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

A Very Good Six Years

Today marks six years of writing as a free agent. When I hung out my shingle back in 2006, I wasn’t sure what it would be like to get up in the morning, walk into the next room (my office) and find my job waiting for me.

I wondered, would it be a matter of time before my writing turned into more of a hobby than a profession?

Actually, it was the other way around.

My home life, for a long time, disappeared. In its place was my writing life, only my writing life. During this time, the phone would ring at all hours with editors making frantic requests that frequently fell under the rubric of pie-in-the-sky. (This often would be something along the lines of, ‘We really love what you did with the contango piece, but do you think we could add a talking dog? We’d really love a talking dog.’ To which, I’d say, ‘Of course, how could I have forgotten the talking dog?’ And just as often as not, we’d never speak of it again.)

When I relocated to London, the New York editors’ calls would roll in past midnight. The hardnosed, salty-mouthed (usually male) editors were my favorite. I strongly preferred them to the pinched Barnard ladies who would fuss and fidget over every last accent aigu until their magazine was put to bed. It was a long time before I learned how to balance the steady stream of demands with a life that allowed for, among other things, regular meals, the occasional exposure to sunlight and sleep.

But it was worth it, because any topic I stumbled across I could make into a story. The world, I found, was full of maddeningly fascinating mysteries nobody else seemed to be noticing. On an Emirates flight to Dubai, I thought, how is it we are allowed to quaff champagne on a Muslim airline — and have Muslims serve us without breaking with their faith? This led to a series of feature-length articles on Islamic finance.

My first book proposal was written from snatches of time over many weekends, because it was impossible to do during the busy work week. Once I returned to New York in late 2008 with my first book deal, Wall Street was falling apart. Yet even with half the magazines I’d written for cratering, there were still plenty of stories to write about the crisis for the publications left standing.

Whether boom or bust, it has never been boring. This is the reason, I believe, so many executives on Wall Street can’t bring themselves to ever leave. Certainly, there is the realization that any sickness of mankind will be exacerbated there and duly amplified. That is unavoidable. But the genius is there too. There is a loneliness among the truly gifted that seems to find a home along the corridors of Wall Street.

I have talked to many people over the years who say they would like to leave. But for what? The money is good. But that’s not the main stumbling block. It’s more furtive than that. It’s a feeling that to remove oneself from the vortex of power would be to forevermore live life in the outback. The vortex is addictive. And, ultimately, it’s not really about the money. It’s about being an insider. To leave would be to become an outsider.

Unless, that is, you leave for politics. Because the fight here is not for money, but personal relevance.

Even for mere Wall Street writers, this is true (despite the fact financial journalists are outsiders by definition). I could very well write about art and wine and great, great literature. Sometimes I do. But artists and vintners and writers will never be as interesting as the people I talk to on Wall Street. Sooner or later I am going to ask a vintner how much artisan wine is pressed in California annually or what the yearly cash flow is of an average vineyard and I will get a blank stare. Faced with a dearth of quantitative facts, I cannot help but be crestfallen.

On the other hand, Wall Street is never so banal. One of my favorite hedge fund managers is into extragalactic physics and biblical textual analysis. Not for any reason. Just for fun. How can any writer walk away from that?

I was raised by an English teacher and an artist. They did all could to ensure that I would never be interested in finance. They discouraged me from taking an unwholesome interest in balance sheets, Beige Books, black swans.

But as soon as I found out about triple witching, it was all over.

 

 

Q&A With The Global Journal: Oil Trading And The Casino Syndrome

Happy National Pancake/Leap Year/Week before Super Tuesday Day, all. It has been a turbulent past few months and not just in the oil market. I will get into why very shortly but, for now, let’s just say that after a long and dark winter, I am once again available for dancing in the streets. Without any further cryptic remarks, I’d like to share an interview I just did with The Global Journal, based in Geneva, which rang me up to discuss ‘The Asylum’ and what the future holds for the energy market and gas prices during this, our illustrious Election Year.

(Q portions courtesy of Janine Huguenin-Virchaux, the magazine’s books and culture editor.)

Your book mentions that “the market is no longer reflecting supply and demand.” What is the use of a market that does not reflect the true price of oil? Do we need new hijackers?

That’s a great question – do we need new hijackers? If we could get some hijackers that could take back the market so that it does reflect supply and demand more clearly, then I would say yes, we do! However, I would also say that there is a serious debate going on about the extent to which price does reflect supply and demand. I think there is very good reason to believe that the price does not reflect it anymore. There is also a very technical reason for what has been going on that has not really been acknowledged or understood by many people. And that is the relationship between speculation and price discovery. A lot of the information that I get is from people who read the book and then they come to me and bring me stuff that nobody seems to really know about.

A lot of these guys are just regular traders who trade physical oil and feel that supply and demand is not reflected in the price correctly anymore. Whereas their entire lives – some of these men and women have been trading oil for thirty years or more – they feel the price did reflect it. So they believe there’s a huge difference in what they are seeing today in terms of the market fundamentals versus the price. And what they used to do was see price and fundamentals fit together better. They see a lot of distortion happening now. A lot of these people are concerned with that. I want to say, it’s not all about making money for these people: some of them look at this and say “Oh my God, it’s not acting the way it used to anymore and it doesn’t look like it’s headed anywhere good.” And that is aside from the fact that trading has become so ferocious that it is more about preserving a global casino than about supplying oil to people who need it.

That’s the problem. The casino aspect overshadows everything. Most of the people who play this game don’t want oil. They just want to play the game.

What is the alternative? I mean, these are the people who are speculating on the price of oil. Is there anything that can change to make it different? To make it less casino-like?

Yes, I think so. I am considering writing about this much more, the nature of speculation… Continue reading Q&A With The Global Journal: Oil Trading And The Casino Syndrome

The Boy Wonder At The Heart Of A Disaster

Something to inspire your Friday: The story of a 30-year-old from Sunrise, Florida, who’s defying Wall Street — and not getting hit with a nightstick for it.

Who is James Koutoulas and how did this 30-year-old end up leading the charge to recover more than $1 billion for customers from one of Wall Street’s biggest bankruptcies?

By Leah McGrath Goodman, contributor

FORTUNE — James Koutoulas walked into one of the worst bankruptcies in U.S. history with almost zero legal experience.

“When I got up the first day in bankruptcy court and saw the look on the judge’s face, I couldn’t blame him,” he says. “Bankruptcy court is a rich man’s club where everyone is old, so I stood out. Honestly, when I’m shaved, I look like I’m about 12.”

Yet Koutoulas, 30, may be one of the only former customers of MF Global, the now-defunct futures brokerage house, with the gumption to publicly object to the way they are being treated. Since filing for bankruptcy Oct. 31, MF Global’s woes have rapidly piled up – chief among them losing an estimated $1 billion-plus of customer funds. The loss directly crimped the wallets of some of the futures market’s most active participants, from small-time farmers to ranchers to hedge funds.

Koutoulas, chief executive of three-year-old commodities fund Typhon Capital Management, stumbled into the courtroom drama accidentally. His Chicago firm, which conducts the bulk of its business in the futures market, discovered shortly after MF Global’s bankruptcy that $55 million of its $70 million under management had been dragged into the proceedings. This was a surprise, because, by law, customer funds are supposed to be kept completely segregated from a brokerage firm’s own assets. That wasn’t the case with MF Global. For Koutoulas and tens of thousands of other MF customers, it was a rude awakening.

“My goal is real simple: getting everybody’s money back,” he says. Continue reading The Boy Wonder At The Heart Of A Disaster

PAST PERFORMANCE IS NECESSARILY INDICATIVE OF FUTURE RESULTS

S also stands for 'sinister,' 'scurrilous' and 'slippery'

It met rarely and whined often. It gave up before the actual deadline (Nov. 23). It sought to shear over a trillion off the national budget, but came up with peanuts. It inspired satire in the form of, among other things, superhero cartoons. It was the “supercommittee.” For these reasons and so many more, America’s elite political body truly lived up to its name in that was super-lame.

This again proves that when Congress gets together and can’t make a deal, guess what? Moving the date back and getting together again — on the taxpayers’ dime, replete with catered lunches — still doesn’t lead to a deal. Funny how that works.

Whenever confronted with the need to make an actual decision, Congress prefers instead to commence lengthy studies, probing inquiries and cerebral surveys — all of which require much munching and lunching and the drinking of fresh coffee and spring water — that rack up bills yet infrequently give rise to any answers… Continue reading PAST PERFORMANCE IS NECESSARILY INDICATIVE OF FUTURE RESULTS

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

Good News From Francis, The Lamp Man

Leg up?

Sometimes there’s a need to find a good lamp guy. The guy the other lamp guys go to who really knows where it’s at. That guy is Francis Nowalk of Pittsburgh (or for those of you who want to get persnickety about it, Bloomfield, PA, the Little Italy of Pittsburgh).

Francis has a massive stone building that looks more like a cavernous school than a shop. In it, he keeps scores of lamps, old and new, on which he assiduously works with the help of big, heavy machines.

If you are nice to him, he’ll sneak you past a pair of handsome, leather-encased, brass-studded double doors in the back to his secret stash of high-end chandeliers.

I happen to be living on the second floor of a Victorian house in a Norman Rockwell town. During the day it is glorious, but at night it can be a little scary. Whenever I descend the long stair in the evening for wine on the porch with friends, I am unsettled by the pervasive darkness of the foyer. Perhaps it is the old-house vibes; perhaps it is just my imagination. But I don’t care for it. So I began looking into alternatives.

At the base of the bannister where the handrail terminates there used to be a Newel post lamp. In Victorian times, it just wasn’t enough for a balustrade to end, it had to finish off magnificently. As a result, it became a place for the layering of carved finials, lights and small-scale figural sculpture.

For me, the light part was what I was after. Continue reading Good News From Francis, The Lamp Man

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

A Certain Stylishness In Hating The Rich

In Marie Antoinette's days, the guillotine was called the 'National Razor.'

Our national discourse on the nature of wealth has been a good cure for sanity of late.

News that a book coming out from the surviving son of Bernard Madoff, mastermind of the largest Ponzi scheme in history, elicited comments from readers that could be called anything but charitable. Alongside an interview with Madoff’s wife, Ruth, whose picture speaks volumes about the toll the scandal has taken on her life — not in the least the suicide of her other son — are comments that plainly show how bitter the feud has become between the rich and the working class in our country. In response to Ruth’s claims of not knowing of her husband’s illegal financial dealings, readers wrote:

“What a bunch of lies. Anyone in the industry knows that the returns had to be made up…the sons knew it, the wife knew it, everyone knew it.”

“I do not think Ruth knew, but she strikes me as remarkably incurious and shallow.”

And:

“This is a woman who married at 18 and never took responsibility for her own financial security. True, she raised their children but she chose to ignore the choices made by her husband.  Now she claims to be a victim. I am sorry but I do not buy this. She chose to remain ignorant.”

Overlooked was this part of the interview, in which Ruth Madoff discusses falling in love with her husband, as it would inevitably inspire some modicum of humanity.

Aside from Madoff-venting, the debates rage about the solutions. At Occupy Wall Street, which I visited last week, you have, on the one hand, a number of concerned Americans questioning — or outright decrying — capitalism in all its trappings. They suggest that the only solution is to raze and rebuild the entire political and financial system.

Unfortunately, they are still experimenting with new models to offer in its place.

On the other, you have national leaders quick to denounce the financial crisis, but just as quick to vote down any new rules aiming to prevent a financial crisis in the future.

Two G-Men (Goldman, that is): Obama and Corzine wave for the crowd

Already, we are seeing the results of this splintering of the populace: we remain effectively paralyzed to redress our own fragility, forced to lurch from one crisis to the next. Large financial powerhouses continue to fail spectacularly as the Department of Justice, the Federal Bureau of Investigation, the Securities and Exchange Commission and a smattering of other government agencies struggle to keep up with reports of unchecked theft, negligence and fraud amid budget cuts frequently meant to hobble them (as if the backlog of cases they’re drowning in wasn’t enough).

In the meantime, too much money in all the wrong places undercuts the healthy cleansing that might otherwise be achieved through a democratic elections process. As one hedge funder told me while in New York last week: “Nothing can pass C0ngress, because the Republicans believe all regulation is bad. They don’t want another financial crisis, but they don’t approve of any new rules either. They haven’t quite worked out their dogma yet.” And we know Obama and the Democrats, whatever the dogma, do not appear capable of executing a plan.

Last week, former U.S. senator, New Jersey governor and high-ranking Goldman Sachs executive, Jon Corzine, stepped down from a job he held for just over a year as head of the world’s largest futures brokerage house. The 200-year-old-plus brokerage, MF Global, handled traders’ transactions in the multitrillion-dollar futures market, where people bet on the future prices of everything from soybeans to gasoline to interest rates.

Corzine’s company, which sought to become a mini-Goldman Sachs, filed for bankruptcy after betting more than $6 billion on bonds tied to the European debt crisis and getting caught short. Corzine, a self-described son of an insurance salesman who grew up on a “small family farm” in Illinois, raked in hundreds of millions at Goldman as he ascended to its highest echelons after starting out as a bond trader there.

Given his trading background, Corzine very likely understood exactly what kind of risk his brokerage was taking ahead of its downfall. (“A good rule of thumb is, if the guy is not a former trader, he probably didn’t know what hit him,” the hedge funder told me over a nice-sized steak. “But if you’re a former trader, you get the joke. You probably wrote the joke.”) Continue reading A Certain Stylishness In Hating The Rich

Fortune Features ‘The Asylum’ As Weekly Read

Since publishing “The Asylum: The Renegades Who Hijacked The World’s Oil Market,”  I have received a great deal of response (most of it in private correspondence and some in public forums, such as the press and in the courts, where I spent the better part of my summer languishing in sunless quarters).

You would think it would be the very traders about whom I wrote who would have caused the most trouble. This has not been so. On the contrary, most of them have been supportive to an unwarranted degree, including a rare few who have had every reason to be furious about what I wrote, but instead were reasonable.

Many of them also expressed a sincere belief that the global oil market has run off the rails and that prices are no longer set by supply and demand.

Enter the “market fundamentalist” academics, think tanks, lobbyists and politicians. These folks have been some of the worst offenders. What I have had difficulty understanding, mainly, is what they are getting on about and why. They certainly do not get paid well enough by Wall Street to justify the damage they cause by promulgating misinformation. Any money tossed their way is literally kibble, compared with what is being made off their backs. How much does a senator or academic cost? Not very much, I’m afraid. Continue reading Fortune Features ‘The Asylum’ As Weekly Read

Author, Historian and Investigative Journalist