Forget lawyers. Kill all the speculators!

Posted on March 2, 2011


As much as I admire the Bard of Avon, I’m now convinced that William Shakespeare was dead wrong when he wrote in Henry VI, “The first thing we should do is kill all the lawyers.”

As gas prices have sky-rocketed more than 50-cents per gallon in the past two-and-a-half weeks, I’m inclined to edit England’s national poet’s masterwork to say, “The first thing we do is kill all the financial speculators.”

For weeks, we’ve heard about what COULD happen IF Libyan oil production is interrupted, and IF instability settles upon Libya IF Muammar Gaddafi is ousted from dictatorial power, and IF tensions flare between Libya and Iran, and IF … blah, blah blah, ad nauseam. And oil prices, and corresponding gasoline prices, have ballooned up faster than Kirstie Alley at an ice cream buffet.

So, if gas prices can so volatilely rise and fall on “if,” what happens at the pump WHEN something actually happens?  Do the price increases being forced on us now serve as a hedge bet against even more price increases then?  I have yet to see any economist or oil company analyst explain, sans jargon and self-contradicting nonsense, why exactly the fluctuation in oil prices overseas immediately results in an automatic price increase of gasoline that’s *already in the ground* at gas stations in the United States, especially when part of the justification the oil companies give us for rampant price increases is the cost of the three-to-four month process of collecting/shipping/refining/delivering the oil-to-gas.

And there’s little doubt in my mind that we’ll see a report in the summer that Exxon posts yet another record quarterly profit from this. My expectation is that we’ll actually see Exxon rake in more than $50 Billion in three months of profit as a direct result of the price gouging from speculation now.

Of course, we’ll also get yet another bullsh*t excuse that “repairs at the refineries in Louisiana” are the cause again, or “weather conditions in the Atlantic caused delays and a subsequent shortage.” But Exxon will still pull in a ludicrous profit, and still get subsidies from the U.S. government for doing so.  We see it every single time an oil sheik breaks wind somewhere in the Middle East: The prices at the pumps rapidly leap-frog up 50 cents, 75 cents, a dollar … and then slowly trickle down 30 cents, 50 cents, maybe 75 cents. But a new “comfort plateau” is established each time that results in the “market acceptable price” of gas being around 25-to-40 cents higher than it was before the latest “crisis.”  The public is so thankful that prices have “come all the way down” to that new plateau from the previous artificially manipulated all-time-high price, that they’re willing to just accept that the “standard price” of gas is now 10-to-20 percent higher than it was last quarter, when Exxon’s profits were “only” $48 Billion.

Last May, when U.S. gas prices were hiked up by nearly a dollar because of what MIGHT have happened if oil tankers were interrupted by Somali pirates, the U.S. Congress saddled up and demonized the oil speculators as the source of rampant price jacking.

“A major contributor (to high oil prices) is the rise in speculation,” said Democrat Senator Carl Levin of Michigan, estimating that speculation added approximately $35 to a barrel of oil. “This is not a supply and demand issue.”

Oil executives, collectively fattened by that quarters new record quarterly profits, testified before Congress that speculation *might* be responsible for half the current cost of oil. Leaders from the five major companies – Exxon, Shell, BP, Mobil and Chevron – a agreed that current supply and demand levels should realistically place the price near $55 a barrel.

“I think it’s a minimum of a dollar a gallon,” said Sean Cota, a regional chairman with the Petroleum Marketers Association of America, before the Senate Energy and Natural Resources Committee.

Trevor Hanger, head trader at Brookline Avenue Partners in Dallas, said speculation had almost as much to do with prices as demand. “There are fundamental reasons why oil will stay high,” Harger said. “It’s my feeling that the move from $60 to $130 in the last 12 months is maybe 55 percent fundamentals and 45 percent speculation.”

Levin and others in Congress have repeatedly called for a closing of the so-called “Enron loophole,” which allows oil futures to be traded electronically in unregulated markets outside of the jurisdiction of the Commodities Futures Trading Commission. Each time the proposal has been submitted for Congressional discussion, it’s been rejected, mocked and otherwise prevented from consideration by Republican senators and representatives, all claiming that “the free market economy would suffer devastating losses if Congress were to being regulating how oil companies are allowed to do business.”

Some lawmakers have proposed changing the margin investors must pay to speculate. Stock speculation, for example, requires a 50-percent margin, but commodities like oil demand a lower threshold of just 5 percent or 7 percent. The “free market economy” excuse has been delivered, almost as though on cue, from the same Republican opposition each time.

So who are these speculators, and why/how are they to blame?  What insidious schemes are they executing that literally pulls money out of your wallet every single day?  Those are the real, relevant and fair questions. But the conversation in Washington is never allowed to get that far. The cameras are forced off before Batman arrives at the crime scene.

To say we are in a crisis is a massive understatement. It’s like saying there the people of Pompei had to endure a little lava when Vesuvius blew. Meanwhile, the two-faced, bought-and-paid-for corporate puppets in Washington continue to babble and blather the same empty, do-nothing rhetoric we’ve been stomaching for decades: “We need to study this” and “It’s a serious problem that requires a serious solution.” Isn’t it amazing how that solution has been painfully obvious to me throughout my entire adult life, but seems to forever elude our “best and brightest” decision-makers.

But the blame game works. The politicians have an easy target in speculators. But if they never actually identify “the speculators,” there’s never a “clear course of action” they must take. So the bovine fecal matter rhetoric continues unchecked and unchallenged.

They claim that the problem is this: “If the politicians restrict legitimate speculation, they will cripple the free market and actually cause prices to surge even higher.”

I know this will come as a shock to some of you, but our politicians couldn’t be more wrong.

Speculation shapes market margins – most of which cannot function correctly without some element of comprehensive restrictive speculation at the margins. Politicians don’t (or won’t) acknowledge or understand that. Either way, it’s a critical mistake to be grandstand and posture and preen before the cameras, saying what “sounds good,” instead of delivering real answers.

As Richard Rahn of the Cato Institute wrote in The Washington Times, “Many members of Congress make up ‘solutions’ to things they do not understand and cause problems where there are none or make real problems worse, almost always because it’s a convenient political hot-button that can generate a knee-jerk reaction, get them some camera time, and maybe a bump in the popularity polls. This explains the current run-up in gasoline prices.”

But did you notice last July – when oil prices slipped from record highs and even had their biggest one-week drop in history – nobody was calling for speculators’ heads? There were no congressional hearings into the matter, just silence.

Why? Because the great American sloth had been placated. The fast food drive-thrus were open, the iPods worked, and the TV was on. Joe Average no longer had a reason to bitch. So the wheels on the bus went round and round – but it cost an additional 38 cents-per-gallon to fuel the bus.

Despite massive evidence to the contrary, Americans are not stupid. We’re lazy, yes. We’re self-absorbed, yes.  We generally couldn’t care less what happens unless we’re inconvenienced, yes. We’re more concerned with who are politicians are in bed with physically than we are by who they’re in bed with financially. But we’re not stupid, in general. We can all recognize that *something* wrong is going on when the price at the gas station you pass on the way in to work is 9 cents higher when you pass it on the way home. And if your blood pressure doesn’t spike when you see gas prices change TWICE in one day, be thankful for Obamacare so you can head over to your nearest hospital to have your head examined.

The bottom line, as it is for everything that’s wrong with America, is that you know you’re being ripped off and laughed at by the politicians and corporate executives doing the ripping. But as long as you continue to allow it to happen, and do nothing to change – or force Washington to change – the situation, you really have no right to complain.

That’s one positive throughout any artificially manufactured “energy crisis”: It costs nothing to fuel your rage.