not only included the Enron loophole but also made Credit Default Swaps legal and UNREGULATED. It was the unregulated trading in CDSs that really brought down the house which is now risking sending us into a depression of the scale of the 1930s depression.

This is what they will not mention on corporate M$M.

see: http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=114&topic_id=46775