Enron Loophole

[steggyD]

Ok, JamieB brought it up in another thread, so I'm just going to start this thread to openly discuss the issue. I have nothing to really say except, please help explain.

How can we control the price of oil by closing a supposed "loophole"? I thought high oil prices were global. I'm not being a smartass. I want to know.

No partisan bullshit, cause we all know that both parties were involved.

[Jamie_B]

Here is a start on explaining futures.

[url="http://www.truveo.com/53-A-Simple-Explanation-of-the-US-Economy-for/id/1679996370"]http://www.truveo.com/53-A-Simple-Explanat...r/id/1679996370[/url]

[Jamie_B]

from the link

Part 1



Part 2



Part 3

[Jamie_B]

[Jamie_B]

[Jamie_B]

[|Bunghole|]

Use your own words, Jamie. I'd like to see what you think about this in your own mind. It's no secret that oil is a tradeable commodity, is limited in terms of future production, that we need it, are competing for it with nations with rising economies, is subject to weather (Gustav, Katrina) and blurps in the world in terms of importation (you know, the Nigerian pipeline being attacked, etc, et al).

[Jamie_B]

[quote name='Bunghole' post='694291' date='Sep 1 2008, 10:58 PM']Use your own words, Jamie. I'd like to see what you think about this in your own mind. It's no secret that oil is a tradeable commodity, is limited in terms of future production, that we need it, are competing for it with nations with rising economies, is subject to weather (Gustav, Katrina) and blurps in the world in terms of importation (you know, the Nigerian pipeline being attacked, etc, et al).[/quote]

The last video speaks to it better than any of my own words could.

Edit: Ill give it a try though, essentally what you have is futures being traded on ICE which is unregulated by the US and not subject to the same laws we have reguarding price fixing (as I understand it, still reading up on ICE), unregualted markets allow traders to push prices up higher than they normally would be, which you see in oil.

I'd love to hear CHD and Homer on this, as Im only begining to understand it.

[Jamie_B]

We had discussed speculators in this thread

[url="http://forum.go-bengals.com/index.php?showtopic=42362"]http://forum.go-bengals.com/index.php?showtopic=42362[/url]

[|Bunghole|]

[quote name='Jamie_B' post='694292' date='Sep 1 2008, 11:01 PM']The last video speaks to it better than any of my own words could.

Edit: Ill give it a try though, essentally what you have is futures being traded on ICE which is unregulated by the US and not subject to the same laws we have reguarding price fixing (as I understand it, still reading up on ICE), unregualted markets allow traders to push prices up higher than they normally would be, which you see in oil.

I'd love to hear CHD and Homer on this, as Im only begining to understand it.[/quote]
Oil prices go down even in the face of Gustav. I guess the refineries in the Gulf aren't as affected as they thought they would be. Nor as damaged as they were during katrina.

It's an unfortunate conicidence that one of the biggest oil processing and refining areas of our country is beholden to the weather like the Gulf is. In fact, it sucks.

[CTBengalsFan]

[quote name='Bunghole' post='694298' date='Sep 1 2008, 11:20 PM']Oil prices go down even in the face of Gustav. I guess the refineries in the Gulf aren't as affected as they thought they would be. Nor as damaged as they were during katrina.

It's an unfortunate conicidence that one of the biggest oil processing and refining areas of our country is beholden to the weather like the Gulf is. In fact, it sucks.[/quote]

Isn't it also the biggest oil importing zone in our country as well? I think I remember hearing about that on CNN, that there's a port that receives the majority of oil imported here.

[Homer_Rice]

I know Jamie has spent some quality time investigating this, so folks might want to follow his breadcrumb trail on this. I'll offer a few words on the larger context.

But first a personal note. Just this week I received notice that my natural gas bill will be increasing by approx 30% per month. I do a monthly averaging thing throughout the year and the current rejiggering of my "load-balance" pushed the bill into 3 digits. I use gas only for hot water and heating, live pretty frugally, and also live in a state in which prices tend to be lower than other parts of the nation. I'd hate to be in New England still. People can expect these kinds of increases in this and other areas over the near term. Some folks will not be able to manage.

The Enron loophole, and sundry other relaxations of regulatory oversight in our economy, result from a concerted effort over the past 40 years to deregulate--as a matter of philosophy--our economy. The purported justification for this push is the claim that fewer regulations will allow markets to operate more efficiently.

My suggestion is a two-pronged approach for those who want to truly get on the inside of this process. Observe the behavior of industries which have been deregulated in the period since the late-Nixon/Ford/Cater admins and conclude for yourself whether or not the industries themselves have improved in efficiency. Second, go back a little further historically and do a little study of both the anti-trust movement in the "Progressive Era" and the means by which FDR and all moved to regulate various industries in the wake of the Depression.

That's the context.

[Jamie_B]

Steggy did your question get answered?

[Jamie_B]

[quote name='Jamie_B' post='694289' date='Sep 1 2008, 10:55 PM'][/quote]

Holy shit, I watched this a second time before it registered...


ICE is a US company now, and is regulated in the UK, it isnt even a UK company anymore.

WOW

[scrotos]

Though I never post, I'll add my two cents as well....

One of the major assumptions made by your basic "supply and demand" mechanism is that all participants in a market have access to the same information as everyone else in the market and that the information is fairly complete. When this information is incomplete or not evenly distributed, markets don't function as efficiently as they should.

The problem with deregulation of the markets is that the "transparency" of the markets goes down (since transactions are no longer recorded/reported), information is therefore incomplete and unevenly spread, thus the efficiency of the market actually goes down.

Therefore deregulation causing markets to operate more efficiently is complete bs...in an Economics 101 sense.

[Jamie_B]

CT, brough this up in one of the Palin threads, but this shit is serious and should scare people. Not only was Graham involved in writing the Enron Loopole, but he had a hand in the banking issues were seeing today..


[quote]McCain guru linked to subprime crisis

The general co-chairman of John McCain’s presidential campaign, former Sen. Phil Gramm (R-Texas), led the charge in 1999 to repeal a Depression-era banking regulation law that Democrat Barack Obama claimed on Thursday contributed significantly to today’s economic turmoil.

“A regulatory structure set up for banks in the 1930s needed to change because the nature of business had changed,” the Illinois senator running for president said in a New York economic speech. “But by the time [it] was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework.”

Gramm’s role in the swift and dramatic recent restructuring of the nation’s investment houses and practices didn’t stop there.

A year after the Gramm-Leach-Bliley Act repealed the old regulations, Swiss Bank UBS gobbled up brokerage house Paine Weber. Two years later, Gramm settled in as a vice chairman of UBS’s new investment banking arm.

Later, he became a major player in its government affairs operation. According to federal lobbying disclosure records, Gramm lobbied Congress, the Federal Reserve and the Treasury Department about banking and mortgage issues in 2005 and 2006.

During those years, the mortgage industry pressed Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages.

For his work, Gramm and two other lobbyists collected $750,000 in fees from UBS’s American subsidiary. In the past year, UBS has written down more than $18 billion in exposure to subprime loans and other risky securities and is considering cutting as many as 8,000 jobs.

Gramm did not respond to an e-mail and was unavailable for comment, according to a UBS spokesman. The bank has no official position on the subprime crisis, the spokesman said, but is a member of the Financial Services Roundtable and other industry groups that are actively lobbying Congress on the issue.

Now, some housing experts and economists see Gramm’s thinking in the recent housing proposal from McCain, the Republican Party’s presumed presidential nominee. Gramm is often a surrogate for the Arizona senator, particularly in meetings focused on the economy. And McCain has hinted he’d consider the former Texas senator for Treasury secretary in a McCain administration.

McCain delivered an economic speech Tuesday that had Gramm's input, but it was written by domestic policy adviser Douglas Holtz-Eakin.

“Sen. Gramm was one of dozens of folks whom Sen. McCain has consulted on the housing issue, including Carly Fiorina and Meg Whitman from eBay," said McCain campaign spokesman Brian Rogers. "They've been friends for years, and he values Sen. Gramm's advice."

In the speech, McCain rejected the type of aggressive government intervention in the economic meltdown that has been embraced by his Democratic opponents — and even some Bush advisers.

“I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers,” McCain said. “Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy.”

McCain’s campaign later clarified that he would support programs for “deserving” homeowners and reforms that would improve transparency and accountability in capital markets.

Andrew Jakabovics, a housing expert at the liberal Center for American Progress, said McCain’s interpretation of the crisis puts little blame on investment banks for their role in packaging the subprime loans into dangerously complex and ultimately hard-to-value financial instruments.

“I’d characterize this as the deux ex machina theory of financial products,” Jakabovics said. “He views this as a market problem that manifests at the local level as housing, meaning he’s more likely to argue in favor of these guys when they argue for deregulation.”

Wall Street firms are increasingly under scrutiny for contributing to the economic downturn by packaging and selling risky mortgage securities. When the home loans tied to the mortgages defaulted, investors and the banks lost billions, contributing to a widespread credit crunch.

“I think [McCain’s] attitude is the market can basically handle this and government doesn’t need to be heavily involved,” said David Wyss, chief economist at Standard and Poor’s.

McCain and Gramm have a long political history. The two became close when they worked together as senators to defeat Hillary Rodham Clinton’s 1993 health care plan, holding meetings at hospitals and clinics across the country.

In 1996, McCain was national chairman of Gramm's unsuccessful presidential bid.

In 2000, the duo had a rare parting when Gramm backed his home-state governor, George W. Bush, for president instead of McCain. But they’ve reunited in this presidential race.

Gramm stood by his former Senate colleague in his worst days last summer when his campaign went broke and his candidacy was all but written off by political observers.

Gramm, who had joined the campaign in March as a domestic policy adviser, was among those who helped cut staff and shrink the budgets. He traveled with McCain in Iowa, New Hampshire and South Carolina and stumped for him in Georgia.[/quote]


AND

[url="http://losangeles.injuryboard.com/miscellaneous/the-subprime-mess-and-phil-gramm-an-experiment-in-deregulation.aspx?googleid=242468"]http://losangeles.injuryboard.com/miscella...googleid=242468[/url]

[quote]In 1933, a few years following the stock market crash, Congress passes the Glass-Steagall Act, in hopes that regulating banks will help prevent market instability, particularly amongst Wall Street banks. The purpose of the act is to separate commercial banks that focus on consumers from investment banks, which deal with speculative trading and mergers.

The Glass-Steagall Act provided the proper oversight and entity separation that would prohibit banks and other financial companies from merging into giant trusts (conflict of interests) -- giant trusts or corporations being more powerful, naturally, and having the seemingly limitless capital to lobby their corporate interests, however, with a very myopic scope (particularly when it comes to factoring in potential losses -- most banks, as seen in contemporary times, chose not to anticipate losses in the mortgage market; they presumed home prices would continue to appreciate).

In 1999, former Senator Phil Gramm (who is, incidentally, Senator John McCain's economic adviser and cochairs his presidential campaign) set out to completely gut the Glass-Steagall Act, and did so successfully, replacing most of its components with the new Gramm-Leach-Bliley Act: allowing commercial banks, investment banks, and insurers to merge (which would have violated antitrust laws under Glass-Steagall). Sen. Gramm was the driving force behind the Gramm-Leach-Bliley Act, as he had received over $4.6 million from the FIRE sector (Finance, Insurance and Real Estate donations) over the previous decade, and once the Act passed, an influx of "megamergers" took place among banks and insurance and securities companies, as if they had been eagerly awaiting the passage of Gramm's Act. Everything in between Glass-Steagall and Gramm-Leach-Bliley (i.e. Savings and Loan crisis/bust) was, in large part, the incubation period for what would take place over the nine years that would follow the passage of Gramm's Act: an experiment in deregulation.

Shortly after George W. Bush was elected president, Congress and President Clinton were trying to pass a $384 billion omnibus spending bill, and while the debates swirled around the passage of this bill, Senator Phil Gramm clandestinely slipped a 262-page amendment into the omnibus appropriations bill titled: Commodity Futures Modernization Act. It is likely that few senators read this bill, if any. The essence of the act was the deregulation of derivatives trading (financial instruments whose value changes in response to the changes in underlying variables; the main use of derivatives is to reduce risk for one party). The legislation contained a provision -- lobbied for by Enron, a major campaign contributor to Gramm -- that exempted energy trading from regulatory oversight. Basically, it gave way to the Enron debacle and ushered in the new era of unregulated securities. Interestingly enough, Gramm's wife, Wendy, had been part of the Enron board, and her salary and stock income brought in between $900,000 and $1.8 million to the Gramm household, prior to the passage of the Commodity Futures Modernization Act.

In 2003, Gramm left the Senate to join UBS, which had acquired investment house PaineWebber due to his deregulation bill. At UBS, Gramm lobbied Congress, the Fed and the Treasury Department. During Gramm's tenor at UBS and as a lobbyist, Congress passed the Responsible Lending Act, billed as an anti-predatory-lending measure, but was called the "Loan Shark Protection Act" by consumer advocates, as it was designed to preempt stronger state laws against anti-predatory lending. The Fed largely ignored the underlying and growing problems within the subprime mortgage/housing markets, as Bernanke famously acknowledged the housing market in April, 2007 as, "[showing] signs of softening," but said that a "sharp slowdown," is unlikely. Then, according to Mother Jones magazine, Henry Paulson became the Treasury Secretary in July, 2007, when, "In 2005, [at] Goldman [he] securitized $68 billion in residential mortgages and $23 billion in 'other assets' primarily related to CDOs," (Mother Jones, August, 2008). With such self-interest, and a lack of the nation's interest, we can see how this subprime mess was allowed to escalate to such great proportions.

Some justice was served, however, this spring, as UBS became one of the subprime debacle's biggest losers, having to write down $37 billion -- the same amount as their previous four years of profits combined. UBS also made the public aware that two-thirds of its losses were due to reckless investing in collateralized debt obligations (CDOs).

Now, Gramm has a second chance of extending his out-of-touch and ill-performing policies, as Senator John McCain appointed Gramm to be his "economic expert" and cochair of his presidential campaign, last year. Also, it is likely that if Senator McCain were to win in November, Gramm would be our next Treasury Secretary, which means more of the same deregulatory mess and the continuation of failed and insidious economic policies.[/quote]

[Jamie_B]

[quote name='CTBengalsFan' post='694299' date='Sep 1 2008, 11:23 PM']Isn't it also the biggest oil importing zone in our country as well? I think I remember hearing about that on CNN, that there's a port that receives the majority of oil imported here.[/quote]

Yes.

[url="http://en.wikipedia.org/wiki/Louisiana_Offshore_Oil_Port"]http://en.wikipedia.org/wiki/Louisiana_Offshore_Oil_Port[/url]

[quote]The Louisiana Offshore Oil Port (LOOP) is a deepwater port in the Gulf of Mexico off the coast of Louisiana near the town of Port Fourchon. LOOP provides tanker offloading and temporary storage services for crude oil transported on some of the largest tankers in the world. Most tankers offloading at LOOP are too large for U.S. inland ports. LOOP handles 13 percent of the nation's foreign oil, about 1.2 million barrels a day, and connects by pipeline to 50 percent of the U.S. refining capability.[/quote]

[Homer_Rice]

Don't forget Wendy, Jamie!
[url="http://dirtgetswet.com/pics-images/385/virginia-handicapped-plate"]BTW, did you get a new car?[/url]

[Jamie_B]

[quote name='Homer_Rice' post='695023' date='Sep 3 2008, 03:03 PM']Don't forget Wendy, Jamie!
[url="http://dirtgetswet.com/pics-images/385/virginia-handicapped-plate"]BTW, did you get a new car?[/url][/quote]

Cant forget about the woman on the Enron board.

[Jamie_B]

[quote]Wendy Lee Gramm is chairman of the "regulatory studies program" at the Mercatus Center of [b]George Mason University[/b],[/quote]


NOOOOOOOOOOOoooooooooooooooo!!!!!!!!!!!!!!!!1111111111111

[Bean Counter]

[quote name='scrotos' post='694893' date='Sep 3 2008, 11:34 AM']Though I never post, I'll add my two cents as well....

One of the major assumptions made by your basic "supply and demand" mechanism is that all participants in a market have access to the same information as everyone else in the market and that the information is fairly complete. When this information is incomplete or not evenly distributed, markets don't function as efficiently as they should.

The problem with deregulation of the markets is that the "transparency" of the markets goes down (since transactions are no longer recorded/reported), information is therefore incomplete and unevenly spread, thus the efficiency of the market actually goes down.

Therefore deregulation causing markets to operate more efficiently is complete bs...in an Economics 101 sense.[/quote]

From an economics 101 stand point the problem is not deregulation. You have government entities meddling with a market that is dependent on a cartel. There is not a better recipe for a market failure out there.

[|kennethmw|]

[quote name='Bunghole' post='694298' date='Sep 2 2008, 12:20 AM']Oil prices go down even in the face of Gustav. I guess the refineries in the Gulf aren't as affected as they thought they would be. Nor as damaged as they were during katrina.

It's an unfortunate conicidence that one of the biggest oil processing and refining areas of our country is beholden to the weather like the Gulf is. In fact, it sucks.[/quote]

And according to Mc Cain, we should focus our drilling exploration in this area, as opposed to the other other 45 million acres that the oil companies currently have leased in the North American 49.

[Jamie_B]

[quote name='Bean Counter' post='695220' date='Sep 4 2008, 05:21 AM']From an economics 101 stand point [color="#FF0000"]the problem is not deregulation[/color]. You have government entities meddling with a market that is dependent on a cartel. There is not a better recipe for a market failure out there.[/quote]


While I have no love for big oil, Im just going to have to disagree with this and cite the sub-prime problem I did above, as well as the airline industry.

[Bean Counter]

[quote name='Jamie_B' post='695284' date='Sep 4 2008, 09:32 AM']While I have no love for big oil, Im just going to have to disagree with this and cite the sub-prime problem I did above, as well as the airline industry.[/quote]


The airlines got lazy and expected continued government bailouts. They also stink at being efficient. There is a reason Southwest is still truning nice profits. Companies that make poor decisions suffer for it. The same goes for the sub-prime "crisis." These companies made their beds now the must line in them. A bail out would only further increase industry reliance on government rather than sound business practices.

[Jamie_B]

[quote name='Bean Counter' post='695287' date='Sep 4 2008, 09:37 AM']The airlines got lazy and expected continued government bailouts. They also stink at being efficient. There is a reason Southwest is still truning nice profits. Companies that make poor decisions suffer for it. The same goes for the sub-prime "crisis." These companies made their beds now the must line in them. A bail out would only further increase industry reliance on government rather than sound business practices.[/quote]


Where did I say anything about a bailout? I'm not sure you have a grasp at what is going on.