"In a time of universal deceit telling the truth is a revolutionary act." -George Orwell

Posts Tagged ‘Derivatives Trading’

Syrian “Intervention”: Making The World Safe For Banksters

In Uncategorized on September 10, 2013 at 1:20 pm

Oldspeak: “D’oh! U.S. Secretary of State John Kerry may have royally screwed the pooch on the war plan by saying”that Bashar al-Assad, the Syrian president, could avoid strikes by agreeing to give up his chemical weapons. “He could turn over every single bit of his chemical weapons to the international community in the next week — turn it over, all of it, without delay and allow the full and total accounting,” . He inadvertently gave the Syrians an out! The Russians, eager to protect one of their last remaining client states in the middle east, jumped on the opportunity to avoid regime change, by making the Syrians agree to give up their chemical weapons ASAP and the Syrians have “welcomed it”. So now the warmongers have to pump their brakes and possibly halt the escalation of their proxy war with the Russians. One has to wonder why the Nobel Peace Prize winner has been soooo hot to go to war on flimsy intelligence and amidst reports that both sides are guilty of war crimes? All for bombing, with detailed, documented, technically compliant & publicly available reports of atrocities committed by Syrian rebels, including releases of chemical weapons?! Why is bombing Syria an option after an alleged, unconfirmed and still being investigated Syrian government chemical weapons release, but not after a confirmed report of rebel chemical weapons release, known of since APRIL!? Greg Palast and Ellen Hodges Brown may have uncovered the answer:

Greg Palast posted evidence of a secret late-1990s plan devised by Wall Street and U.S. Treasury officials to open banking to the lucrative derivatives business. To pull this off required the relaxation of banking regulations not just in the US but globally. The vehicle to be used was the Financial Services Agreement of the World Trade Organization. The “end-game” would require not just coercing support among WTO members but taking down those countries refusing to join. Some key countries remained holdouts from the WTO, including Iraq, Libya, Iran and Syria. In these Islamic countries, banks are largely state-owned; and “usury” – charging rent for the “use” of money – is viewed as a sin, if not a crime. That puts them at odds with the Western model of rent extraction by private middlemen. Publicly-owned banks are also a threat to the mushrooming derivatives business, since governments with their own banks don’t need interest rate swaps, credit default swaps, or investment-grade ratings by private rating agencies in order to finance their operations….

Countries laboring under the yoke of an extractive private banking system are being forced into “structural adjustment” and austerity by their unrepayable debt. But some countries have managed to escape. In the Middle East, these are the targeted “rogue nations.” Their state-owned banks can issue the credit of the state on behalf of the state, leveraging public funds for public use without paying a massive tribute to private middlemen. Generous state funding allows them to provide generously for their people.

Like Libya and Iraq before they were embroiled in war, Syria provides free education at all levels and free medical care. It also provides subsidized housing for everyone (although some of this has been compromised by adoption of an IMF structural adjustment program in 2006 and the presence of about 2 million Iraqi and Palestinian refugees). Iran too provides nearly free higher education and primary health care.

Like Libya and Iraq before takedown, Syria and Iran have state-owned central banks that issue the national currency and are under government control. Whether these countries will succeed in maintaining their financial sovereignty in the face of enormous economic, political and military pressure remains to be seen.” –Ellen Hodges Brown

So no, this war is not about preventing the use of chemical weapons by the Syrian government. It’s about money. Specifically unregulated  and private gambling with other people’s money, then forcing them to pay when the gamble goes bad. It’s about aggressively continuing the relentless march of  Really Existing Capitalist Democracy around the world. Everything privatized. All under corprocratic control and surveillance. A globally controlled debt creation & extraction system, that no one can avoid paying tribute to; religion be damned. Oh, and securing Syria’s oil and routes for gas pipelines. -OSJ

By Ellen Hodges Brown @ Web Of Debt:

The powers of financial capitalism had another far reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.

— Prof. Caroll Quigley, Georgetown University, Tragedy and Hope (1966)

Iraq and Libya have been taken out, and Iran has been heavily boycotted. Syria is now in the cross-hairs. Why? Here is one overlooked scenario. 

In an August 2013 article titled “Larry Summers and the Secret ‘End-game’ Memo,” Greg Palast posted evidence of a secret late-1990s plan devised by Wall Street and U.S. Treasury officials to open banking to the lucrative derivatives business. To pull this off required the relaxation of banking regulations not just in the US but globally. The vehicle to be used was the Financial Services Agreement of the World Trade Organization.

The “end-game” would require not just coercing support among WTO members but taking down those countries refusing to join. Some key countries remained holdouts from the WTO, including Iraq, Libya, Iran and Syria. In these Islamic countries, banks are largely state-owned; and “usury” – charging rent for the “use” of money – is viewed as a sin, if not a crime. That puts them at odds with the Western model of rent extraction by private middlemen. Publicly-owned banks are also a threat to the mushrooming derivatives business, since governments with their own banks don’t need interest rate swaps, credit default swaps, or investment-grade ratings by private rating agencies in order to finance their operations.

Bank deregulation proceeded according to plan, and the government-sanctioned and -nurtured derivatives business mushroomed into a $700-plus trillion pyramid scheme. Highly leveraged, completely unregulated, and dangerously unsustainable, it collapsed in 2008 when investment bank Lehman Brothers went bankrupt, taking a large segment of the global economy with it. The countries that managed to escape were those sustained by public banking models outside the international banking net.

These countries were not all Islamic. Forty percent of banks globally are publicly-owned. They are largely in the BRIC countries—Brazil, Russia, India and China—which house forty percent of the global population. They also escaped the 2008 credit crisis, but they at least made a show of conforming to Western banking rules. This was not true of the “rogue” Islamic nations, where usury was forbidden by Islamic teaching. To make the world safe for usury, these rogue states had to be silenced by other means. Having failed to succumb to economic coercion, they wound up in the crosshairs of the powerful US military.

Here is some data in support of that thesis.

The End-game Memo

In his August 22nd article, Greg Palast posted a screenshot of a 1997 memo from Timothy Geithner, then Assistant Secretary of International Affairs under Robert Rubin, to Larry Summers, then Deputy Secretary of the Treasury. Geithner referred in the memo to the “end-game of WTO financial services negotiations” and urged Summers to touch base with the CEOs of Goldman Sachs, Merrill Lynch, Bank of America, Citibank, and Chase Manhattan Bank, for whom private phone numbers were provided.

The game then in play was the deregulation of banks so that they could gamble in the lucrative new field of derivatives. To pull this off required, first, the repeal of Glass-Steagall, the 1933 Act that imposed a firewall between investment banking and depository banking in order to protect depositors’ funds from bank gambling. But the plan required more than just deregulating US banks. Banking controls had to be eliminated globally so that money would not flee to nations with safer banking laws. The “endgame” was to achieve this global deregulation through an obscure addendum to the international trade agreements policed by the World Trade Organization, called the Financial Services Agreement. Palast wrote:

Until the bankers began their play, the WTO agreements dealt simply with trade in goods–that is, my cars for your bananas.  The new rules ginned-up by Summers and the banks would force all nations to accept trade in “bads” – toxic assets like financial derivatives.

Until the bankers’ re-draft of the FSA, each nation controlled and chartered the banks within their own borders.  The new rules of the game would force every nation to open their markets to Citibank, JP Morgan and their derivatives “products.”

And all 156 nations in the WTO would have to smash down their own Glass-Steagall divisions between commercial savings banks and the investment banks that gamble with derivatives.

The job of turning the FSA into the bankers’ battering ram was given to Geithner, who was named Ambassador to the World Trade Organization.

WTO members were induced to sign the agreement by threatening their access to global markets if they refused; and they all did sign, except Brazil. Brazil was then threatened with an embargo; but its resistance paid off, since it alone among Western nations survived and thrived during the 2007-2009 crisis. As for the others:

The new FSA pulled the lid off the Pandora’s box of worldwide derivatives trade.  Among the notorious transactions legalized: Goldman Sachs (where Treasury Secretary Rubin had been Co-Chairman) worked a secret euro-derivatives swap with Greece which, ultimately, destroyed that nation.  Ecuador, its own banking sector de-regulated and demolished, exploded into riots.  Argentina had to sell off its oil companies (to the Spanish) and water systems (to Enron) while its teachers hunted for food in garbage cans.  Then, Bankers Gone Wild in the Eurozone dove head-first into derivatives pools without knowing how to swim–and the continent is now being sold off in tiny, cheap pieces to Germany.

The Holdouts

That was the fate of countries in the WTO, but Palast did not discuss those that were not in that organization at all, including Iraq, Syria, Lebanon, Libya, Somalia, Sudan, and Iran. These seven countries were named by U.S. General Wesley Clark (Ret.) in a 2007 “Democracy Now” interview as the new “rogue states” being targeted for take down after September 11, 2001. He said that about 10 days after 9-11, he was told by a general that the decision had been made to go to war with Iraq. Later, the same general said they planned to take out seven countries in five years: Iraq, Syria, Lebanon, Libya, Somalia, Sudan, and Iran.

What did these countries have in common? Besides being Islamic, they were not members either of the WTO or of the Bank for International Settlements (BIS). That left them outside the long regulatory arm of the central bankers’ central bank in Switzerland. Other countries later identified as “rogue states” that were also not members of the BIS included North Korea, Cuba, and Afghanistan.

The body regulating banks today is called the Financial Stability Board (FSB), and it is housed in the BIS in Switzerland. In 2009, the heads of the G20 nations agreed to be bound by rules imposed by the FSB, ostensibly to prevent another global banking crisis. Its regulations are not merely advisory but are binding, and they can make or break not just banks but whole nations. This was first demonstrated in 1989, when the Basel I Accord raised capital requirements a mere 2%, from 6% to 8%. The result was to force a drastic reduction in lending by major Japanese banks, which were then the world’s largest and most powerful creditors. They were undercapitalized, however, relative to other banks. The Japanese economy sank along with its banks and has yet to fully recover.

Among other game-changing regulations in play under the FSB are Basel III and the new bail-in rules. Basel III is slated to impose crippling capital requirements on public, cooperative and community banks, coercing their sale to large multinational banks.

The “bail-in” template was first tested in Cyprus and follows regulations imposed by the FSB in 2011. Too-big-to-fail banks are required to draft “living wills” setting forth how they will avoid insolvency in the absence of government bailouts. The FSB solution is to “bail in” creditors – including depositors – turning deposits into bank stock, effectively confiscating them.

The Public Bank Alternative

Countries laboring under the yoke of an extractive private banking system are being forced into “structural adjustment” and austerity by their unrepayable debt. But some countries have managed to escape. In the Middle East, these are the targeted “rogue nations.” Their state-owned banks can issue the credit of the state on behalf of the state, leveraging public funds for public use without paying a massive tribute to private middlemen. Generous state funding allows them to provide generously for their people.

Like Libya and Iraq before they were embroiled in war, Syria provides free education at all levels and free medical care. It also provides subsidized housing for everyone (although some of this has been compromised by adoption of an IMF structural adjustment program in 2006 and the presence of about 2 million Iraqi and Palestinian refugees). Iran too provides nearly free higher education and primary health care.

Like Libya and Iraq before takedown, Syria and Iran have state-owned central banks that issue the national currency and are under government control. Whether these countries will succeed in maintaining their financial sovereignty in the face of enormous economic, political and military pressure remains to be seen.

As for Larry Summers, after proceeding through the revolving door to head Citigroup, he became State Senator Barack Obama’s key campaign benefactor. He played a key role in the banking deregulation that brought on the current crisis, causing millions of US citizens to lose their jobs and their homes. Yet Summers is President Obama’s first choice to replace Ben Bernanke as Federal Reserve Chairman. Why? He has proven he can manipulate the system to make the world safe for Wall Street; and in an upside-down world in which bankers rule, that seems to be the name of the game.

Ellen Brown is an attorney in Los Angeles and the author of 11 books. In Web of Debt: The Shocking Truth about Our Money System and How We Can Break Free, she shows how a private banking cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Read other articles by Ellen, or visit Ellen’s website.

 

 

 

Finance Experts: Speculators At Wall Street ‘Casinos’ Continue To Manipulate Prices At The Pump

In Uncategorized on April 5, 2012 at 12:25 pm

Gas Pump PriceOldspeak: “No, high gas prices have NOTHING to do with President Obama. The debate in Washington over cutting oil subsidies is another manufactured issue, diverting attention from the true cause of rising oil and commodities prices; unregulated, unchecked financial speculation and derivatives trading. Coincidentally the cause of the recent crash of the global economic system. Recently passed “financial reform” did nothing to reform this fatally flawed financial system. A simple and totally correctable (stricter regulation) flaw; corporate media, corporate economists,  no one is talking about it. “no one wants to talk about, because so many powerful people armed with legions of lawyers want unquestioning allegiance, and will sue you into silence.”- Danny Schechter. The other Ginormous elephant in the room. We’re running out of oil. Tar sands, offshore drilling
its all an indication that the easy to get to oil is gone. The oil we’re consuming now is infinitely harder to process and produce. Speculators are doing what they do best: profiting handsomely from scarcity. Disaster capitalists are having a field day as the people suffer. This is what oligarchy looks like.

Related Stories:

Finance Expert Says Speculators Are Behind High Oil and Gasoline Prices

Unchecked Financial Speculation Drives Oil Price Hikes; Is There A Scam Behind The Rise In Oil And Food Prices?

By Anna Staver @ The Huffington Post: 

Americans are paying for $4-a-gallon gasoline because Wall Street “casinos” have blocked regulators from cracking down on rampant oil speculation, finance experts argued on Capitol Hill Wednesday.

In an effort to counter Republican claims that gas prices are high because the Obama administration does not allow enough drilling, House Democratic leaders staged a hearing featuring former Reagan and Clinton administration oil and trading analysts who blame the surge on speculation.

And the vast profits from that speculation do not go into developing more oil or creating jobs, the analysts argued.

“Your constituents should know that every time they break their heart by buying $4 and maybe soon $5 gasoline, that money isn’t going into production,” said University of Maryland professor Michael Greenberger, who served as director of the division of trading and markets for the Commodity Futures Trading Commission in the Clinton administration. “It’s going into homebuilding in the Hamptons and yacht building.”

And the big finance firms are working overtime to ensure that the speculative commodity keeps flowing, he said.

“They’ve got hundreds of millions of dollars that they are using in lobbying on the Hill” or the Commodity Futures Trading Commission, Greenberger told HuffPost after the session. “Now they are bringing all these lawsuits; they are stopping the action that has already been asked for by Congress to stop the speculation.”

He was referring to suits that seek to limit certain Dodd-Frank financial reforms that, among other things, grant the commission the power to crack down on excessive oil speculation.

Greenberger told the Democratic Steering and Policy Committee that curtailing the speculation — some of which he said was necessary — would cost nothing and would not stop any markets from functioning.

“What are you stopping here? Are you stopping money from going into production? Are you stopping money from [reaching] people creating jobs?” Greenberger asked. “Unless you think casinos — which come to us with names like Goldman Sachs and Morgan Stanley — are job creators, you’re stopping betting. If we’re wrong about this — if everything we’re telling you is incorrect — what will you have done except close a couple of casinos?”

Rep. Xavier Becerra (D-Calif.) pressed Greenberger if there was contradictory evidence when it comes to figuring out whether high gas prices could be cured through increased drilling and domestic oil production.

Greenberger conceded that one or two experts in the country would hold that opinion but said the vast majority in his field believe that Wall Street sets the price of oil.

“Many would like you to believe that this is a supply-demand problem. It’s not,” Greenberger said. “It is excessive speculation, which is a fancy way of saying that gamblers wearing Wall Street suits have taken over and created investment vehicles designed to drive the price of oil up.”

He cited testimony by Goldman Sachs earlier this year asserting that speculation drives up the cost of a barrel of oil by as much as $23.39.

Gene Guildford, a former president of the Maine Oil Dealers Association and a Reagan administration Commerce Department official, estimated that speculation translates into roughly a dollar added to the price of each gallon of gasoline bought by the U.S. consumer. “Instead of spending four dollars, you should have been spending something closer to three dollars for your gallon of gasoline,” he said.

The extra cost to America’s drivers is staggering, Guildford said. “At 11 billion gallons a month that Americans consume, Americans today are paying $10 billion more a month for gasoline today than they did in December.”

Both men urged the committee to fully fund the Commodity Futures Trading Commission and propose legislation in the House aimed at cutting oil speculation to what is required to keep the markets liquid.

Otherwise, it’s just making millionaires richer and middle-class Americans poorer, they and Democrats argued.

“Wall Street speculators are artificially driving up the price at the pump and causing pain to millions of American consumers,” said House Minority Leader Nancy Pelosi (D-Calif.).

U.S. Federal Reserve “Emergency” Bank Bailout Totaled $29 TRILLION Over 3 Years, Most Went To Rescue ‘Shadow Banks’

In Uncategorized on December 19, 2011 at 11:11 am

Oldspeak:$29.616 trillion is the total ’emergency assistance’ provided by the Fed to foreign and domestic international banks, shadow banks, central banks, & some non-financial institutions during the Global Financial Crisis. Shadow banks are highly leveraged financial institutions (largely unregulated and unsupervised) that perform functions historically relegated to the commercial banking system. “They are the infrastructure and practices which support financial transactions that occur beyond the reach of existing state sanctioned monitoring and regulation. It includes entities such as hedge fundsmoney market funds and Structured investment vehicles. Investment banks may conduct much of their business in the shadow banking system (SBS), but they are not SBS institutions themselves. The core activities of investment banks are subject to regulation and monitoring by central banks and other government institutions – but it has been common practice for investment banks to conduct many of their transactions in ways that don’t show up on their conventional balance sheet accounting and so are not visible to regulators.” So Twice the U.S. GDP was given to unregulated and unsupervised bankers who recklessly, irresponsibly and fraudulently gambled with trillions in food, homes, pensions, industries and jobs, after they wrecked the global financial system, and Bernie Madoff is the only guy in jail. And 1 in 2 Americans are poor. Financial oligarchy in action.”

Related Stories:

U.S. Federal Reserve Audit Reveals $16 TRILLION In Secret Loans To Bailout U.S. And Foreign Bankers

Government Accountability Office Federal Reserve Audit Reveals Numerous Intimate Ties To Financial Industry; Disturbing Conflicts Of Interest

Wall Street Aristocracy Got $1.2 Trillion In Secret Loans From Private “Federal” Reserve Bank

Federal Reserve Bank Plans “Social Listening Platform” To Identify “Key Bloggers”, Monitor Billions Of Conversations Online Via Social Media

By  J. Andrew Felkerson @ Alter Net:

Speculation about the Fed’s actions during the financial crisis has made headlines on and off again over the last several years.  The latest drama occurred on November 27 when Bloomberg published an article, “Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress,” which gives an account of the news agency’s struggle to bring to light the details of the Fed’s emergency programs. Bloomberg throws out some very large numbers, revealing that as of March 2009, the Fed lent, spent, or committed $7.77 trillion worth of aid to the financial system and that banks used the low-interest rates charged on these loans to make an estimated $13 billion in income.

On December 6, the Fed struck back, issuing a four page unsigned memo intended to correct recent “egregious errors and mistakes” found in various reports of its emergency lending facilities.  The Fed argues that the “total credit outstanding under liquidity programs was never more than about $1.5 trillion.”  While Bloomberg wasn’t mentioned explicitly in the Fed memo, it was fairly clear to whom the response was directed.  The following day Bloomberg defended its reporting, and the Wall Street Journal’s David Wessel came to the Fed’s defense, characterizing Bloomberg’s methodology as a “great story,” but ultimately not “true.”

All this may sound like controversy, but it’s little more than a tempest in a teacup.

Here’s the hurricane: In reality, no less than $29.616 trillion is the total emergency assistance provided by the Fed to foreign and domestic entities during the Global Financial Crisis. Let’s repeat that: $29 trillion. This astounding number is over twice U.S. gross domestic product, the nominal value of all goods and services produced for the year 2010.  This is the total of the bailout as calculated by Nicola Matthews and myself as part of the Ford Foundation project, A Research And Policy Dialogue Project On Improving Governance Of The Government Safety Net In Financial Crisis. We will be presenting the results of our analysis in a series of papers published by the Levy Economics Institute, the first of which, “29,000,000,000,000: A Detailed Look at the Fed’s Bailout by Funding Facility and Recipient,” is already available here.

The results we have calculated are presented below, and it is important to note that the totals are cumulative and in billions of U.S. dollars. (The numbers in parentheses indicate amounts still outstanding as of November 10, 2011).

Facility Total Percent of Total
Term Auction Facility $3,818.41 12.89%
Central Bank Liquidity Swaps 10,057.4(1.96) 33.96
Single Tranche Open Market Operations 855 2.89
Term Securities Lending Facility and Term Options Program 2,005.7 6.77
Bear Stearns Bridge Loan 12.9 0.04
Maiden Lane I 28.82(12.98) 0.10
Primary Dealer Credit Facility 8,950.99 30.22
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility 217.45 0.73
Commercial Paper Funding Facility 737.07 2.49
Term Asset-Backed Securities Loan Facility 71.09(10.57) 0.24
Agency Mortgage-Backed Security Purchase Program 1,850.14(849.26) 6.25
AIG Revolving Credit Facility 140.316 0.47
AIG Securities Borrowing Facility 802.316 2.71
Maiden Lane II 19.5 (9.33) 0.07
Maiden Lane III 24.3(18.15) 0.08
AIA/ ALICO (AIG) 25 0.08
Totals $29,616.4 100.0%

 

I want to be clear. These are the totals of Fed lending and asset purchases actually undertaken since the bail-out began. There is no double-counting. And we do not include any credit facilities created by the Fed unless they were actually used. These figures accurately reflect the cumulative totals over the approximately three years actually used by the Fed to prop-up domestic and international banks, shadow banks, central banks, and even some non-financial institutions.

Banks in the Shadows

The programs above constitute the crisis prevention machinery rolled out by the Fed to combat the worst financial panic since 1929. All the programs above were designed and implemented to target domestic financial and nonfinancial corporations or foreign central banks or markets, or both. Only one of the facilities, the Term Auction Facility, can be viewed as being consistent with the Fed’s mandate to protect the commercial banking system from systemic failure. The rest are the result of the increasing relevance of the “shadow banking” to our economy—and of the Fed’s attempt to rescue the shadow banking sector.

Shadow banks are highly leveraged financial institutions that perform functions historically relegated to the commercial banking system. It is important to note that these financial concerns do not have access to the conventional means of Fed support. Nor were they ever really regulated or supervised by the Fed. They engaged in extremely risky behavior that in large part led to the global financial crisis. And when it hit, the Fed spent and lent $29 trillion, much of it devoted to rescuing the shadow banking system.

Thus, we see a host of unconventional programs designed to aid these institutions rather than the Fed’s traditional patrons. The information used to calculate the totals above is freely available (thanks in large part to the valiant efforts of a group of lawmakers led by Senator Bernie Sanders) as the result of an amendment inserted into the Dodd Frank bill. Moreover, this information has been freely available since December 10, 2010 on the Fed’s website.

So why didn’t someone else already put the data together in this way?

The Fed’s Secrets

Obviously, $29 trillion is much bigger than the previous estimates of $7.77 trillion (Bloomberg) or $1.5 trillion (the Fed and the Wall Street Journal). An in-depth account of each of the facilities above is a rather lengthy process as the Levy working paper attests. The main difference in our analysis is the variables we identify as essential in understanding the Fed’s response. In our paper we report three measures that we view as critical to capturing the size and magnitude of the bailout. Each of the three measures deals exclusively with programs put into place by the Fed that transcend its conventional “lender of last resort” (LOLR) function. That is, we only include the emergency facilities the Fed created. We agree with the Fed that only facilities which were actually made operational should be considered in any account of the Fed’s actions. But we take the side of Bloomberg regarding the general lack of transparency by the Fed—the Fed fought tooth and nail to keep the details of its programs secret.

At any given moment inspection of the amount owed to the Fed resulting from nonconventional lender of last resort actions provides a reasonable account of what the Fed was doing in the period leading up to that time. However, looking at this number over time and in the context of the weekly amount lent provides insight into how the Fed’s efforts evolved over the run of the crisis. These two approaches to measurement (a “stock” or outstanding balance and a “flow” or cumulated amount spent and lent weekly) only provide us with details regarding the scope of the Fed’s bailout. To get a clear picture we need some account of the magnitude. We believe that this is captured by looking at the cumulative totals of all programs.

Perhaps the largest difference in our analysis is that we learned our money and banking theory from the late Hyman Minsky. He taught us that the modern economy is essentially financial, and as such, is prone to systemic financial crises that if left unchecked can lead to “bone crunching depressions.” Therefore it is essential to have a LOLR. Thus, any transaction between the Fed and the markets which is not part of conventional monetary operations, such as lending from the discount window or open market operations, represents an instance in which private markets were not able to or were unwilling to engage in the normal financial intermediation process. If it any point in time the private markets were capable (or willing) to carry out business as usual, Fed intervention would not have been required. Thus, we need to account for each extraordinary event, and the best way that we know to do this is by summing each instance–which results in a cumulative total of over $29 trillion dollars.

Who does the Fed serve?

A figure as large as $29.616 trillion should not be taken lightly, but focus on the specific magnitude of the figure diverts our attention from a larger issue that is at stake: how should the LOLR responsibility to be discharged in the future? With unemployment remaining persistently high and millions continuing to lose their homes to foreclosure as the result of lost income from a poor economy or outright fraud in the mortgage lending and foreclosure process, it becomes increasingly difficult to justify the ability of a single institution staffed by unelected officials to carry out such a targeted commitment of the obligations of the United States citizenry. Thanks to the actions of Senator Sanders and other individuals possessing the temerity to question the authority of the Fed we now have access to much of the data regarding what the Fed did during the recent crisis.

But we still need to go through the data from the past three years of bail-outs to answer the following questions: Who got funds from the Fed? How much did they get? And why did they get them? The Fed has not adequately explained why its emergency lending and asset purchases went on for so long and accumulated to such a large number.

J. Andrew Felkerson is a Interdisciplinary PhD student at the University of Missouri- Kansas City

Unchecked Financial Speculation Drives Oil Price Hikes; Is There A Scam Behind The Rise In Oil And Food Prices?

In Uncategorized on May 13, 2011 at 1:50 pm

Oldspeak“Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors who profit money from their speculative positions.” –Dan Gilligan, president of the Petroleum Marketers Association.  It’s a scam folks, it’s nothing but a huge scam and it’s destroying the US economy as well as the entire global economy but no one complains because they are ‘only’ stealing about $1.50 per gallon from each individual person in the industrialized world.” –Phil Davis, Financial Expert. The debate in washington over cutting oil subsidies is another manufactured issue, diverting attention from the true cause of rising oil and commodities prices; unregulated, unchecked financial speculation and derivatives trading. Coincidentally the cause of the recent crash of the global economic system. Recently passed “financial reform” did nothing to reform this fatally flawed financial system. A simple and totally correctable (stricter regulation) flaw; corporate media, corporate economists,  no one is talking about it. “no one wants to talk about, because so many powerful people armed with legions of lawyers want unquestioning allegiance, and will sue you into silence.”- Danny Schechter. High gas prices are being used by Big Oil and their minions in the Congress to push for more offshore drilling, and as a grab of oil production by major multinationals from smaller oil companies. Naked oligarchy rules the day in America.

By Danny Schechter @ The News Dissector:

The global economy and its recovery, and the living standards of millions of plain folks, are now at risk from the sudden rise in oil and commodity prices.

Gas at the pump is up, and going higher. Food prices are following.

The consequences are catastrophic for the global poor as their costs go up while their income doesn’t. It’s menacing American workers too, who in large part have not seen a meaningful raise since the days of Reagan (keeping it this way is clearly behind the current flurry of attacks on unions).

Already, unrest in the Middle East and many African countries is being blamed for these dramatic increases. It seems as if this threat to global stability is being largely ignored in our media, one that treats the oil business as just another mystical world of free market trading.

Why is it happening? Why all the volatility? Is oil getting scarcer, leading to price increases? Is the cost of food, similarly, a reflection of naturally increasing commodity prices?

While it’s true that natural disasters and droughts play some role in this unchecked price inflation, it also seems apparent that something else is attracting increasing attention, even if most of our media fails to explore what is a political time bomb, while most political leaders shrug their shoulder and ignore it.

President Obama recently said there is nothing he can do about the hike in oil and food prices.

Critics say the problem is that government and media outlets alike refuse to recognize what’s really going on: unchecked speculation!

Not everyone buys into this suspicion. In fact, it is one of more intense subjects of debate in economics. Princeton University economist Paul Krugman pooh-poohs the impact of speculation counter posing the traditional argument that oil prices are set by supply and demand.

The Economist Magazine agrees, summing up its views with a pithy phrase, “Speculation does not drive the oil price. Driving does.”

Others, like oil industry analyst Michael Klare of Hampshire College in the US see demand outdistancing supply:

“Consider the recent rise in the price of oil just a faint and early tremor heralding the oilquake to come. Oil won’t disappear from international markets, but in the coming decades it will never reach the volumes needed to satisfy projected world demand, which means that, sooner rather than later, scarcity will become the dominant market condition.”

Usually you hear this debate in scholarly circles or read it in political tracts where orthodox views collide with more alarmist projections about the oil supply “peaking.”

But officials in the Third World don’t see the subject as academic. Reserve Bank of India Governor Duvvuri Subbarao charges “Speculative movements in commodity derivative markets are also causing volatility in prices,” he said.

The World Bank is meeting on this issue this week because it is seen as a matter of “utmost urgency.”

“The price of food is a matter of life and death for the very poorest people in the world,” said Tom Arnold, CEO of Concern Worldwide, the international humanitarian agency, ahead of his participation at The Open Forum on Food at World Bank headquarters.

He adds, “…with many families spending up to 80% of their income on basic foods to survive, even the slightest increase in price can have devastating effects and become a crises for the poorest.”

Journalist Josh Clark argues on the website “How Stuff Works” that much of the oil speculation is rooted in the financial crisis, “The next time you drive to the gas station, only to find prices are still sky high compared to just a few years ago, take notice of the rows of foreclosed houses you’ll pass along the way. They may seem like two parts of a spell of economic bad luck, but high gas prices and home foreclosures are actually very much interrelated. Before most people were even aware there was an economic crisis, investment managers abandoned failing mortgage-backed securities and looked for other lucrative investments. What they settled on was oil futures.”

The debate within the industry is more subdued, perhaps to avoid a public fight between suppliers and distributors who don’t want to rock the boat. But some officials like Dan Gilligan, president of the Petroleum Marketers Association, representing 8,000 retail and wholesale suppliers has spoken out.

He argues, “Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors who profit money from their speculative positions.”

Now, a prominent and popular market analyst is throwing caution to the wind by blowing the whistle on speculators.

Finance expert Phil Davis runs a website and widely read newsletter to monitor stocks and options trades. He’s a professional’s professional, whose grandfather taught him to buy stocks when he was just ten years old.

His website is Phil’s Stock World, and stocks are his world. He’s subtitled the site, “High Finance for Real People.”

He is usually a sober and calm analyst, not known as maverick or dissenter.

When I met Phil the other night, he was on fire, enraged by what he believes is the scam of the century that no one wants to talk about, because so many powerful people armed with legions of lawyers want unquestioning allegiance, and will sue you into silence.

He studies the oil/food issue carefully and has concluded, “It’s a scam folks, it’s nothing but a huge scam and it’s destroying the US economy as well as the entire global economy but no one complains because they are ‘only’ stealing about $1.50 per gallon from each individual person in the industrialized world.”

“It’s the top 0.01% robbing the next 39.99% – the bottom 60% can’t afford cars anyway (they just starve quietly to death, as food prices climb on fuel costs). If someone breaks into your car and steals a $500 stereo, you go to the police, but if someone charges you an extra $30 every time you fill up your tank 50 times a year ($1,500) you shut up and pay your bill. Great system, right?”

Phil is just getting started, as he delves into the intricacies of the NYMEX market that handles these trades:

“The great thing about the NYMEX is that the traders don’t have to take delivery on their contracts, they can simply pay to roll them over to the next settlement price, even if no one is actually buying the barrels. That’s how we have developed a massive glut of 677 Million barrels worth of contracts in the front four months on the NYMEX and, come rollover day – that will be the amount of barrels “on order” for the front 3 months, unless a lot barrels get dumped at market prices fast.”

“Keep in mind that the entire United States uses ‘just’ 18M barrels of oil a day, so 677M barrels is a 37-day supply of oil. But, we also make 9M barrels of our own oil and import ‘just’ 9M barrels per day, and 5M barrels of that is from Canada and Mexico who, last I heard, aren’t even having revolutions. So, ignoring North Sea oil Brazil and Venezuela and lumping Africa in with OPEC, we are importing 3Mbd from unreliable sources and there is a 225-day supply under contract for delivery at the current price or cheaper plus we have a Strategic Petroleum Reserve that holds another 727 Million barrels (full) plus 370M barrels of commercial storage in the US (also full) which is another 365.6 days of marginal oil already here in storage in addition to the 225 days under contract for delivery.”

These contracts for oil outnumber their actual delivery, a sign of speculation and market manipulation, as oil companies win government authorizations for wells but then don’t open them for exploration or exploitation. It’s all a game of manipulating oil supply to keep prices up. And no one seems to be regulating it.

What Phil sees is a giant but intricate game of market manipulation and rigging by a cartel—not just an industry—that actually has loaded tankers criss-crossing the oceans but only landing when the price is right.
“There is nothing that the conga-line of tankers between here and OPEC would like to do more than unload an extra 277 Million barrels of crude at $112.79 per barrel (Friday’s close on open contracts and price) but, unfortunately, as I mentioned last week, Cushing, Oklahoma (Where oil is stored) is already packed to the gills with oil and can only handle 45M barrels if it started out empty so it is, very simply, physically impossible for those barrels to be delivered. This did not, however, stop 287M barrels worth of May contracts from trading on Friday and GAINING $2.49 on the day. “

He asks, “Who is buying 287,494 contracts (1,000 barrels per contract) for May delivery that can’t possibly be delivered for $2.49 more than they were priced the day before? These are the kind of questions that you would think regulators would be asking – if we had any.”

The TV news magazine 60 Minutes spoke with Dan Gilligan who noted that, investors don’t actually take delivery of the oil. “All they do is buy the paper, and hope that they can sell it for more than they paid for it. Before they have to take delivery.”

He says they make their fortunes “on the volatility that exists in the market. They make it going up and down.”

Payam Sharifi, at the University of Missouri-Kansas City, notes that even as the rise in oil prices threatens the world economy, there is almost total silence on the danger:

“This issue ought to be discussed again with a renewed interest – but the media and much of the populace at large have simply accepted high food and oil prices as an unavoidable fact of life, without any discussion of the causes of these price rises aside from platitudes.”

What can we do about that?

News Dissector Danny Schechter wrote an introduction to the recent reissue of a classic two-volume expose of John D. Rockefeller’s The Standard Oil Company, one of the top ten works top works of investigative reporting in America. (Cosimo Books) Comments to dissector@mediachannel.org

Despite Rhetoric, Cutting Oil Subsidies Would Have Little Effect on Gas Prices

By Nicholas Kusnetz @ Pro Publica:

Democrats renewed their push to cut oil subsidies this week, saying high gasoline prices and big revenues for oil and gas companies make this as good a time as any to eliminate billions in annual tax incentives to the industry. Republicans countered that higher taxes on oil companies would only mean higher prices for consumers.

Most experts agree, however, that the tax incentives in question don’t have much effect on gasoline prices, one way or the other.

“The impact would be extremely small,” said Stephen Brown, a professor of economics at the University of Nevada, Las Vegas. Brown co-wrote a study in 2009 arguing that if the subsidies were cut, the average person would spend, at most, just over $2 more each year on petroleum products.

This isn’t the first time Congress has debated the pros and cons of cutting the tax subsidies. President Obama has proposed eliminating some $4 billion in subsidies in each of his annual budgets since entering office in 2009 (the liberal Center for American Progress has a good breakdown of the President’s proposal). Senate Democrats this week introduced an alternative plan that would cut a little more than half as much, by targeting only the largest oil companies.

From the beginning, the Treasury Department has said the President’s proposal would raise prices at the pump by less than a cent per gallon at most. Brown’s study, produced for the non-partisan think tank Resources for the Future, came up with similar results. Even the American Petroleum Institute, which opposes cutting the subsidies, said in a press release on Monday that eliminating them wouldn’t affect gas prices.

The argument offered by Senate Majority Leader Mitch McConnell and other Republicans who oppose cutting the incentives is that it would drive up costs for oil and gas companies and ultimately reduce production and supply, leading to higher prices. (Domestic production, incidentally, has increased 10 percent over the last two years, and more oil wells were drilled in the U.S. last year than in any since 1985.)

As the Treasury Department’s analysis showed, the numbers don’t support McConnell’s assertion. Treasury’s Alan B. Krueger told a congressional subcommittee in 2009 that cutting tax incentives to the oil industry would raise costs by less than 2 percent and lead to a reduction in output of only one half of one percent. The United States produces about 10 percent of the world’s oil supply and holds less than 2 percent of global reserves. Since oil is a globally-traded commodity, a small drop in U.S. production would have an even smaller effect on the global price of oil.

In its 2012 budget proposal, the Obama Administration said cutting a number of tax breaks for the oil and gas industry would save more than $43 billion over the next decade. Republicans have opposed attempts to pass those subsidy cuts, most recently byrejecting attempts to attach them to a series of Republican-sponsored bills that aim to expand domestic drilling. On Tuesday, Senate Democrats introduced a bill that would cut subsidies only for the five biggest oil and gas companies, a more targeted plan that sponsors say would save $21 billion over the next 10 years.

There are other reasons why people support or oppose cutting these subsidies, including their effect on the budget deficit, job creation, reliance on foreign oil and interference in the free market. The President’s proposal could also shift more production from smaller oil companies, which tend to operate less productive wells, to the big multinationals, said Brown, the University of Nevada economist. The National Journal hosted a blog forum last week that gets into many of those arguments. Today, the Senate Finance Committee will host CEOs from the big five oil companies to discuss the topic.

Gas prices also have been the rallying cause for another set of proposals in Congress that would speed permitting and expand offshore drilling. House Republicans passedtwo of those bills in the last couple of weeks. A number of studies and reports have argued that the biggest of those proposals, expanded offshore drilling, probably wouldn’t affect gasoline prices much either.