[GJM] Fw: [globalnetnews-summary] ICE, ICE, Baby, conclusion

[mary rose]

A line in this message reads:  "No Conscience in Congress?"
Shouldn't this clue us in that what is going on in the world today
is a "symptom" of having no conscience?  And shouldn't we be
looking into how to get this conscience or "social intelligence" ?

Which is the subject of my many posts on "left-brain linear
thinking.". When we begin to understand how the biology of
our mind creates our thinking, then we can begin to manage
this biology in order to change the way we think. Changing the
manner in which we think then changes how we perceive the
world around us.  .

So, let's quit talking about the symptoms everyone and get down
to where the problem really exists -- in our own mind.

mary rose .




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Thu, May. 22, 2008
ICE, ICE, Baby, conclusion
"Too cold, too cold"
Special to the Star-Telegram

"What's been happening since 2004 is very high prices without record-low 
[oil] stocks. The relationship between U.S. [oil] inventory levels and 
prices has been shredded and become irrelevant."

- Jan Stuart, Global Oil Economist, UBS Securities

"What you have on the financial side is a bunch of money being thrown at the 
energy futures market. It's just pulling in more and more cash. That's the 
side of the market where we have runaway demand, not on the physical side."

- Tim Evans, Senior Oil Analyst, IFR Energy Services [From testimony: U.S. 
Senate Permanent Subcommittee on Investigations' report, "The Role of Market 
Speculation in Rising Oil and Gas Prices," June 27, 2006]

The Love of Money

Record high prices without record low oil inventories, analysts saying that 
so much money flows into oil commodities that it gives the impression of 
shortages, when in fact no shortage exists. That mirrors the situation in 
the commodities market for food, as Bloomberg pointed out in its April 28 
article, "Wall Street Grain Hoarding Brings Farmers, Consumers Near Ruin": 
"Commodity investors control more U.S. crops than ever before, competing 
with governments and consumers for dwindling food supplies." That's right; 
food, oil and gasoline have become an "asset class." No longer are you 
fighting a neighbor at the supermarket over the last box of Cheerios®; now 
you're fighting the futures traders, who are actually determining what you 
will pay for that cereal.

We started as a society that worships hard labor and the basic business 
ethic of building value into the goods you create. How'd we get from there 
to worshiping Wall Street's billion-dollar boys - who create nothing, build 
nothing, own nothing and deliver no goods, and yet can throw so much money 
into products made by others that they determine what we consumers will pay 
for those goods?

It wasn't always this way.

In the past, the Commodities Futures Trading Commission acted as the cop on 
the beat, ensuring that buyers in the market were not distorting or 
manipulating prices beyond what supply and demand normally dictate. 
Certainly, if a hard frost hit Florida and cost growers an orange crop, then 
bidding up the price of the remaining oranges was both a wise investment and 
allowed under the trading rules. Right now investors know that if they 
borrow and invest huge amounts in commodities futures, they can create a 
shortage on paper - which drives prices up just like an actual shortage of 
any given product would. What kept traders from cornering the market that 
way in the past were the government's anti-manipulation rules.

Lay, DeLay, Gramm, Gramm & Clinton

The late, infamous Enron head, Ken Lay, realized in the eighties that he 
could make more money bidding up energy in the futures market than by 
actually creating and selling energy. But, under then-current rules, how 
much you could make swapping paper was limited. Fortuitously, Lay had 
excellent Texas political connections; and in November of 1992, the head of 
the Commodities Futures Trading Commission moved to exempt energy-derivative 
contracts and related swaps from any government oversight.

A vote was hurriedly put together before the Clinton White House would take 
over, and so Lay could finally start "dark" - unregulated - futures trading. 
The head of the CFTC was Wendy Gramm, wife of Texas Senator Phil Gramm; five 
weeks after she left, she became a board member of Enron in Houston.

Fast-forward to late 2000 and H.R. 5660, the Commodity Futures Modernization 
Act of 2000, sponsored by Republican Congressman Thomas Ewing of Illinois. 
That bill went nowhere, even though Tom Delay's wife Christine was then 
working for a Washington lobbying firm, Alexander Strategies - which Enron 
had paid $200,000 to push through legislation for permanent energy 
deregulation in these "dark" markets.

Six months later came Senate Bill 3283, also named the Commodity Futures 
Modernization Act of 2000. This time around the sponsor was Republican Sen. 
Richard Lugar of Indiana, and now Phil Gramm was listed as one of the bill's 
co-sponsors. Like it had in the House, this bill was destined to go nowhere 
until, late one night, it was attached as a rider to an 11,000-page 
appropriations bill - which was signed into law by President Clinton.

Now traders had an officially deregulated market for energy futures. Worse, 
that bill also deregulated many financial instruments - including the 
collateralized debt obligations that are at the center of today's mortgage 
crisis, which may well cost us more than $1 trillion before it's over.

Everybody Was Warned!

As USA Today wrote of this fiasco in January of 2002, "But, as a power 
marketer, [Enron] could buy enough energy-futures contracts in a region to 
create a virtual monopoly." That's right: As early as the winter of 2002, it 
was widely known that the 2000 Commodities Futures Modernization Act had 
created a monster, capable of running up energy prices outside of the normal 
law of supply and demand. Worse, our government had been warned this was 
going to happen. Representatives of the Federal Reserve, the Securities and 
Exchange Commission and the CFTC had already told Congress not to deregulate 
energy because "the market was ripe for manipulation." Everybody was warned; 
that's why this deregulation bill was stealthily inserted into that 
appropriations bill without a floor debate.

Phil Gramm's office denied that he had anything to do with writing the 
section of that bill that actually deregulated energy. And yet Prof. Michael 
Greenberger, formerly a CFTC board member himself, said that Gramm's wife 
Wendy, along with a few lobbyists and Wall Street attorneys, had rewritten 
it. When Robert Manor of the Chicago Times wrote about this situation on 
January 18, 2002, neither Gramm could be reached for comment.

Kill It Before It Multiplies

When Enron failed and took its private, unregulated energy exchange to the 
grave, another rose to take its place. The Intercontinental Exchange (ICE) 
was the brainchild of Morgan Stanley, Goldman Sachs, British Petroleum, 
Deutsche Bank, Dean Witter, Royal Dutch Shell, SG Investment Bank and 
Totalfina. In 2001 ICE purchased the International Petroleum Exchange in 
London; renamed ICE Futures, it now operates as an "exempt commercial 
market" under section 2(H)(3) of the Commodity Exchange Act. As the Senate 
hearings pointed out in the summer of 2006, "Both markets operate outside of 
any CFTC oversight."

If you reread the quotes at the start of this story again, you find that 
many officials in the government warned against what would happen in a 
deregulated energy market, because it was so easy to manipulate. We already 
know this to be true thanks to Enron's California misdeeds. And, as we 
pointed out last week, British Petroleum was busted for manipulating the 
propane market and fined over $300 million; and Amaranth Partners was caught 
manipulating the natural gas market, unconscionably causing the futures 
price for natural gas to raise every Texan's electric bills. (It took two 
years for Amaranth to be exposed.) And yes, the manipulation happened in the 
new "dark" and unregulated exchanges, making it almost impossible to 
uncover. So it's not a question of "if" some "theoretically possible" 
manipulation and distortion of the market will result from this bill, 
championed by Phil Gramm, his wife Wendy and Christine Delay's employer, 
Alexander Strategies. The reason it is not theoretical is because we keep 
catching well-known companies doing it on a regular basis.

No Conscience in Congress?

All you hear daily is that the world has a severe shortage of oil, or you 
can buy only 200 pounds of rice at one time, or we will have a gasoline 
crisis this summer, etc. But it takes only a minute to find hundreds of 
quotes from highly respected oil and economic analysts, (not to mention CEOs 
of the major oil companies), that completely dismiss the claim of oil, gas 
or food shortages that have been headlining the news.

Even more troubling is that within months of the CFMA's going into effect, 
we knew it had enabled easy manipulation of any energy market, but nothing 
was done to fix it. Nor was anything done when the Senate held its hearings 
on this matter in 2006, or in the House hearings last December.

Today we call this situation the "Enron Loophole," but that's untrue. It's 
not a loophole: it was a new law passed in 2000 - and far more individuals 
than Ken Lay have used that law to line their pockets with hundreds of 
billions of American consumers' hard-earned dollars. That's not my opinion, 
that's direct testimony by numerous experts before both the House and 
Senate.

Professor Greenberger warned about our "New American Economy" far better 
than I could:

"Should we have an economy that's based on whether people make good or bad 
bets? Or should we have an economy where people build companies, create 
manufacturing, do inventions, advance the American society and make it more 
productive? We are rewarding people for sitting at their computers and 
punching in bets. That's not the way our economy is going to be built, and 
India and China, with their focus on science and industry and building real 
businesses, are going to eat our lunch, unless the American public wakes up 
and puts an end to an economy that praises and makes heroes out of 
speculators."

Greenberger's statement explains why Detroit and other American 
manufacturers suffer while Wall Street speculators make a fortune - and your 
rapidly shrinking checkbook pays for it, every time you buy food, fuel or 
feed.

All because there is no shortage of these goods, you're just being told 
there is because it's more profitable - for a few - that way.

© 2008 Ed Wallace

Ed Wallace is a recipient of the Gerald R. Loeb Award for business 
journalism, given by the Anderson School of Business at UCLA, and is a 
member of the American Historical Society. He reviews new cars every Friday 
morning at 7:15 on Fox Four's Good Day, contributes articles to BusinessWeek 
Online and hosts the talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF. 
E-mail: wheels570 at sbcglobal.net

Everybody was warned; that's probably why this deregulation bill was 
stealthily inserted into that appropriations bill without a floor debate.