Gambling on Oil Prices

Today the Wall Street Journal reports a campaign has begun to challenge oil speculators in the financial industry:

Strapped by rising fuel prices, the airline industry, gasoline retailers and an array of transportation interests are enlisting thousands of travelers to pressure Congress to reign in oil markets speculation -- a campaign that has triggered a lobbying war with the financial-services industry.

The article continues that, "The airline industry email to frequent flyers urges them to learn more on a campaign website, www.stopoilspeculationnow.com." In part, the e-mail says:

"Twenty years ago, 21% of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66%" of all oil futures contracts, the frequent flyer letter reads. "Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs."

The Bush administration, and Phil Gramm (photo with McCain above), are responsible, in part, due to their deregulation ideology, which promotes rampant speculation. See the July/Aug 2008 Issue of Mother Jones Magazine, on the Enron loophole: Forclosure Phil.

The financial industry counters the airline industry claims, saying, according to the Journal, that "speculation is less responsible for spiraling oil prices than is turmoil in supplier countries and the weakness of the dollar on world markets." If you believe the financial industry, we can also blame the Bush administration for the first factor, turmoil in supplier countries. Bush is also to blame for the second factor, a weak dollar, which is due in part to the US debt created by Bush.

Bottom Line: Bush administration policies have fed the increase in oil prices and gas prices at the pump. Call this a failure? No! Bush represents a small elite minority, not the vast unwashed masses. Unfortunately, the latter failed to figure this out soon enough, many voting for Bush, and against their own interests, in 2004 when the writing was on the wall.

Hopefully they won't make the same mistake in November 2008 by voting for John McCain, for whom Foreclosure Phil Gramm is a key economic adviser.

Sources:

Wall Street Journal, Airline Oil Lobbying Alarms Financial Firms, Elizabeth Williams, July 12, 2008.

Photo Credit: Mother Jones Magazine, Foreclosure Phil, July/August 2008 Issue.

Who is to Blame for Subprime Mess 2

Maybe you don't believe my case for who is to blame for the subprime mess, and pending recession.

Would you believe former Federal Reserve Chairman Alan Greenspan? According to the Associated Press, Greenspan said the following last night at a dinner for energy executives:

... what began as a niche part of the mortgage market grew as hedge funds sought out the collateralized paper associated with the loans.

Greenspan said recently it was the repackaging and sale to investors of the risky home loans — not the subprime loans themselves — that were to blame for the global credit crisis.

And who let the risk be passed on via all of this speculative paper? In part, Greenspan's Federal Reserve and other regulatory bodies. They let it run amok when rocket scientists like me were saying, "Whoa. This real estate bubble is getting way out of control."

Some were saying, "it's not a bubble." As if foreign investment would sustain the high prices, even though my well paid, middle class friends were saying, "If I had to buy my house today, I couldn't afford it."

Then there is the globalization factor. First, globalized financial markets allowed the foreign money to rush into our markets and contribute to the balloon. And, just like the saying, "what goes up, must come down," that global money can flee from our markets, deflating the balloon.

My recommendation: The system has become so corrupt that you're better off trusting your instincts than the so-called experts.

Update: Who is Penny Pritzker and what is her relationship with Barak Obama and the mortgage backed bond mess? The Pritzkers were central to the invention of mortgage backed securities.

Sources:

Associated Press, No recession yet, Greenspan says, February 15, 2008.