The Great Oil Swindle - How much did the Fed really know?

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The Great Oil Swindle

How much did the Fed really know?

 

By Mike Whitney

_http://www.informationclearinghouse.info/article20011.htm_

(http://www.informationclearinghouse.info/article20011.htm)

 

30/05/08 " ICH " -- - The Commodity Futures and Trading Commission

(CFTC) is investigating trading in oil futures to determine whether the

surge in prices to record levels is the result of manipulation or fraud. They

might want to take a look at wheat, rice and corn futures while they're at it.

The whole thing is a hoax cooked up by the investment banks and hedge funds

who are trying to dig their way out of the trillion dollar mortgage-backed

securities (MBS) mess that they created by turning garbage loans into

securities.

That scam blew up in their face last August and left them scrounging for

handouts from the Federal Reserve. Now the billions of dollars they're getting

from the Fed is being diverted into commodities which is destabilizing the

world economy; driving gas prices to the moon and triggering food riots across

the planet.

 

For months we've been told that the soaring price of oil has been the result

of Peak Oil, fighting in Iraq, attacks on oil facilities in Nigeria, labor

problems in Norway, and (the all-time favorite)growth in China. It's all

baloney. Just like Goldman Sachs prediction of $200 per barrel oil is baloney.

If

oil is about to skyrocket then why has G-Sax kept a neutral rating on some of

its oil holdings like Exxon Mobile? Could it be that they know that oil is

just another mega-inflated equity bubble---like housing, corporate bonds and

dot.com stocks-that is about to crash to earth as soon as the big players grab

a parachute?

 

There are three things that are driving up the price of oil: the falling

dollar, speculation and buying on margin.

 

The dollar is tanking because of the Federal Reserve's low interest monetary

policies have kept interest rates below the rate of inflation for most of

the last decade. Add that to the $700 billion current account deficit and a

National Debt that has increased from $5.8 trillion when Bush first took office

to over $9 trillion today and it's a wonder the dollar hasn't gone " Poof "

already.

 

According to a January 4 editorial in the Wall Street Journal: " If the

dollar had remained 'as good as gold' since 2001, oil today would be selling at

about $30 per barrel, not $99. (today $126 per barrel) The decline of the

dollar against gold and oil suggests a US monetary that is supplying too many

dollars. " Wall Street Journal 1-4-08

 

The price of oil has more than quadrupled since 2001, from roughly $30 per

barrel to $126, WITHOUT ANY DISRUPTIONS TO SUPPLY. There's no shortage; it's

just gibberish.

 

 

As far as " buying on margin " consider this summary from author William

Engdahl:

 

" A conservative calculation is that at least 60% of today's $128 per barrel

price of crude oil comes from unregulated futures speculation by hedge funds,

banks and financial groups using the London ICE Futures and New York NYMEX

futures exchanges and uncontrolled inter-bank or Over-The-Counter trading to

avoid scrutiny. US margin rules of the government's Commodity Futures Trading

Commission allow speculators to buy a crude oil futures contract on the

Nymex, by having to pay only 6% of the value of the contract. At today's price

of

$128 per barrel, that means a futures trader only has to put up about $8 for

every barrel. He borrows the other $120. This extreme " leverage " of 16 to 1

helps drive prices to wildly unrealistic levels and offset bank losses in

sub-prime and other disasters at the expense of the overall population. "

 

So the investment banks and their trading partners at the hedge funds can

game the system for a mere 8 bucks per barrel or 16 to 1 leverage. Not bad, eh?

 

Is it possible that gambling on oil futures might be a temptation for banks

that are already underwater from a trillion dollars worth of mortgage-related

deals that have " gone south " leaving the banking system essentially

bankrupt?

 

And if the banks and hedgies are not playing this game, then where is the

money coming from? I have compiled charts and graphs that show that nearly

two-thirds of the big investment banks' revenue came from the securitization of

commercial and residential real estate loans. That market is frozen. Besides,

this is not just a matter of " loan delinquencies " or MBS that have to be

written off. The banks are " revenue starved " . How are they filling the coffers?

They're either neck-deep in interest rate swaps, derivatives trading, or

gaming the futures market. Which is it?

 

Of course, there is one other possibility, but if that possibility turned

out to be right than it would cast doubt on the legitimacy of the entire

financial system. In fact, it would prove that the system is being rigged from

the

top-down by our friends at the Banking Politburo, the Federal Reserve. Here

goes:

 

What if the investment banks are trading their worthless MBS and CDOs at the

Fed's auction facilities and using the money ($400 billion) to drive up the

price of raw materials like rice, corn, wheat, and oil?

 

Could it be? Could the Fed really be looking the other way so it can bail

out its banking buddies while they drive prices skyward?

 

If it is true; (and I suspect it is) it hasn't done much good. As the

Associated Press reported yesterday:

 

" The Federal Reserve announced Thursday that it will make a fresh batch of

short-term cash loans available to squeezed banks as part of an ongoing effort

to ease stressed credit markets. The Fed said it will conduct three auctions

in June, with each one making $75 billion available in short-term cash

loans. Banks can bid for a slice of the available funds. It would mark the

latest

round in a program that the Fed launched in December to help banks overcome

credit problems so they will keep lending to customers. "

 

Another $225 billion for the bankers and not a dime for the struggling

homeowner! The Fed is bankrupting the country with their permanent rotating

loans

to keep reckless speculators from going under. So much for moral hazard.

 

As far as speculation, there is ample evidence that the system is being

manipulated. According to MarketWatch:

 

" Speculative activity in commodity markets has grown " enormously " over the

past several years, the Homeland Security and Governmental Affairs Committee

said in a news release. It pointed out that in five years, from 2003 to 2008,

investment in the index funds tied to commodities has grown by 20-fold -- to

$260 billion from $13 billion. "

 

And here's a revealing clip from the testimony of Michael W. Masters of

Masters Capital Management, LLC, who addressed the issue of " Commodities

Speculation " before the Committee on Homeland Security and Governmental Affairs

this

week:

 

" Today, Index Speculators are pouring billions of dollars into the

commodities futures markets, speculating that commodity prices will increase.

....In

the popular press the explanation given most often for rising oil prices is the

increased demand for oil from China. According to the DOE, annual Chinese

demand for petroleum has increased over the last five years from 1.88 billion

barrels to 2.8 billion barrels, an increase of 920 million barrels.8 Over the

same five-year period, Index Speculators? demand for petroleum futures has

increased by 848 million barrels. THE INCREASE IN DEMAND FROM INDEX SPECULATORS

IS ALMOST EQUAL TO THE INCREASE IN DEMAND FROM CHINA.

 

Index Speculators have now stockpiled, via the futures market, the

equivalent of 1.1 billion barrels of petroleum, effectively adding eight times

as much

oil to their own stockpile as the United States has added to the Strategic

Petroleum Reserve over the last five years.

 

Today, in many commodities futures markets, they are the single largest

force.15 The huge growth in their demand has gone virtually undetected by

classically-trained economists who almost never analyze demand in futures

markets.

 

As money pours into the markets, two things happen concurrently: the markets

expand and prices rise. One particularly troubling aspect of Index

Speculator demand is that it actually increases the more prices increase. This

explains the accelerating rate at which commodity futures prices (and actual

commodity prices) are increasing. The CFTC has taken deliberate steps to allow

CERTAIN SPECULATORS VIRTUALLY UNLIMITED ACCESS TO THE COMMODITIES FUTURES

MARKETS.

The CFTC has granted Wall Street banks an exemption from speculative

position limits when these banks hedge over-the-counter swaps transactions.

This has

effectively opened a loophole for unlimited speculation. When Index

Speculators enter into commodity index swaps, which 85-90% of them do, they

face no

speculative position limits.... The result is a gross distortion in data that

effectively hides the full impact of Index Speculation. " (Thanks to Mish's

Global Economic Trend Analysis; the one " indispensable " financial blog on the

Internet)

 

Masters adds that the CFTC is pressing to make " Index Speculators exempt

from all position limits " so they can make " unlimited " bets on the futures

which

are wreaking havoc on the global economy and pushing millions towards

starvation. Of course, these things pale in comparison to the higher priority

of

fatting the bottom line of the parasitic investor class.

 

Brimming oil tankers are presently sitting off the coasts of Iran and

Louisiana. The Strategic Petroleum Reserve has been filled. Demand is flat. The

world's biggest consumer of energy (guess who?) is cutting back . As CNN

reports:

 

" At a time when gas prices are at an all-time high, Americans have curtailed

their driving at a historic rate. The Department of Transportation said

figures from March show the steepest decrease in driving ever recorded.

Compared

with March a year earlier, Americans drove an estimated 4.3 percent less --

that's 11 billion fewer miles, the DOT's Federal Highway Administration said

Monday, calling it " the sharpest yearly drop for any month in FHWA history. "

(CNN)

 

The great oil crunch is another fabricated crisis; another " smoke and

mirrors " fiasco; another Enron-type shell-game engineered by banksters and

hedge

fund managers. Once again, the bloody footprints can be traced right back to

the front door of the Federal Reserve. Don't expect help from the regulators

either; they've all been replaced with business reps like Harvey Pitt or Hank

Paulson. The only time anyone in the Bush administration finds their

conscience is when they're offered a multi-million dollar " tell all " book deal.

 

Can you hear me, Scotty?

 

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