Bankers Caused The Price Of Oil To Spike
60 Minutes tonight delivered a tremendous report on a complicated issue.
The bottom line: strong circumstantial evidence exists showing that bankers and investors -- yes, the same guys that we're bailing out -- were using post-deregulation loopholes in the remaining system of regulations to cause a spike in prices. $4/gallon gas, says the report, wasn't caused by demand in China or collusion from OPEC, but by Wall Street.
In 2000, Enron pushed for and were given a degregulated futures market by President Bush and his Republican-controlled Congress. At the same time, Enron was causing brownouts in California and jacking up prices for energy there, too. Enron soon crashed, but the traders who worked there landed on their feet. Wall Street saw a chance to profit, so scooped up these traders to work for them. Now companies like AIG and the former Lehman Bros. own large supplies of oil and natural gas. Unreal. From the report...
"Who was responsible for deregulating the oil future market?" Kroft asked Michael Greenberger.
"You'd have to say Enron," he replied. "This was something they desperately wanted, and they got."
Greenberger, who wanted more regulation while he was at the Commodity Futures Trading Commission, not less, says it all happened when Enron was the seventh largest corporation in the United States. "This was when Enron was riding high. And what Enron wanted, Enron got."
Asked why they wanted a deregulated market in oil futures, Greenberger said, "Because they wanted to establish their own little energy futures exchange through computerized trading. They knew that if they could get this trading engine established without the controls that had been placed on speculators, they would have the ability to drive the price of energy products in any way they wanted to take it."
"When Enron failed, we learned that Enron, and its conspirators who used their trading engine, were able to drive the price of electricity up, some say, by as much as 300 percent on the West Coast," he added.
"Is the same thing going on right now in the oil business?" Kroft asked.
"Every Enron trader, who knew how to do these manipulations, became the most valuable employee on Wall Street," Greenberger said.
But some of them may now be looking for work. The oil bubble began to deflate early last fall when Congress threatened new regulations and federal agencies announced they were beginning major investigations. It finally popped with the bankruptcy of Lehman Brothers and the near collapse of AIG, who were both heavily invested in the oil markets. With hedge funds and investment houses facing margin calls, the speculators headed for the exits.
"From July 15th until the end of November, roughly $70 billion came out of commodities futures from these index funds," Masters explained. "In fact, gasoline demand went down by roughly five percent over that same period of time. Yet the price of crude oil dropped more than $100 a barrel. It dropped 75 percent."
Asked how he explains that, Masters said, "By looking at investors, that's the only way you can explain it."