Vampires. Thieves of the night. As sunlight is said to be deadly to them, these mythical creatures venture out to drain the blood from their innocent victims only when it is dark outside. Judging by the reactions of Wall Street to Public Citizen’s attempt to shine a light on their industry, it seems sunlight kills more than vampires though. Lady Liberty can’t help but wonder if the Goldman Sachs, J.P. Morgan et al crew are trying to audition for the next season of True Blood . . . or, more likely, they have something to hide.
Remember that big gas price spike back in 2008? Well, Tyson Slocum, director of Public Citizen’s Energy Program, didn’t buy the reasons offered for it then, and he didn’t buy it this spring either when he spoke with then-MSNBC’s Cenk Uygur for a segment properly entitled, “Rigged Game.” Uygur’s first question, “Is it possible that speculators are driving up the gas prices?” Slocum’s reply–”Absolutely.” At the time President Barack Obama, responding to the media frenzy over gas prices, announced the formation of a task force to look into what was driving the increase. Slocum explained to me that this was many months ago and so far, “not a peep” has been heard from this investigative team.
Fast-forward a few months. Sen. Bernie Sanders (I-Vt.) managed to use his congressional powers to get a hold of a set of three-year old trading documents from one of the days leading up to the 2008 $144-per-barrel oil spike, which coincided with the exorbitant gas prices we all remember seeing at the pump then. Sanders, aware of Slocum’s expertise, forwarded these documents to Slocum and to the Wall Street Journal, which reveled at what it considered a “rare glimpse of the secretive world of oil trading, where buying and selling often takes place away from public markets.” Soon thereafter, all hell brook loose . . .
. . . and guys the likes John Damgard, lead lobbyist for futures traders, were quickly attending to PR scoffing and pulling out their best weapons. [Enter Fred Hatfield], former commissioner of the U.S. Commodity Futures Trading Commission (CFTC), a gentlemen with a charmingly irreproachable demure and unfortunate view of the facts. Soon Bloomberg TV had paired Hatfield and Slocum to debate (below).
In an op-ed for The Washington Post titled, “What Wall Street doesn’t want us to know about oil prices,” Sen. Sanders fought back against criticisms from Hatfield and another former CFTC member James E. Newsome, the two of whom the Washington Post initially failed to cite as a director of energy commodity behemouth Intercontinental Exchange and a registered lobbyist for multiple energy and energy commodity trading companies, respectively. Sanders cited numerous reasons why Public . . .
. . . Citizen is in the right for calling for disclosure including a June 2 article in the Wall Street Journal article that touted the benefits Wall Street reaps from higher oil prices and testimony given before a Senate panel by ExxonMobil Chairman Rex Tillerson, who confessed that the price of oil may have increased by as much as 40 percent thanks to speculation.
So what is speculation? In short– it’s betting on the future. It’s a way of manipulating markets for the sake of greed by trading in such a way as to artificially inflate price. Remember the slicing and dicing that was to blame for the subprime mortgage scandal that led to the current global economic crisis we are in? Well, a similarly confusing tactic of rapid sells and buybacks occurs when speculators use a sneaky combination of short and long trade purchases in the energy commodities market.
Ianthe Jeanne Dugan of The Wall Street Journal writes, “Commodities traders, unlike big buyers and sellers of stocks, have never had to disclose their holdings publicly.” This is precisely why the leak of a single days worth of three-year old trading docs has caused such a controversy. While the trading docs show only a snapshot, in a blog post published last week, Think Progress’ Lee Fang quotes Public Citizen’s Slocum as saying of the data:
What this [the leaked trading data] tells us is who the big players are, because volume equates market share in a way, if you are driving volume, and if your volume is at a significant enough amount you become a price setter or at least a price trender where you’re going to have the effect of unilaterally influencing prices and that’s very significant. And you’ve got sort of a cascading effect, and the smaller traders are going to follow Goldman Sach and others will chase the leader, which is why Dodd-Frank said Congress shall set position limits in these markets. Position limits would limit the market share, limit the positions banks could take. Dodd-Frank recognizes the danger that one or two traders can have when they dominate the positions in a given market.
So, who are the speculators? Well, in addition to Goldman Sachs and J.P. Morgan, there are the usual suspects (Big Oil incs) but, as it turns out– there are also hedge fund investors. Fang points out top among these investors is ” . . . Paul Singer, a billionaire investor and a major donor to Karl Rove’s network of attack groups and to Republicans on the Financial Services Committee.” But wait, what terrible blood slurping cocktail party could be complete without the Koch Brothers! Fang concludes, “The Dodd-Frank law passed last year contains a mandate that the CFTC crack down on rampant oil speculation by imposing position limits to curb the number of contracts held by participants in this market. As lobbying firms have spent months fighting these new rules, it is instructive to note that the biggest players 2008 oil price spike have also flooded campaign coffers of DC politicians, potentially hoping for influence in shaping these rules or weakening the CFTC’s hand (through budget cuts and other limitations).”
Today, Sen. Bill Nelson (D-Fl.) introduced the the Anti-Excessive Speculation Act of 2011, which Public Citizen is thrilled to support because Sen. Sanders was right when he wrote, “The American people have a right to know how much excessive speculation has driven up oil prices and which Wall Street firms are doing it.” It’s dark enough outside as it is. The economy is weak, most wallets are thin. What Sanders released was just one days worth of trading data, and it’s three years old at that but– like a single ray of sunlight– it’s already enough to make the vampires scream. Time to summon the sun. They may have fangs but we have the numbers. Anyone else ready to take on the Vampires of Wall Street?