Tuesday, April 24, 2012

Gas Prices Nudging Down? You Can Thank Obama!

 Not long after my blog on Oil speculators playing us for fools, viz.


President Barack Obama announced that he'd be willing to pursue tougher penalties on oil manipulators (who artificially bid up the price of gas for all of us) and thus, according to an obscure WSJ article yesterday (p. C1):

"shined a spotlight on commodities regulators who have won relatively few cases in the murky world of energy trading".

Murky world indeed! But we know that from time immemorial the green-eyeshade types, financial jocks and jag-offs have used obscure language and bullshit to conceal what they're really doing from the regulators (who often lack the same fancy educations, or at least the physics -statistics backgrounds of the quants that invent half this crap.) Thus, people - ordinary citizens- have often been left in the dust after being victimized by gamed mortgages, rigged private student loans, or even life insurance. With the losses often in the billions.

Look no further to the recent financial meltdown and the role of "credit default swaps" for the "baffle with bullshit" modus operandi.  In effect, these devices - derivatives were created by sophisticated egghead types using complex math formulas based on David X. Li’s (Gaussian copula) formula. Because of its structure and complexity, the widespread use of the Gaussian copula enabled unscrupulous parasites to load good bonds (rated AAA) with crap -junk bonds and then get away with having the whole rated "AAA".

Most of the sordid details of how it was done were revealed in the 2009 Financial Times article: 'Out of the Shadows: How Banking's Hidden System Broke Down, by Gillian Tett and Paul J. Davies. It noted the "plethora of opaque institutions and vehicles" that have emerged this past decade in American and European markets. The authors also noted how the esoteric products, namely SIVs (structured investment vehicles) and CDOs (collateralized debt obligations) were created by a second tier, hidden "banking system" which had effectively taken the loans of banks and repackaged them as these obscure products.

It was within this world of SIVs that people unwittingly purchased what they believed to be secure (AAA) bonds on good faith, which then proceeded to collapse because they were really laden with junk (BBB or lower)  and what's been called "toxic waste".

No regulator could make anything stick with these complex derivatives so no intent could be proven for wrong doing and no one was sent to jail for screwing 90 million people who placed trust in the financial investment system.

Now, with the WSJ article yesterday, we learn that days after Obama's warning the Commodities Futures Trading Commission came down on Optiver Holding BV, which the CFTC asserted was responsible for manipulating the price of oil on the futures markets, helping to add extra cost to all of us.

As the Director of the CFTC's Division of Enforcement, David Meister put it as he announced a $14 million penalty (ibid.):

"The CFTC will not tolerate traders who try to gain an unlawful advantage"

The method imputed to the Optiver bunch (who somehow managed to dredge up enough BS and obscure horse pockey to get the charge reduced to "recklessness" (i.e. no manifest intent) ?

It is called "banging the close" - words which will now live in infamy whenever we as ordinary citizens suspect that gas prices are going up too fast, and for no good reason.

What is "banging the close"? According to the WSJ article, it entails

"taking big positions ahead of the close of futures trading in order to influence the day's settlement price".

In other words, it would be roughly analogous to a stock trader doing a million extra "buys" on a particular stock  using his flash trade (high frequency trading) computer just before the bell. In so doing, he'd have artificially enabled the stock's  closing price to be a lot higher than it ordinarily would have been.

The difference is that in the futures markets for oil the final price - or settlement price - doesn't just affect the immediate sellers or buyers, but everyone, who must now pay more for gas. at the pump. 

All this shows an immediate cause-effect relationship between oil speculation and rising gas prices. So, please, don't blame Obama - blame the parasites that are manipulating  the oil trades using "banging the close" and other nefarious means. Notice how the gas prices have gone down nearly 10 cents a gallon the past week since the penalty was announced? Well, duh, why do you think so? It's because the speculators now believe the CFTC has teeth not just a bark and can use them! Also, the pain inflicted may be worse than any benefits.

Obama also said on Tuesday he wants to increase the fines tenfold to a maximum of $10 million per violation and beef up the CFTC.  These are good moves, but look for the Reeps to try to block them since first, they love reckless speculators who screw the 99% so -called, and also they love it when parasites earn money off specious manipulation. Hell the Repukes do it all the time!

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