Banksters of the Day, er, current oil products price increases: Goldman, Morgan, more of their ilk
McClatchy reports that current rapid gas price increases is not based on supply and demand, but on banksters and hedge funds betting that inflation and recovering economies will cause demand for petroleum products to increase. (Value of the dollar may be another small part.) They're betting that inflation will decrease the value of stocks, cash holdings and are buying up oil futires to hedge against those losses.
Big Wall Street banks such as Goldman Sachs & Co., Morgan Stanley and others are able to sidestep the regulations that limit investments in commodities such as oil, and they're investing on behalf of pension funds, endowments, hedge funds and other big institutional investors, in part as a hedge against rising inflation.
These investors now far outnumber big fuel consumers such as airlines and trucking companies, which try to protect themselves against price swings, and they're betting that the economy eventually will rebound, that the Obama administration's spending policies and Federal Reserve actions will trigger inflation — or both — and that oil prices will rise.
This is a replay of big money pushing up the futures pricing of natural gas and adding to or even causing high prices for consumers:
In a report April 16 on last year's spike in natural gas prices, the Federal Energy Regulatory Commission concluded that similar investment flows drove up the price that consumers paid to heat their homes with natural gas.
"This increase in commodity prices occurred as large pools of capital flowed into various financial instruments that essentially turn commodities like natural gas into investment vehicles," the report says. "Ultimately, we believe that financial fundamentals . . . explains natural gas prices during the year."
Relaxed regulations on large financial institutions, the Biggest Bankster Boiz, have lead to their using commodities futures as a way to hedge their bets:
...hedge-fund manager [Michael] Masters also said that big institutional investors were sucking the air out of the fragile economic recovery, in part because their Wall Street partners were exempt from federal limits on how much they could bet on commodity prices.
Contracts for future deliveries of oil and other commodities are traded on the New York Mercantile Exchange, and the futures market for oil has position limits that restrict how much of the market big speculators can control.
However, big Wall Street banks are exempt from these restrictions, and there also are no such limits in derivatives markets. These vast unregulated markets involve private contracts between swaps dealers — usually big Wall Street banks — and large investors. These dark markets, also called over-the-counter markets, are thought to be 10 times larger than the futures market, and they have no position limits and no regulation.
"We were in essence operating with a blindfold on for those over-the-counter markets that we couldn't see," Michael Dunn, the acting chairman of the Commodity Futures Trading Commission, acknowledged last week during a news conference to announce proposed new regulation of derivatives markets.
A stream of financial deregulation under the Clinton administration, culminating in the Commodity Futures Modernization Act of 2000, led to a global race away from regulation.
"The Modernization Act specifically said we were not going to look at those; we weren't going to regulate them. Times have changed, and now we think it is time for us to look at them," Dunn said.
Thank you, Republicans; thank you, Phil Gramm -- NOT.
Deregulation, swaps. derivatives...the terms we've come to know, loathe, and fear.
Obama, time for some strong new regulations, don't you think?