America's Petro-Terrorists

How greedy speculators bought politicians and drove up the price of oil.

America's  Petro-Terrorists
Peter Ryan

On July 11, 2008, the price of oil rose to $147 per barrel, a record high. Gas stations engaged in hot pursuit as the price of a gallon rocketed past $4. All hell was about to break loose.

The country's largest banks had already begun to implode through arrogance and ineptitude. Now the oil market had moved in with a thundering uppercut.

Airlines and trucking firms watched their costs punch through the roof. So did every other business great and small, since 90 percent of American goods are shipped in some form or another.

"The big banks pulled the pin on their own grenades," says former regulator William Black.
Michael Forester
"The big banks pulled the pin on their own grenades," says former regulator William Black.
"Wall Street is a high crime area in which we basically have no cops on the beat," says former securities lawyer Dennis Kelleher.
Charles Steck
"Wall Street is a high crime area in which we basically have no cops on the beat," says former securities lawyer Dennis Kelleher.

"That was the breaking point of the economy," says Tyson Slocum, director of the energy program at Public Citizen, a Washington, D.C., government watchdog group. "That's when businesses said they could no longer fuel their trucks, and that fuel costs were overwhelming their payroll."

So began a surge of layoffs that would push well into the next year.

America's political leaders could only muster a simpleton's response. Demand had outstripped supply, they claimed. And it was all the fault of radical environmentalists. If they'd only let us drill for more riches offshore — or on protected lands in Alaska — we could all go back to cranking Toby Keith in our Chevy Tahoes.

It was a fabulous, made-for-TV narrative. Who can forget Sarah Palin shaking her fist at the Republican convention, exhorting the legions to "Drill, baby, drill!" What began as a rallying cry soon became an article of faith at cafes and kitchen tables, executive suites and editorial meetings.

There was just one tiny problem: Absolutely none of it was true.

In four short years, the price of oil had risen nearly 400 percent. For this to be a natural occurrence, it would have required a sudden, massive increase in world oil consumption — coupled with equally massive shortages in production. None of which had happened.

"I asked the senior official at Goldman [Sachs] at the time. There were no supply and demand issues that could remotely explain the doubling and doubling again of oil prices," says Dennis Kelleher, a former international securities lawyer. "In order to justify that, it would literally take the discovery of China on the demand side, or the loss of Saudi Arabia on the supply end."

And those politicians who were bleating about environmentalists? What they conveniently forgot to mention was that millions of acres had already been approved for drilling in the U.S., but remained untouched. The demand just wasn't there.

The boys on Wall Street must have had a hearty laugh over this. After all, they knew oil prices had ceased to have anything to do with supply and demand. Eight years earlier, they'd been granted the right to make huge, unregulated bets in the oil markets. Now they'd driven gasoline to the brink, just as they had with the mortgage industry.

The funniest part: All those finger-pointing politicians were their accomplices. This was an inside job.


A senator goes whoring

It happened on the night of December 15, 2000. The country was in tumult over the Bush-Gore election. This diversion offered Republican Senator Phil Gramm of Texas an exquisite opportunity to push American financial stability back 100 years.

That evening, Gramm inserted a 262-page amendment into the Commodities Futures Modernization Act. Leaked emails would later reveal that it had been written by lobbyists for Enron, Goldman Sachs and the Koch brothers, Kansas billionaires who would later fund the Tea Party movement.

Gramm had turned his office into a subsidiary of Wall Street. From 1997-2002, the securities and banking industries had lathered him with $640,000 in campaign contributions. His biggest sugar daddies weren't from Texas; they were Credit Suisse, Morgan Stanley, Bank of America and Goldman. And he was more than willing to step-and-fetch-it on their behalf.

Big oil, big banks and big speculators like the Kochs wanted to make monster bets in the futures markets. But they wanted to do it in secrecy — without any government regulation.

The futures markets are where the world trades its raw materials, from wheat to oil, coffee to cattle. They were designed not as toys for banks or speculators, but for merchants who actually use those products.

Before a farmer plants his oats in spring, he can agree to sell them to Kellogg's at a set price come fall, the same way Southwest Airlines can lock in a price now for a delivery of fuel in January. This allows companies to set their costs and income long-term, so their businesses — and their customers — aren't regularly blown up by wild price swings. Everyone has a stake in keeping prices stable.

Which is why futures had been heavily regulated since the 1930s, when Wall Street last incinerated the U.S. economy. Up till then, speculators had regularly terrorized the country by artificially driving up prices and hoarding things like grain.

But the stock market crash of 1929 offered Congress a teachable moment. The men of Wall Street could not be trusted. It wasn't just their eagerness to screw their fellow countrymen. Their occasional bouts of breathtaking incompetence made them dangerous to themselves as well. So rigorous laws were enacted to protect both the nation and the banks that ran it.

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17 comments
Millieann
Millieann

Wikipedia is not the Encyclopedia Britannica. While there may be truth in this Wiki article, it is clearly written by a left-leaning person. How do I know that? Because of their high regard for Paul Krugman: "2008 Nobel Laureate in Economics Paul Krugman, a supporter of Barack Obama and former President Bill Clinton..."

Sotiredofitall
Sotiredofitall

No pictures of hoocies or guidos, no bitching about rich people's toys, no local celebrity sleeze - and you get 16 comments! Do most simply not understand how screwed we are by our elected overlords?

CheeryBitch
CheeryBitch

The next big collapse that will screw the American people will be energy. Just wait.

Sotiredofitall
Sotiredofitall

Phil Gramm is responsible for the repeal of Glass-Steagal and the Commodities Futures Modernization Act; we are still paying the price while he and his cronies sit on buckets of money.

Sotiredofitall
Sotiredofitall

Everyone has forgotten about Phil and Wendy screwing the public.

Sotiredofitall
Sotiredofitall

Ed Wallace (on the radio Saturday mornings) has been pushing this story for a couple of years, nobody cares. The move "Inside Job" covered the political / wallstreet collusion, nobody cares. Most are too busy bashing their favorite boogyman to see the whole system has become corrupt and doomed the public at large. With 35% or less of the registered voters even taking the time to vote, the same group of political opportunists keep getting re-elected. We're doomed.

Disgusted and sickened
Disgusted and sickened

This country is being run by treasonous thieves, liars, incompentents and profiteers. The Koch brothers are the devil incarnate and Phil Gramm was their filthy minion. Bill Clinton is just as much to blame as he happily went along with the deregulation. Dubya was so clueless he had no idea how badly the bankers were raping the country, but he approved of more deregulation anyway. As someone who voted for Obama, he can take his "vote for change" and shove it where the sun don't shine. I see some comments talking about "Lib talking points". I assume the Libs are the Democrats. The way I see it the Democrats are just as much to blame for this thievery as the Republicans and the stunningly clueless Tea Partiers. 11 comments in 2 days on this outrageous article. The apathy of the American population never ceases to amaze.

Guest
Guest

Does privatized profiteering at all costs justify all? I don't believe it does. I have religious texts on my side that warn that we need to balance earth's budget: We need to count more than cash. We need to value the invaluable, the priceless natural ecosystems of God's nature that produce the critical flows that keep humans alive day to day and minute to minute. Our so-called "economy" needs to balance earth's budget of flows impossible to count (or produce) in cash, critical flows produced by God's natural ecosystems of forests, wetlands, prairies, oceans. . . .critical flows such as breathable oxygen only as O2, drinkable water as H2O, rich, organic topsoil that produces the green, food, shelter and baby's laughter. Mechanical cash systems of humans devalue the ecosystems of nature of, by, for privatizing profiteering at all costs.

Zizi JeanMer
Zizi JeanMer

Oh my! You mean Obama wasn't the one who drove up oil prices? Maybe he wasn't born in Kenya either.

mark
mark

This is a great article, but doesn't go far enough. During QE1 and QEII, the government issued trillions of credits to the big banks at amazingly low interest rates like less than 0.25%. This was done in the hope that banks would lend this money to businesses to stimulate the economy, but that's not what they did. What they did was use this money to leverage bets in the commodities market, essentially grabbing every futures contract on every commodity. This was guaranteed to make prices rise, which they did. In one year many commodities rose between 70% to 100%. This then translated into higher prices, especially on food. So American taxpayers were issuing credits to banks that resulted in higher consumer prices, but nobody knows or complains... A side effect of this is that foreign countries are becoming annoyed with the advantage that the dollar provides to American financial interests. Need 100 billion to corner the market on soybeans, the Federal Reserve/Treasury issues low interest credits that are exchanged for a countries commodities that then raises the prices for its own people, no one else can do this so easily. It's so easy to make money in this rigged system that I really don't understand why anyone is paid a bonus for their "performance".

Guest
Guest

Pretty light weight article. They typed out some lib talking points (basically the mirror of Koch Bros, Tea Party) and that is about it. The kernel of truth is the speculation part. But, again the author didn't really back anything up except to toss in lib red meat words and people's names. Pretty weak effort.

Sashali
Sashali

Great article. More, more, more. Wake up our country with further education. Thank you.

Tivasamoht
Tivasamoht

WHEN WILL WE WAKE UP, POLITICIANS ARE NOT ON THE SIDE OF THE AMERICAN PUBLIC!

Hughaynesworth
Hughaynesworth

Good reporting.....Let's have more. Maybe we should investigate just how the billions that have been stolen by these shysters have made their lives (and ours) different.

Chiggers!
Chiggers!

Silly. Everyone knows terrorists are all moslems.

Larry
Larry

There is no reason why Phil and Wendy Gramm are not in prison for collusion, as she was Enron Director when this started. except SEC funding was being cut, and anti-government fervor accelerating. At least Phil brought his 'expertise' to UBS and helped cost them billions!!! So, when are you all gonna stand up and yell that, "I'm not gonna take it anymore" ? Or at least vote every one of them out every time.

 
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