America's Petro-Terrorists

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

The futures market would be policed for the next 70 years — until that night in 2000, when Phil Gramm handed the keys to Enron, Goldman and the Kochs. The amendment passed without hearings or public notice. Democrats, practicing their patented brand of acquiescence, were happy to ride shotgun. President Bill Clinton signed it into law.

They were "bipartisan, effete snobs who thought they knew better than everybody," Mark Cooper says of Congress. He's the director of research for the Consumer Federation of America, among the many who warned Washington that it was playing with matches near dynamite. He'd soon be proven spectacularly correct.

Gramm's amendment became known as the "Enron Loophole," named for the criminal empire that was then America's seventh largest company. Though Enron would soon crumble in a heap of avarice and fraud, Gramm & Co. had unleashed the parasites, allowing them to prey on American commerce.

"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.

Prior to the change, speculators were generally kept to no more than 30 percent of any given market. Anything beyond that became dangerous. That's because they have no concern for the things they're buying or the people who use them. They're simply betting on price swings. The more volatile the market, the more money they make. Most sell well before they'll ever take delivery of, say, a load of sugar.

Yet Congress had set them free. Banks like JP Morgan and Lehman began to rally large, institutional investors to bet on oil. It took them just five years to pervert the market's very purpose. By 2005, they'd set off a buying frenzy that launched prices into the stratosphere.

Sherri Stone, vice president of the Petroleum Marketers Association of America, likens it to buying a home. Under normal conditions of supply and demand, you might have a few other people bidding for the same house. "But with speculation, now you have 200 other people bidding for that house. You're going to pay an enormous price for this house."

By the time the economy began to collapse in the summer of 2008, speculators had cornered a stunning 81 percent of the oil market. Some had even begun to hoard fuel, just as the robber barons had done a century before. Olav Refvik, a top trader at Morgan Stanley, became known as the "King of New York Harbor" because he was leasing so much storage space.

Yet the bankers' incompetence would once again prove dangerous to themselves and everyone else. They'd already sabotaged the housing market. Artificially high fuel prices were the second prong of their attack.

The U.S. economy was officially in free-fall.


Meet America's dumbest bookies

Think of Wall Street banks as not much different than your neighborhood bookie. After all, there's little difference in betting on Starbucks stock or a Dodgers game. The smart ones realize they can make a handsome living just sitting back, wisely setting odds and making a killing off the transaction fees.

But what separates the two is that bankers violate a cardinal rule of the bookmaking trade: They're degenerate gamblers themselves. And history says they're very much in need of adult supervision.

In just the last 25 years, the financial industry has gone from the savings and loan crisis to the tech stock bubble to the accounting fraud scandals to the mortgage industry collapse. Pepper in a ceaseless string of criminality — from Drexel Burnham to MF Global — and you realize the industry has routinely set off large bombs in the U.S. economy for a quarter century.

Worse: The pattern is accelerating.

This reign of depravity just happens to correspond with deregulation, the legacy of Ronald Reagan. Surely he was right to reduce the red tape and paperwork garroting small business, the nation's largest and most stable employer. But his disciples took it as a one-size-fits-all theory. The people benefiting most were those who could afford to buy senators like Phil Gramm.

Deregulation of the futures markets would solely serve America's greatest welfare queens, Big Oil and Big Finance. Over the years both had purchased competitive advantages from Congress, making a mockery of the free market. America's five largest oil companies receive $20 billion in welfare annually, largely through tax breaks afforded to no other industry. Big Financiers pay half the personal tax rates of their brethren at community banks. Despite buying off the umpires, they still couldn't stand on their own two feet.

"Nine of the largest financial institutions in the world failed" in 2008, says William Black, a former bank regulator turned economist at the University of Missouri-Kansas City. "That should petrify people. All of them pulled the pin on their own grenades."

When the economy collapsed, speculators found themselves with a small problem. No one could afford to buy gas. In just a few short months, the price plunged from $147 to $30 a barrel.

Some good came from this. President Barack Obama would soon follow Sarah Palin's charge, increasing drilling in the U.S. He also strong-armed Detroit into producing more fuel-efficient cars as part of their bailout.

Finally, the simple fact that we're still broke four years later has caused U.S. consumption to steadily decline. Today, America exports more oil than it imports for the first time since the 1940s.

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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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