[Peace-discuss] Oil speculation timeline - influence of Kochs and others in driving up oil prices
Stuart Levy
slevy at ncsa.illinois.edu
Wed Jun 8 09:24:12 CDT 2011
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Date: Wed, 08 Jun 2011 06:22:19 -0700
From: suvnetwork at earthhome.us
Subject: [KOCH] Billionaire tea party owners caused higher gas prices
To:
[KOCH] Billionaire tea party owners caused higher gas prices
The simple truth: whenever you pay higher gas prices, you are funding
the tea party
[1]Charles & David Koch
tea party financiers
[cid:B3983609-54D0-4538-B4FA-36FB6F7D668A at domain_not_set.invalid]
[2]How The [3]Kochs[4] Built An Oil Speculation Empire
By [5]Lee Fang on Jun 6, 2011
[6]http://thinkprogress.org/green/2011/06/06/237542/koch-oil-speculation/
The Koch Industries fake grassroots front group Americans for
Prosperity is preparing a tour across America âaimed at trying
to [7]put the blame for high gas prices on the Obama administration.â
The tour will feature multiple campaign-style rallies, a website, and
radio and television advertisements. The tour will demand that Obama
increase domestic drilling â even though domestic oil production is at
an [8]all time high and further drilling will [9]do nothing to affect
prices.
Kochâs relaunch of Drill Baby Drill appears to be a crass attempt to
distract Americans from a true driver of high prices: [10]oil
speculation, coming from companies like Koch. In fact, a new
ThinkProgress [11]investigation of Kochâs oil speculation business
reveals that Koch is perhaps the most important player in distorting
oil markets for private profit.
Our [12]report highlights:
â Kochâs role in inventing modern oil derivatives.
â Kochâs alliance with Enron and the Gramm family in deregulating oil
speculation, first in the early â90s then again ten years later.
â Kochâs participation in unregulated exchanges, and the ways in which
it uses its political power to allow excessive oil speculation to
continue.
Experts contacted by ThinkProgress pin the blame for sky-high prices
and record volatility on excessive oil speculation, the oil market
corrupted by unregulated Wall Street traders who buy and hold onto oil
futures contracts with no interest in the actual delivery of oil. Koch
Industries â generally known as an oil pipelines and refining company
â is also on the forefront of speculating on oil for profit.
Even Goldman Sachs [13]concedes that at least $27 of the price of
crude this year has been a result of rampant speculation, not supply
and demand. Other experts contacted by ThinkProgress have said the
number is closer to fifty dollars. To read our report about Koch
Industryâs long and sordid history in the oil speculation
business, [14]click here.
Tags:
* [15]Big Oil
* [16]Koch Industries
===========================================
How Koch Became An Oil Speculation Powerhouse
>From Inventing Oil Derivatives To Deregulating The Market
By [17]Lee Fang on Jun 6, 2011 at 2:42 pm
Koch Industries CEO Charles Koch
In April, ThinkProgress caused a [18]stir when we [19]uncovered a
series of Koch Industries corporate documents revealing the companyâs
role as an oil speculator. Like many oil companies, Koch uses
legitimate hedging products to create price stability. However, the
documents reveal that Koch is also participating in the unregulated
derivatives markets as a financial player, buying and selling
speculative products that are increasingly contributing to the
skyrocketing price of oil. Excessive energy speculation today is at
its highest levels ever, and even Goldman Sachs [20]now admits that at
least $27 of the price of crude oil is a result from reckless
speculation rather than market fundamentals of supply and demand. Many
experts interviewed by ThinkProgress argue that the figure is far
higher, and out of control speculation has doubled the current price
of crude oil.
Reached for information about its trading division, Koch Industries â
Americaâs second largest private company â declined our request for
comment.
Writing on his political blog, [21]an attorney working for Kochâs law
firm angrily replied to our initial investigation by claiming that
Koch is solely a bonafide hedger, meaning that it only participates in
speculative markets to reduce risk for the oil the company refines (he
also bizarrely argued that speculation has no relation to the price of
oil). The spin obscures reality: much of Kochâs oil trading business
is actually akin to a hedge fund, buying and selling financial
products based on oil with little interest in the actual delivery of
the product. In fact, Koch pioneered the risky speculation industry
that dominates the worldâs oil markets today, first by inventing oil
derivatives back in the â80s, then by working to kill off regulations.
ThinkProgress has delved into the history of Kochâs oil speculation
business and the following timeline spells out Kochâs leading role:
â October 6, 1986: First oil derivative is introduced to Wall Street
by traders at Koch. Koch Industries executive Lawrence
Kitchen [22]devised the âfirst ever oil-indexed price swap between
Koch Industries and Chase Manhattan Bank.â At the time, such
derivatives had been limited to currency markets, and the shift of
creating a synthetic financial instrument based on the value of crude
oil was revolutionary. For an agreed-upon period, an oil swap is a
contract where one party makes payments based on a fixed oil price,
and the other party makes payments back based on the changing spot
price of oil. In July of 2009, EnergyRisk magazine, a publication for
commodity traders, [23]posted a piece exploring the very first oil
derivatives and Kochâs role in developing them.
â 1990-1992: Koch, along with several oil companies and Wall Street
speculators, form a coalition lobbying group to deregulate oil
speculation. A coalition called âThe Energy Groupâ is organized to
press the Commodity Futures Trading Commission (CFTC) to allow oil
derivatives to be traded off the NYMEX or any other regulated
exchange. Participants in the [24]coalition include Koch, Enron,
Phibro (a powerful commodity speculator firm recently sold from
Citigroup to Occidental Petroleum), J. Aron & Co (a commodity trading
division of Goldman Sachs), BP, and other companies.
â January 21, 1993. Wendy Gramm makes first major move to deregulate
oil speculation. âOn the final day of the [George H.W.] Bush
administration, January 21, 1993, [CFTC chairwoman] Wendy Gramm â¦
approved the rule exempting key energy futures contracts from
government regulation and returned a great chunk of the energy market
to the grand old days of unregulated futures trading,â writes author
Antonia Juhasz in the book [25]Tyranny of Oil. The move mirrored the
demands made by Kochâs lobbying coalition, The Energy Group. Gramm,
the wife of then-Sen. Phil Gramm (R-TX), leaves the Commodity Futues
Trading Commission and a month later joins the board of directors of
Enron.
â 1997: Koch continues to shift from oil refining and pipelines to
financial products. As Koch continues its embrace of selling exotic
financial products, the company pioneers the first âweather
derivatives,â essentially insurance policies sold to utility companies
that bet on future temperature and weather patterns. Although Enron
and Koch [26]were the first to develop such financial products, hedge
funds and investment banks like Goldman Sachs later expand the weather
derivative business globally.
â December 12, 2000: Sen. Phil Gramm (R-TX), after being lobbied by
Koch and Enron, creates the infamous âEnron Loopholeâ vastly
deregulating the oil speculation market. On the night of December 12,
2000, Gramm attaches a 262-page amendment to the Commodities Futures
Modernization Act, which is then attached to an omnibus spending bill
that is signed into law by President Clinton before leaving office.
The Gramm amendment, which received absolutely no public scrutiny or
committee hearings, radically expands and codifies the energy
deregulation agenda began by Grammâs wife during the first Bush
administration. The Gramm amendment allows so-called
âover-the-counterâ energy derivatives not only to be traded outside of
regulated exchanges, but for private unregulated exchanges to deal in
these sorts of financial products. Thus, massive âdarkâ oil
speculation markets are born, including Enronâs platform for trading
energy futures, and the Intercontinental Exchange (ICE) â an online
speculation exchange founded by BP, Shell, Goldman Sachs, Morgan
Stanley, and other firms. Private e-mails [27]reported by the New York
Times reveal that members of The Energy Group, led by lobbyists at
Enron but including at least two lobbyists from Koch and several more
from Goldman Sachs and Sempra Trading, wrote Grammâs amendment and
pressured him to slip it into the bill.
â 2008: Rampant oil speculation spikes prices to unprecedented
levels. As academics from the [28]Peterson Institute, the [29]James
Baker Institute at Rice University, and [30]others conclude,
non-commercial speculators begin to dominate the market, forcing up
prices. Although the evidence was abundant that speculators caused the
massive price spikes during the summer of 2008, regulators were
toothless to act. A bipartisan majority in the
House [31]overwhelmingly passed legislation to award powers to the
CFTC to oversee rampant oil speculation, but Republican in the Senate
â acting with help from Koch [32]lobbyists â killed the bill, called
the Energy Markets Emergency Act.
â 2009: Koch presentation to ICE boasts that Koch is on the level of
transnational big banks and can now be considered one of the worldâs
top five oil speculators. The presentation, and our analysis, can be
found [33]here. Of course, Koch is not the only large corporation
engaged in this practice. Large investors, like pension funds, hedge
funds, investment banks, and others flocked to the commodities market
after the financial crisis of 2008 and the collapse of mortgage-backed
securities.
â 2010: Kochâs Tea Party front groups and lobbyists fight financial
reforms designed to reign in the unregulated energy market. While
Americans for Prosperity, as well as other Koch fronts, decry the Wall
Street reform bill debated in Congress, Koch [34]lobbied to water-down
provisions of the bill related to derivatives. The sweeping Dodd-Frank
reform bill contained broad new powers for the CFTC to crack down on
excessive oil speculation, while also requiring that derivative are
eventually traded on a regulated and open exchange.
â 2011: As oil speculation again hits record highs, leading to record
high oil prices, Kochâs allies in Congress fight to undermine new
reforms and allow unchecked speculation to spiral out of control. As
ThinkProgress has reported, oil speculation is currently at
a [35]record level, which experts, and even [36]many Republicans now
agree, is causing pain at the pump. After a furious lobbying campaign,
the CFTC postpones Dodd-Frank mandated regulations on excessive oil
speculation, known as position limits. As the CFTC grapples with how
to implement these new rules, newly elected Republicans, many with
Koch-backing, propose [37]steep cuts to the CFTC to undercut any rules
on oil speculation.
Charles Koch, the CEO of Koch Industries who is [38]worth a reported
$22 billion, likes to call his business an example of something he
describes as the âScience of Liberty.â In reality, his companyâs
deregulation crusade has contributed to rolling blackouts,
consolidation and monopolies in financial markets, and
economy-wrecking oil price spikes. In comments to the CFTC, the
reform-minded nonprofit Better Markets [39]noted that, âthe history of
these markets is a history of anti-competitive, self-interested,
predatory conduct that serves the interest of the exclusive few at the
expense of the many and the system as a whole.â
After working furiously to unleash oil speculators like Koch and
Enron, the Gramm family was [40]rewarded with plum jobs, including
spots on corporate boards and placements at speculator-funded think
tanks. Wendy Gramm still holds a position at the Koch-funded Mercatus
Center at George Mason University, [41]although she hasnât authored a
paper in years. While the Gramm family has faded somewhat from the
public eye, their actions have radically changed the global economy.
Since the Koch-Gramm-Enron deregulation bonanza, non-commercial oil
speculators have flooded the market and increased the price volatility
of oil in [42]leaps and bounds, hurting consumers and businesses
across the globe while making a small set of oil barons and financial
giants very rich.
A McClatchy [43]investigation found: âPrior to the 1990s, speculators
made up about 30 percent of the futures market. In the latest
reporting period, the ratio on May 3 stood at 68 percent speculators
to 32 percent users of oil.â The following chart illustrates the
dramatic changes in the oil speculation market following the
Koch-prescribed deregulation campaign, and how non-commercial
speculators have pushed the price of oil higher and higher:
Michael Greenberger, a former top staffer the CFTC, explained to me
that a common misperception is that oil companies are only bonafide
hedgers, meaning they only participate in the futures market to
lock-in prices for delivery of their product. With the exception of
ExxonMobil, which has explicitly stated that it does not engage in
speculation, all the major oil companies (Shell, BP, Occidental, etc)
operate like Wall Street investment banks and use their privileged
position in the oil market to make speculative bets on the price of
oil. And as the unregulated oil market has grown, investment banks
like JP Morgan and Morgan Stanley have become more like oil companies,
buying tankers, pipelines, oil containers, and other physical assets
to give them an edge while betting on oil. The Koch [44]contango
strategy detailed by ThinkProgress is not limited to Koch Industries
either â Shell [45]for instance is known for buying up cheap oil,
storing it in tankers, and betting on future prices as they reserve
the oil from the market.
Tyson Slocum, an expert on oil speculation at Public Citizen, has
called Koch one of the worst actors when it comes to oil speculation.
Koch, Slocum explained in an interview with ThinkProgress, is unique
because of its status as a political powerhouse as well as a
speculator with operations all over the world.
============================================
Unattributed parts of this Article © 2011 Gene Messick
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References
Visible links
1. http://salsa.wiredforchange.com/dia/track.jsp?v=2&c=9DFAf7YokKH2gDsVWRy4agAva2Y9x9qH
2. http://thinkprogress.org/green/2011/06/06/237542/koch-oil-speculation/
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5. http://thinkprogress.org/author/lee-fang/
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21. http://thinkprogress.org/media/2011/03/03/147953/bloggers-kneel-to-koch/
22. http://db.riskwaters.com/data/energyrisk/EnergyRisk/Energyrisk_0709/markets.pdf
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28. http://thinkprogress.org/report/koch-oil-speculation/www.iie.com/publications/pb/pb09-19.pdf
29. http://thinkprogress.org/report/koch-oil-speculation/www.bakerinstitute.org/publications/EF-pub-MedlockJaffeOilFuturesMarket-082609.pdf
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34. http://www.bloomberg.com/news/2010-04-15/koch-cargill-fight-dodd-derivative-bill-reversing-30-years-of-cftc-policy.html
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36. http://thinkprogress.org/economy/2011/03/18/173841/gop-speculation-cuts/
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38. http://www.forbes.com/2011/03/09/billionaires-20-richest_slide_18.html
39. http://comments.cftc.gov/PublicComments/ViewComment.aspx?id=26475&SearchText=
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45. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aIbVHft2R3SE
46. http://earthhome.us/Mission.html
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47. http://thinkprogress.org/wp-content/uploads/2011/06/ckoch.png
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