The Global Oil Scam: 50 Times Bigger than Madoff
seekingalpha.com
seekingalpha.com
You can chart the damage done by Goldman Sachs and
their gang of thieves by looking at commodity pricing
pre- and post-ICE. Before ICE, commodities followed a more
or less normal growth path that matched global GDP...
Combine that with some famous central bank character wanting to drop money from helicopters to avoid the US sliding into Japan-like deflation...
Combine that with China and the Pacific region starting to emerge as economic powerhouse about that time...
And you can send any European pension fund shivering from anticipation of collapsing dollar (and value of their treasury holdings) and scrambling to protect themselves by buying commodity index swaps. The demand was there and Goldman Sachs (and other smart/hard working banks) obliged and engineered as many commodity-linked instruments as possible, supported by as much liquidity as they can create.
Commodities boom of past several years is simply an implicit devaluation of the dollar. Commodities supply is more or less fixed. Chinese industrial growth has been between 10 and 25% since 2000 (affecting world demand for commodities/energy). US dollar interest rates have been somewere around 2% on average since then, and credit growth was massive (dollars are still plentiful in these times of 'stimulus').
How would the author explain gold breaking $1100 this week (up from under $300 in 2000)?
You can blame this currency collapse on the 'gang of thieves' or on the US monetary authorities, or simply on the historical trends. I won't care that much, but the article author is obviously an ignorant populist.
Making a company look better with round-trading might be a scam (I don't know the laws about that), but I don't see how that should be related to the price of oil? It is related to the price of the company doing the round-trading (and if people notice what is going on, the price will probably crumble to pieces).
Sorry that I did not read the whole article, but I am weary of all those articles that try to blame evil traders and markets for everything. It just comes in so handy because it is a complex system - so if you say "it is their fault", it is difficult to argue against it.
In reality I don't see how riskless trading should be possible. Buying futures is not riskless.
In that sense, I don't think trading can be evil per se. What is evil is to lie to people about the real value of things, and thus selling them crap. By trading stuff on the exchange markets you are not lieing, though.
As far as evil traders, I don't see how you cant blame the banks for their hand in this. In fact I am amazed at how blatant they have become in the mists of the collapse. I mean after they had pissed in the pool, they had the audacity to lobby for a bail out, right after they lobbied bush to change consumer bankruptcy laws so the consumer could not bail themselves out. It is funny the more and more news I hear of this sort Goldman Sachs always seems to be at the heart of it. I remember my grandfather always said, if trouble always follows you around you may want to reflect on where the source of trouble is coming from.
It is their job to try to make as much money as possible. I find it more troublesome that they actually got the money - but I blame the people who gave the money, not the ones who asked for it.
As for the technical investors: there is no rule that says "technical investing" has to be a suitable way to trade. Fools will always lose on the markets.
If round trading is illegal, those companies should be punished. If it isn't, traders simply have to take it into account.
I am sure it is not only happening in the oil industry.
Trading on information not available to the whole is generally frowned upon and universally looked upon as unethical.
>It is their job to try to make as much money as possible.
It may be their job but to expect ethics from a company is not out of the norm. It is that attitude that has allowed corporations to become the unethical entities that they have become given they they are not a human entity allowing yourself to be the sacrificial sheep to them only allows them to victimize you more.
If we go back to the founding fathers constructs of a corporation these are items that stick out as distinctly different that what we pimp as the norm for companies today:
--Corporate charters could be promptly revoked for violations of law or for causing public harm.
--The personal assets of corporate shareholders were not protected from the consequences of corporate behavior.
Through the years and lobbying, corporations have eroded these laws as well as others to amass the power to operate above impunity. To state "It is their job to try to make as much money as possible" is to only further victimize yourself. They are directly responsible for payoffs and lobbying that allow them to violate your rights as well as victimize you.
> but I blame the people who gave the money, not the ones who asked for it.
They are the same people, have you seen who is running the fed and being placed as the CEO's of these bailed out entities. It reads like a whos who ove Goldman Sachs alumni.
> I am sure it is not only happening in the oil industry.
It is happening in gold right now.
Well did they? Also I don't see how a company could do otherwise - the public can never know as much about a company as the company itself.
"Corporate charters could be promptly revoked for violations of law or for causing public harm."
You sound as if corporations stand outside of the law. I don't think that is true today.
"To state "It is their job to try to make as much money as possible" is to only further victimize yourself."
I happen to believe that to strive for "winnings" is actually what stabilizes a complex system like the economy.
How did they violate my rights - if they do so, naturally they should be punished. But it is the democratically elected government that creates the laws, not the corporations.
If the laws are wrong, blame the government. But first also prove the companies are breaking the law before you universally accuse them of being the root of all evil.
They where not trading their own securities they where engaging in a private agreement among a select group of corporations to round trade a security. Only those in the select group where privy to this information.
> You sound as if corporations stand outside of the law. I don't think that is true today.
In certain aspects they are. They have limited liability which means that a person can act criminally and not have devastating impact on the corporation. While the same action on an individuals part would have total devastation to that entity.
>How did they violate my rights
They violate you rights by engaging in unethical behaviors that put the whole system at risk. Then use their ill gotten gains to exert influence of elected officials who are susceptible to human nature more than virtue. They then lobbied to be given grants of money from the public system that we as a group are indentured to in the future. While just a few years ago (with inside information) lobbied for significant consumer restrictions on debit relief. They took away your right to, with no questions asked, walk away from your debt (while they did just that a year later). A principal that this nation was founded on, The founding laws where very clear on the fact that America would not be a debtors servitude system and that all entities, if they felt it necessary, would be granted amnesty from debt burden. That changed in 2005 on the dawn of the collapse.
So yes, I do blame the corporations for their lobbying as well the politicians share in the blame, but to not view them as incestuously one in the same, is to overlook some blatantly obvious actions on the part of both parties for a mutual gain on there part while the nation picks up the tab.
Don't confuse correlation with causation. GS (and McKinsey, and others) actively recruit the most ambitious, hardworking people they can find. Ambitious, hardworking people often end up in positions of power. If GS went away tomorrow, the people it would have hired would still end up with successful business careers.
My response was that there is an incestuous relationship between the two, so you cannot delineate between who to blame, it is the same people, the asking and the giving where one in the same.
Wrong on both counts.
The vast majority of stock trades occur because both parties think that they know something that the other party doesn't know. Neither party is acting unethically.
In fact, such trades actually disclose information. I don't know everything relevant about Apple, but Apple's stock price, which I can know, tells me a lot about what other people know about Apple.
Think they know and do know are different beast all together. Which part of insider information laws do you not understand. Speculative information is completely different from material information that is unavailable to the general public. Using such to your advantage is not only unethical it is a crime in regulated markets.
Not really. I wrote "think" to account for the fact that they can't predict the effect of their knowledge even if it is accurate. (As money people say, the market can stay irrational longer than you can stay solvent. For example, a lot of people lost money in the housing bubble despite accurately predicting it - they just didn't make good moves at the right time.)
> Which part of insider information laws do you not understand.
I understand a lot more about them than you do. For example, it's not illegal for Google to trade on its knowledge of a pending Google order with Rackspace. It's illegal for Google employees to do so only because that interferes with Google's biz relationships and misappropriates Google's knowledge.
If I legally come across confidential information, I'm perfectly free to trade on it. There's only a problem if I steal the information.
I suspect the article is simply mischaracterizing a repo agreement.
When you place orders on a dark pool, they are either filled or not filled. You are not told about the trades of others. If a simultaneous buy/sell order is placed, nothing happens.
But you are right that ICE doesn't appear to be a dark pool. I'm really not sure what the article is talking about.
It was a good read.
My Dad (an accountant who used to work in the city and used to be head treasurer of a FTSE 100 company) was of the opinion that the rush into trading futures was a bad idea.
That is not illegal afaik. It is just economics textbook 101, and last I heard the general consensus among economists is that trying to create artificial shortages does not work in the long run. Also the oil producers have tried to artificially shorten supply for decades, with little success (that is why OPEC was formed).
Storing oil away also carries risk: if oil is short, people look for alternatives (saving energy, alternative energy sources, and so on). So the oil you stowed away loses it's value, the longer you store it. I remember reading recently about some oil producing nations to deliberately sell MORE oil to avoid their clients looking for alternatives.
It also is not a scam: you can not simply store oil somewhere, first you have to buy it. Why wouldn't you be allowed to do what you want with the oil you bought?
It shouldn't be so hard to see that a round trip trade where one firm sells a commodity to another and then buys it right back at the exact same price would have some sort of influence on the market. If it did not, what would be the point of such a trade? A large enough group of firms could effectively support whatever price they wanted assuming the market was reasonably rational.
Because the underlying asset never changes hands, the pricing is naturally suspect. Futures trading in an non-manipulated market is far from riskless but if you can manipulate the market over the short term of the contract (say 6-18 months), it certainly can be effectively riskless.
There are many more points of interest in the article that you were unwilling to read but very willing to comment on.
Please explain then, how could it influence the price? Maybe it can fool some "technical traders", but that would hardly be a sustainable trillion dollar market? By shifting the stuff around, they don't change the supply or the demand, so what use is it?
I can see how it is useful for their accounting tricks, but that is a very old trick. I would have expected traders to adapt to that scheme by now.
If you have oil you are holding for the long haul, but want to engage in a short term investment requiring cash, you do a repo. You enter into a repo agreement, sell the oil, invest the cash you get, cash out and rebuy the oil at a fixed price.
Incidentally, if you want to criticize repos, your first target should be the Fed, who issues more repos/reverse repos than Goldman Sachs.