Derivative terrorism by robber barons

Saturday, September 13

Should we label today's hedge funds, pension funds, university endowment funds and oil rich sovereign funds as robber barons? Are they to join Andrew Carnegie, John D. Rockefeller, J.P. Morgan and Jay Gould on the list of giants who earned enormous profits as they relentlessly and with questionable actions reshaped American industry and finance and in doing so gave rise to many federal regulations and antitrust controls?

If we look at commodity derivatives and in particular oil, prices for which have doubled since early last year, we do find a number of institutions, not individuals, that are dangerous derivative terrorist barons. They are accumulating wealth that would astonish the robber barons of our prior century. With care only for unbelievable million dollar and billion dollar profits they are raising fears on the part of every person and almost every corporation here at home and throughout the entire world.

  • I created two successful management consulting and marketing businesses based on my studies of public opinion and propaganda. While at college I relied heavily on reports, magazines and studies at New York's Main Library at 42nd Street. I waited and waited until my number flashed on the great wall and then spent hours in the reference room compiling data and knowledge from material delivered from the caverns below.

    Fifty years later I retrieve data instantly from Google sites to verify what traders, columnists, economists, and government officials are saying about oil and gasoline pricing. The Web sites reveal that they are, for the large part seriously wrong. You can also learn this if you take a little bit of time reviewing news stories, looking at the data on Web sites such as Bloomberg, Reuters, The New York Mercantile Exchange (NYMEX), Federal Energy Commission, OPEC, International, Petroleum Exchange, Commodity Futures Commission and many more.

    Just search oil prices, oil derivatives and commodities and you may be shocked at the data they offer. You will learn that the price of oil, which was $60 dollars a barrel early in 2007 and which has more than doubled since then, is not due to what you have been led to believe.

    OPEC and all oil exporting countries throughout the world charge the price of a barrel of light sweet crude oil as set daily by derivative contracts that are traded daily on NYMEX. They are happy with their dollars. OPEC is expected to earn a net of $1 trillion this year. Russia is now an oil wealthy country. Of the more than 290,000 open contracts the other day on NYMEX and representing 290,000,000 barrels of light sweet crude oil, it is a fact that basically all are petroleum paper transactions since only about one percent of all oil contracts and the oil they represent are ever delivered. NYMEX and traders readily admit that oil futures contracts, except for the about one percent, are only for trading and speculation. Tandem tracking of data on web sites states that supply and demand is not in effect in today's derivative commodity markets despite secretary of the treasury Henry Paulson and others saying repeatedly that supplies are more than adequate.

    Demand is declining, yet prices of oil contracts rise. World events are fodder for brokers, analysts and reporters. The stories of disruptions, new offshore drilling, hurricane, riots etc. are forgotten in weeks and prices fall and rise as derivatives continue to trade largely independent of events.

    What is happening, as you can tell from computer data from all sources, is that the voracious hedge funds, pension funds, university funds, oil government and other funds are now seeking returns that they formerly realized from stocks, mergers and real estate. They have special computer specialists and math whizzes on staff who trade commodity derivatives, some times minute by minute to earn giant profits while protecting their investments from serious losses and even benefiting from price declines.

    It is a fact that private investors, only very, very rarely invest in commodity futures. Hedge fund investing can be understood and we can challenge this speculation. But we should more seriously question the morality of university funds and workers' pension funds investing in commodities since they have proven to be responsible for such much upheaval in the lives of most Americans. Such investments can be made illegal.

    Tandem tracking denies that the falling dollar is responsible. What is clear is that oil and other commodity speculative investing has produced the robber barons of today.

    India has banned all commodity futures trading. We may have to do likewise and legislate that only the producer and the actual users of wheat, corn, oil etc. be permitted to sell and buy their products for instant or future delivery. No margin investments should be permitted.

    What about gasoline prices and the price of a barrel of oil? Tandem tracking on government Web sites and others proves that there is no actual relationship between what you pay at the pump and the cost of a barrel of oil. The gasoline producers have succeeded in linking the two in the consumer's mind. It is not a reality since they own their oil wells or have long term multi-year contracts with foreign and domestic oil producers. They charge what they can and all have earned record profits.

    Despite the recent record cost of oil on NYMEX, at the same time Exxon Mobil reported a $40 billion profit for the quarter. Prices at the pump are declining because of the outrage expressed by consumers and legislators. The producers of gasoline know that they will have to face Congress and calls for repeal of tax benefits and excess profit taxes. Their public relations ads have begun.

    What to do? Look at the facts on the Google sites. Challenge the so-called experts. You have Google on your side. Realize what is truly happening.

  • Joseph Goebbels once said that if you repeat a lie often enough if becomes the truth. Also, we have learned that those who do the repeating eventually come to really believe their own statements.

    Hopefully Congress and the president will ban or regulate and tax today's robber baron derivative terrorists who are causing such worldwide personal pain. Congress has done it before and now it is just as important that we limit the effect that this paper trading has on home heating oil, gasoline ,jet fuel, fertilizer, plastics, chemicals, manufacturing, employment, transportation, food and more.

    The speculative financial derivative commodity futures on the NYMEX also reflects worldwide over the counter and electronic trades and is at historical and unacceptable levels. The results are gigantic upheavals at home and throughout the world which must be seriously and firmly dealt with.

    Seymour Richman is retired and was the founder in New York City of a communications firm and subsequently of a management consulting firm.


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