Category Archives: regulation

Oil and Gas Politics: Just The Nonpartisan Facts

I’ve been writing a series for Fortune in recent weeks tackling questions like, if the U.S. is now selling more petroleum products than it is buying for the first time in more than six decades, why is most of the country paying around $4 a gallon for gas? And if 30% of U.S. oil is drilled from federally owned lands and territories (read: areas owned by us, the taxpayers) why are we not being paid competitive rates for them by the oil companies? 

With the Senate recently voting down a measure to eliminate billions of subsidies for Big Oil, for those not looking to attack either Republicans or Democrats, the 1% or the 99% – just those operating on common sense – it should raise some questions.

Between 2007 and 2010, more than 70% of the increase in U.S. oil drilling took place on federal territories, representing 3.5 million barrels a day, according to the nonpartisan Congressional Research Service. Since then, oil drilling in the U.S. has climbed higher, topping 6 million barrels a day  this spring for the first time since 1999.

The appeal of drilling in the U.S. has grown in recent years, as oil companies develop new technologies to capture energy resources locked in North America that were previously seen as out of reach. Big Oil also has grown wary of the legal and financial uncertainties that often plague their drilling activities in more exotic and restive regions, such as Venezuela and Nigeria, North Africa and the Persian Gulf.

Bottom line: drillers see America as the promised land compared with the dreary alternatives, because the U.S. is by far a safer and stabler place to do business.

Oil Still Fetches 1987 Rates

Yet Americans might be shocked to learn how much the oil companies are actually paying for the privilege to drill on taxpayer-owned territories. As of this writing, the starting bid for leases on parcels of land that allow an oil company to drill for 10 years is $2 an acre. Yes, the prices can get up into the thousands during the bidding process, but more often the land is sold for next to nothing.

And it’s been that way since 1987.

It is as though oil hasn’t budged from $20, the price per barrel the same year Bon Jovi released “Slippery When Wet” (no pun intended regarding the use of ‘slippery,’ however apropos.) Continue reading Oil and Gas Politics: Just The Nonpartisan Facts

How To Make Someone Else Swallow Your Losses, The Mastercourse

It’s official: when a Wall Street powerhouse suddenly collapses and (possibly) more than a billion dollars goes missing, it’s no longer just the ordinary taxpayer’s problem. Now, it has moved up the chain. Below, the piece I wrote today for Fortune on what traders do when you misappropriate their money.

While Occupy Wall Street was holding its two-month anniversary rally in Manhattan last week, traders were quietly mounting a rather more sophisticated version of OWS on their own. Call it Occupy Wall Street Bankruptcy Court.

FORTUNE — Big institutional investors are getting a taste of what many frustrated taxpayers experienced during the financial crisis: Being on the hook for losses of a major financial firm against their wishes.

This time, of course, it’s MF Global at the center of the dispute. A once-trusted brokerage with roots dating back to the 1700s, MF Global is now a bankrupt firm suspected of misappropriating customer funds to the tune of at least $600 million.

More than two weeks after MF Global’s Halloween bankruptcy filing, there are more questions than answers and a surfeit of conflicts in an investigation that should be aiming to restore the public’s confidence, but is doing the opposite. On Monday, the bankruptcy trustee for the case announced that there may be much more than $600 million missing from MF Global accounts — perhaps as much as $1.2 billion.

Hundreds of millions of dollars of trading capital and collateral were frozen without notice, dramatically disrupting the derivatives marketplace and ushering in a phalanx of federal prosecutors, regulatory agencies and forensic accountants working around the clock to determine where the missing money is. This, after a lawyer for MF Global assured a New York judge earlier this month “there is no shortfall.”

What’s different about this case?  One hedge fund executive summed it up best: “What is scary about MF Global is that there is no political will in this country to look out for people. Let this be a lesson that, if someone tries to steal from you, there is no one who is going to save you. I mean it is literally the most frightening thing that can happen in finance.”

Led by a sense of outrage — as well as the conviction that if they don’t look out for themselves, no one else will — investors have been pooling information and banding together to defend themselves for weeks. Continue reading How To Make Someone Else Swallow Your Losses, The Mastercourse

Final Words From U.S. Bank Watchdog Sheila Bair

Castle on the Fuschlsee

Not all banks are the same. A handful of banks — such as the one that invited me to speak in Austria this autumn– were not happy to see the multibillion-dollar bailouts, the hue and cry of the public and the resumption of the indefensible bonuses on Wall Street that have, again, given banks a bad name.

I had never been to Salzburg before, so I was heartened to see another American there who had not been either: Sheila Bair, the outgoing head of the Federal Deposit Insurance Corporation, the federal agency that insures bank deposits and unwinds the banks that fail. Bair has been very busy these past few years.

Bair was the only other female speaker in a sea of bank governors, finance ministers and consultants from a wide range of European nations. What united the group, however, was a sense of urgency in examining the origins of the global debt crisis and its possible solutions. A prominent boutique bank in central and eastern Europe, Erste Group, held a series of panel discussions at a private castle in the Alps on Lake Fuschlsee with provocative titles such as “Who needs banks?” (The answer, according to the moderator, was that we would like more “normal banks, banks that take our deposits and don’t try to gamble with them.”)

Ms. Bair offered her own pearls of wisdom in a keynote speech sizing up the banking system and the current state of the world’s financial affairs from the perspective of a Washington insider:

– On the highly popular banking credo of profits will be privatized; losses will be socialized: “There is still an issue with Wall Street’s perception of too big to fail,” Bair says. “The problem is, too big to fail is not over until Wall Street thinks it’s over. I have argued that the ratings agencies should not be rating banks more highly than they deserve, based on the expectation they will be bailed out. It is unfair for the taxpayers to have to put their money at risk again.”

– On bank bonuses: “We have got to do something about these huge bonuses…We are still seeing huge political movements based on the anger generated from this. We do need some tough love to address this.”

– On the fight over the U.S. debt ceiling (our nation, by the way, now owes over $54.5 trillion): “I am not going to defend our politicians…it was appalling, unnecessary and self-imposed,” Bair says, adding: “I am not going to defend it and I feel somewhat helpless about it. It’s a very sad situation.”

– On U.S. politicians primarily being driven by “short-term interests” and “the idea of driving decisions based on keeping your job” (her words): “It’s not like you get into public service for the money, so if you’re not doing the public good, it’s like, why are you doing this?'” Bair, who has worked for George Bush senior and Bob Dole — both military men — offered her suggestion for a better type of leader: those who have gone to war. “If you are willing to go to war for your country, then you’re not just willing to lose your job, you’re willing to sacrifice everything.”

– The prognosis for global growth and stability… Continue reading Final Words From U.S. Bank Watchdog Sheila Bair

Dear The Fed: You Suck

I was cleansing my inbox today and found this friendly letter to the Fed from 2007 written by our comrades at Long or Short Capital (vaguely connected to our own fake hedge fund, Intergalactic Capital). I was all ready to take a whimsical walk down memory lane, since 2007 was the year before our  financial meltdown. Yet strangely, this missive does not seem dated.

To: The Fed
From:
Long or Short Capital
Re:
You suck

Dear the Fed,

You suck.  You don’t have a backbone and as a result you are slowly and very surely making our country and our currency irrelevant.  Usually the masses rebel and bring down great empires but luckily for us democracy fixed that problem.  Unfortunately, democracy can’t fix how lame and fickle you are and so you will be our ruin.

A few things to tell you:

1) Inflation isn’t 2% like your pathetic CPI ex-Food & Energy says it is.

First of all, as far as I can tell food and  energy are the only two items you should NEVER exclude from an inflation index.  Tell your wife and kids they can have everything in the consumer basket except food and energy and you will quickly see that they are actually the two MOST important and indispensable factors in the CPI.

You can find substitutes for, or go without, everything in the basket EXCEPT those two.

Secondly, stop using “Seasonally Adjusted Intervention Analysis” it’s as sketchy as the  Seldom-Accepted-Accounting-Principles (SAAP) we use to cook the books here at LoS.  I mean writing a computer program to automatically remove any items in the basket which deviate meaningfully from the previous year?  Isn’t the point of the data to SHOW the change versus the previous year, not hide it?  Oh, I found the list of items that you’ve adjusted for and it’s embarrassing. Continue reading Dear The Fed: You Suck

Trader Threatens To ‘Kill’ 47 U.S. Officials

‘I was being sued…it upset me.’

A midlife crisis can take many forms. Cheating on your spouse. Purchasing a Maserati. Wearing Billabong. Buying into The Lynx Effect. Just being a jerk. But putting up an “execution” list on your Web site of high-ranking financial and government officials and urging people to buy guns to help you kill them is one I haven’t heard of. Among those on the hit list of the smiling man in the orange tie to your left: the head of the Securities and Exchange Commission Mary Schapiro and the chairman of the Commodity Futures Trading Commission Gary Gensler — both heavyweight Wall Street watchdogs.

“Go buy a gun, and let’s get to work in taking back our country from these criminals,” he wrote on his site, according to prosecutors. “I will be the first one to lead by example.”

The 50-year-old from Long Island is accused of threatening the lives of 47 current and former officials. (Yes, I said 47. You cannot make this stuff up.) Continue reading Trader Threatens To ‘Kill’ 47 U.S. Officials

Interview on ‘Keiser Report’ – Russia Today

Many of you have written to ask for a good bit more on the shenanigans prevalent in today’s oil market. Check out this show, aired today, from minute 14 on…(Thankfully, you can scroll through to the juicy stuff.) More to come on DOJ, FTC, CFTC and FERC investigations into the price of oil and gas — and where the biggest challenges lie for those who seek to break the back of the corruption.

 

Quote from a great piece in this month’s Vanity Fair, penned by the illustrious Mr. S…

“Much of today’s inequality is due to manipulation of the financial system, enabled by changes in the rules that have been bought and paid for by the financial industry itself—one of its best investments ever. The government lent money to financial institutions at close to 0 percent interest and provided generous bailouts on favorable terms when all else failed. Regulators turned a blind eye to a lack of transparency and to conflicts of interest. When you look at the sheer volume of wealth controlled by the top 1 percent in this country, it’s tempting to see our growing inequality as a quintessentially American achievement—we started way behind the pack, but now we’re doing inequality on a world-class level. And it looks as if we’ll be building on this achievement for years to come, because what made it possible is self-reinforcing. Wealth begets power, which begets more wealth.”

– Joseph E. Stiglitz, economist and Nobel laureate

5 Shocking Gas Prices Around The Globe

Surprised by Gas Price of $4 a Gallon? Try $8.35 in Germany

By SUSANNA KIM

April 12, 2011

While American drivers are spooked by $4-per-gallon gasoline prices in the U.S., they may be shell-shocked on other continents like Europe. In London, gas was $8.17 per gallon in March, and in Istanbul, Turkey the price was $9.63, according to DailyFinance. 

Leah McGrath Goodman, author of “The Asylum: The Renegades Who Hijacked the World’s Oil Market,” said at least two factors contribute to the variance in global gas prices. First, countries that produce their own oil often have lower prices. Second, different governments choose to subsidize or tax citizens for purchasing gas.

“Every country is different, obviously,” Goodman said. “Some countries have amazing subsidies. In Libya, even with its conflict, its low price has a lot to do with the fact that the government can choose to charge people a lot less.”

Here are five national averages around the globe… Continue reading 5 Shocking Gas Prices Around The Globe

New Book Reveals Who Controls Global Oil Prices

By Tim O’Shei

HOUSTON BUSINESS JOURNAL | Friday, Apr 8th 2011

Who controls the global oil prices?

Powerful banks? Massive hedge funds? Big Oil? OPEC?

There’s never been a straight answer to that question – until now.

Leah McGrath Goodman, a former special writer and editor for The Wall Street Journal and 1998 graduate of St. Bonaventure University, spent the last seven years writing a book that reveals where oil prices have been set for decades: the New York Mercantile Exchange. Or, as the title of Goodman’s book calls it, “The Asylum.”

Published this year by William Morrow/HarperCollins, “The Asylum” takes readers into the boardroom and onto the trading floor of Nymex. Goodman paints a warts-and-all portrait of the often rough-edged traders, for whom she claims making or losing millions in a day was as commonplace as fistfights, drugs and pornography.

By executing both their own deals for oil contracts and orders from big banks and hedge funds, the Nymex traders set the benchmark for global oil pricing. They still do, though Nymex is now part of a group that includes its former competitor, the Chicago Mercantile Exchange, and most of the trading action happens online rather than on the floor.

Business First Managing Editor Tim O’Shei, a classmate of Goodman’s at St. Bonaventure, recently talked to her about the book and about the oil market. Following is a truncated version of that conversation: Continue reading New Book Reveals Who Controls Global Oil Prices

The Global Oil Casino Benefits Only Its Players

Originally published in The Financial Times on April 6th, 2011

Tensions in the Middle East and north Africa, we are told, lie behind the recent increase in global fuel prices, which Wednesday hit a 2 ½-year high. Yet while Brent crude this week stayed above $120 a barrel, in Tripoli petrol hovered at around 54 cents a gallon. And that is not a typo. The popular reason for why those closest to the fighting, in this case, suffer less than those farther afield, is Libya’s hefty subsidies. The less popular reason is that world energy markets have been carefully designed to profit from the slightest supply hiccup, even if there is little evidence of actual shortages.

The energy-trading fraternity has never let the facts get in the way of a good supply scare. True, this historically fragile market is vulnerable to price swings as demand threatens to climb faster than production. But there is more to it than that. Indeed, what President Barack Obama did not mention last week in his energy security speech about the faults of the global energy market could fill a Saudi oilfield. Continue reading The Global Oil Casino Benefits Only Its Players