Sunday, June 1, 2008

The oil bubble

First it was the housing bubble, now it is the credit crunch (not talked about in the media much), and soon to come - the oil bubble bursting.

Thanks to A. Peasant for sending me this article.


The Great Oil Swindle by Mike Whitney

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.

Hear hear! The speculation in food stuffs is something I wrote about before.

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.

Got that?
The hedge funks and banks found a new panacea, a cure for their need for easy money in a new scam. The garbage loans blew up in their faces, but the smart people at hedge funds and banks found a new scam - commodity futures.

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.

There is not that much increased demand, period.

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.

Re-read this again.

"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."

This next paragraph is the most important - pay attention:
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.”

This is crucial.

The speculator buys the $128 oil by paying... $8, borrowing $120 and then.

Reread and think about the last sentence.

The leverage is 16:1 here.

This is a get rich quick scheme.

And because this is a bubble, it WILL burst, just like the housing bubble, just like everything that speculators before have gotten their hands on.

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?

Possible? In my view, this is a necessity for hedge funds and banks to recoup their losses when the previous bubble, the housing bubble, burst.

And finally, the monstrous, scary possibility that the FED is actually not a cop, an agency that looks out for the benefit of the citizens and the American economy, but something else entirely.

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?

I am speechless.

Hopefully the author is wrong on this one, because that would be a level of cynicism in government that would be... beyond me.

This, if true, clearly shows that there are the elite, and then there are the rest of us - the scum, the workers, the ordinary working people.

Associated Press:
“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.

So there you have it.

Another article which proves my point re: oil bubble and commodity futures speculation.

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1 comment:

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