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We are neither surprised nor amused

Bernie Saunders, the Independent and definitely free-thinking Senator from Vermont recently released confidential data detailing oil speculation gone wild in months just prior to the spike in oil prices. What is interesting is that there is a clear pattern showing that prices being artificially pumped by a concert of major players in the industry.

We all know that the players were doing this sort of thing as a matter of rote in the time just after kissing the wife and heading out the door and just before picking up the paper and greeting the dog in the evening on the way back in. However, this is the first fully documented proof of such activity, and it doesn’t shine a particularly favorable light on Hedge Funds, the brothers Koch, the big banks and the oil companies.

Yep, these documents might just be just about the right size rock to fit in little David’s sling-shooter, just about the size to bring Goliath down a peg or two. But maybe not.

While the Commodities Futures Trading Commission does not normally disclose identities of speculators to the public, the documents leaked by Bernie Saunders show a burst of trading activity between oil companies, hedge funds and banks just prior to the summer 2008 oil price spike which led to the denouement of the hedge funds, precipitating the recession in which we are still mired.

All the speculative money was weighted heavily in favor of buying and sending the price up. Professor Michael Greenberger , a former official of the CFTC, says, “They go in and buy long in the regular futures market, which sends the wrong signal to the market that there’s a supply problem, when in fact there isn’t.”

This artificial control of sales in the oil commodity is even given a name when it happens, “the Goldman Roll,” which keeps the long bets in place until they suddenly collapse. In this case, the collapse took down Goldman Sachs with it, and we all know how that one worked out.

The fact that backroom trading by the big guys and a lack of appropriate oversight to control and punish the major actors brought about our current misery is not new. The value of the new leaked documentation, however, is that it provides the first tangible proof of such activity, which could be used to strongly support legal action on behalf of the American people.

Unfortunately, I wouldn’t bet on David on this one.

Written for: Sovereign Funding / Structured Settlements

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