It’s a number so large that, to put it in perspective, we will now begin measuring the damage done to the global economy in "Madoff Units" ($50Bn rip-offs). $2.5Tn is 50 times the amount of money that Bernie Madoff scammed from investors in his lifetime, but it is less than the monthly excess price the global population is being manipulated into paying for a barrel of oil.
Where is the outrage? Where are the investigations?
Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), BP (NYSE:BP), Total (NYSE:TOT), Shell (NYSE:RDS.A), Deutsche Bank (NYSE:DB) and Societe Generale (OTCPK:SCGLY) founded the Intercontinental Exchange (NYSE:ICE) in 2000. ICE is an online commodities and futures marketplace. It is outside the US and operates free from the constraints of US laws. The exchange was set up to facilitate "dark pool" trading in the commodities markets. Billions of dollars are being placed on oil futures contracts at the ICE and the beauty of this scam is that they NEVER take delivery, per se. They just ratchet up the price with leveraged speculation using your TARP money. This year alone they ratcheted up the global cost of oil from $40 to $80 per barrel.
A Congressional investigation into energy trading in 2003 discovered that ICE was being used to facilitate "round-trip" trades. Round-trip trades occur when one firm sells energy to another, and then the second firm simultaneously sells the same amount of energy back to the first company at exactly the same price. No commodity ever changes hands. But when done on an exchange, these transactions send a price signal to the market and they artificially boost revenue for the company. This is nothing more than a massive fraud, pure and simple.
"Traders of the the ICE core membership (GS, MS, BP, DB, RDS.A, GLE & TOT) wouldn’t really have to put much money at risk by their standards in order to move or support the global market price via the BFOE market. Indeed the evolution of the Brent market has been a response to declining production and the fact that traders could not resist manipulating the market by buying up contracts and “squeezing” those who had sold oil they did not have. The fewer cargoes produced, the easier the underlying market is to manipulate." - Chris Cook, Former Director of the International Petroleum Exchange, which was bought by ICE.
How widespread are round-trip trades? The Congressional Research Service looked at trading patterns in the energy sector and this is what they reported:
This pattern of trading suggests a market environment in which a significant volume of fictitious trading could have taken place. Yet since most of the trading is unregulated by the government, we have only a slim idea of the illusion being perpetrated in the energy sector.
DMS Energy, when investigated by Congress, admitted that 80 percent of its trades in 2001 were round-trip trades. That means 80 percent of all of their trades that year were bogus trades where no commodity changed hands, and yet the balance sheets reflect added revenue. Remember, these trades are sham deals where nothing was exchanged. Duke Energy (NYSE:DUK) disclosed that $1.1 billion worth of trades were round-trip since 1999. Roughly two-thirds of these were done on the InterContinental Exchange; that is, the online, nonregulated, nonaudited, nonoversight for manipulation and fraud entity run by banks in this country. That means thousands of subscribers would see false pricing. Under investigation, a lawyer for JPMorgan Chase (NYSE:JPM) admitted the bank engineered a series of “round-trip” trades with Enron.
You can chart the damage done by Goldman Sachs and their gang of thieves by looking at commodity pricing pre- and post-ICE. Before ICE, commodities followed a more or less normal growth path that matched global GDP and was always limited in price appreciation by the fact that, ultimately, someone had to take delivery of a physical commodity at a set price.
ICE threw that concept out the window and turned commodity trading into a speculative casino game where pricing was notional and contracts could be sold by people who never produced a thing, to people who didn’t need the things that were not produced. And in just 5 years after commencing operations, Goldman Sachs and their partners managed to TRIPLE the price of commodities.
Goldman Sachs Commodity Index funds accounted for $60Bn out of $100Bn of all formula-managed funds in 2007 and investors in the GSCI lost 15% in 2006 while Goldman had a record year. John Dizard, of the Financial Times, calls this process "date rape" by Goldman Sachs as the funds index rolls cost investors 150 basis points of return annually ($9Bn on the Goldman funds) but GS, under the prospectus, is able to "manage our corresponding position," which means that it has to deliver a price at the end of the roll period. If Goldman can cover that obligation at a better price, they will, and GS pockets the difference. This is why we see such wild moves in the days before rollover, since there are billions riding on GS hitting their target every month.
It is not surprising that a commodity scam would be the cornerstone of Goldman Sachs’s strategy. CEO Lloyd Blankfein rose to the top through Goldman’s commodity trading arm J Aron, starting his career at J Aron before Goldman Sachs bought them over 25 years ago. With his colleague Gary Cohn, Blankfein oversaw the key energy trading portfolio. According to Chris Cook: "It appears clear that BP and Goldman Sachs have been working collaboratively – at least at a strategic level - for maybe 15 years now. Their trading strategy has evolved over time as the global market has developed and become ever more financialised. Moreover, they have been well placed to steer the development of the key global energy market trading platform, and the legal and regulatory framework within which it operates." Cook adds:
It appears to me that what has been occurring in the oil market may have been that – through the intermediation of the likes of J Aron in the Brent complex – long term funds have been lending money to producers – effectively interest-free - and in return the producers have been lending oil to the funds. This works well for as long as funds flow into the market, or do not withdraw in quantity, but once funds withdraw money from the market, there is a sudden collapse in price.
A combination of market hype, the opacity of the Brent Complex and the relatively small scale of trading of the benchmark BFOE crude oil contract enabled the long run up in prices, and several observers believe that the dramatic spike to $147.00 per barrel was the specific outcome of the collapse of SemGroup, which that company’s management subsequently blamed mainly on Goldman Sachs.
Mike Riess issued a study called "Modern Market Manipulation" in which he describes how GS, MS, DB et al have systematically created an environment that rewards those who manipulate the system, robbing the poor to send the money up they company ladder in exchange for record bonus payouts, which (by design) are the majority of their traders’ salaries:
Before the ‘80’s, there were just us traders. "Rogue" traders arrived on the scene with the large institutional participants, both private and public. Today’s companies and government marketing boards are large enough for senior management to distance itself from controversy, including market manipulation.
In a competitive, amoral environment, middle managers in these mega-organizations have the authority to hijack an institution’s reputation and the financial clout to manipulate the market—and they do. As long as they succeed, they enjoy promotions and perks and, sometimes, the fruits of embezzlement. If the manipulation unravels, the company denies any knowledge and hangs the rogue out to dry. We’ve seen this over and over again, most recently with D’Avila and Codelco, Hamanaka and Sumitomo, Leeson and Barings and Tsuda and Daiwa Bank.
The CFTC’s definition of manipulation is:
- A planned operation that causes or maintains an artificial price
- Unusually large purchases or sales in a short period of time in order to distort prices
- Putting out false information in order to distort prices.
In mid-2008 it was estimated that some $260 billion was invested in the Brent energy markets on the ICE, while the value of the oil actually coming out of the North Sea each month, at maybe $4 to $5 billion at most. NYMEX trading follows a similar path with 258,000, 1,000-barrel contracts open for December delivery (258M barrels), which were traded 327,000 times yesterday alone yet, at the end of the period, less than 40M barrels of oil will actually be delivered as that is the total capacity at Cushing, Okla. - where NYMEX contract deliveries are settled. Every single one of those traders know it is not even possible for 80% of the contracts they are trading to be fulfilled - it's a joke, but the joke is on you.
Over the course of an average month at the NYMEX, 5 billion barrels of oil will be traded, with a fee collected on every single transaction. That is ultimately passed down to US consumers, yet less than 40M barrels will actually be delivered. That is just 8 tenths of 1 percent of actual demand for the product that is being traded - ie. 99.2% of the oil transaction fees being paid by the American people do nothing more than create fees for the traders and record profits and bonuses for the trading firms.
Click to enlargeIndex speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the United States has added to the Strategic Petroleum Reserve over the last five years. Today, in many commodities futures markets, they are the single largest force. The huge growth in their demand has gone virtually undetected by classically trained economists who almost never analyze demand in futures markets. As money pours into the markets, two things happen concurrently: The markets expand and prices rise. One particularly troubling aspect of index speculator demand is that it actually increases the more prices increase. This explains the accelerating rate at which commodity futures prices (and actual commodity prices) are increasing.
Before ICE, the average American family spent 7% of their income on food and fuel. Last year, that number topped 20%. That’s 13% of the incomes of every man, woman and child in the United States of America, over $1Tn EVERY SINGLE YEAR, stolen through market manipulation. On a global scale, that number is over $4Tn per year - 80 Madoffs! Why is there no outrage, why are there no investigations? Well, the answer is the same - $4Tn per year buys you a lot of political clout. It pays to have politicians all over the world look the other way while GS and their merry men rob from the poor and give to the rich on such a vast scale that it’s hard to grasp the damage they have done and continue to do to the global economy.
CIBC Chief Economist Jeff Rubin issued a report last year that blames the current recession on high oil prices, saying defaulting mortgages are only a symptom. According to Rubin, these higher oil prices caused Japan and the Eurozone to enter into a recession even before the most recent financial problems hit. Higher oil prices started four of the last five world recessions; we shouldn’t be too surprised if they started this one also:
Oil shocks create global recessions by transferring billions of dollars of income from economies where consumers spend every cent they have, and then some, to economies that sport the highest savings rates in the world. While those petro-dollars may get recycled back to Wall Street by sovereign wealth fund investments, they don’t all get recycled back into world demand. The leakage, as income is transferred to countries with savings rates as high as 50%, is what makes this income transfer far from demand neutral.
There is no shortage of oil. OPEC alone has 6-7 million barrels a day of spare capacity, more than the total disruption of any single country and any two countries other than Saudi Arabia could offset. Additionaly, ICE partners Total and JPM are part of the cartel that is totally skewing the global demand picture by storing 125M barrels of oil in offshore tankers. That’s 15 days of US imports that have been "ordered" but never delivered, so they show up as an extra 1Mbd of global demand, though nobody actually wants them. Land-based storage is also bursting at the seams, with global supplies up to 61 days of total consumption (84Mbd) up from 52 days last year.
That’s 5 billion barrels of oil already out of the ground, in barrels and ready to go AND THEY KEEP MAKING 86M MORE EVERY DAY! Where is the shortage? Mainly, it is media hype pushed by "analysts" at the very firms that profit the most from high oil prices. Goldman Sachs issues bullish opinions on oil and builds large positions in oil, while it is the cartel’s job to hide oil in offshore tankers, and then sell forward all the oil, with futures contracts, locking in the high price. Of course they have their media hounds as well, most notably the Drudge Report. As noted by Goldmansachsrules:
Type in the word "OIL" inside the "Drudge Report" search engine. It returns 1,965 headlines with the word "OIL." Over the last couple years, The Drudge Report has ran 1,965 headlines with the word "OIL." Most of these articles were hosted by the worthless organizations of Yahoo, Breibart, APNews, and Reuters. The Drudge Report just creates the headline, and links it the article hosted by who ever is doing the "hyping."
Search on the word "credit crisis" and you only get 12 archived headlines. The word "bailout" yields only 268. The word "bank" returns only 568. So you have the Drudge Report hyping the oil market, because they bring it up almost 2,000 times. Unlike the "credit crisis" or "Wall Street Bailout" that actual did happen, the oil market and what did/didn’t happen between Israel/Iran is plugged 10 times more!
Of all the 1,965 articles that the Drudge Report ran with the word "OIL" in the title, most were hyping the oil market. The most notorious cases, a few times a week, were hosted by Yahoo, Breibart, and AP News. Most of these articles were plugged with the same paragraph that stated if "Israel were to attack Iran, Iran would retaliate by taking over the straits of Hormuz, the largest pathway for oil and we all know what that would do to the price of oil.
Click to enlargeIt truly takes a global village of manipulators and their lackeys to pull off a con on the scale of oil, but it’s also the most profitable scam ever perpetrated on the people of this planet, as they take control of a vital resource and then create artificial shortages and drive speculative demand in order to charge you an extra dollar per gallon of gas. You don’t complain because it’s "only" $15-$20 every time you fill up your tank, but that’s what they count on and that’s where you’re wrong - it’s $20 from you and $20 from every single one of your customers once or twice a week, and $20 more your employees need just to get to work. It’s money that could be going into your business instead of a new gold bathtub for a Saudi Prince or a Goldman trader.
Global drivers consume 1.7Bn gallons of gas every single day. That $1 is $50Bn a month, a Madoff per month that is being taken away from you and your business and the non-energy/financial businesses you invest in. Of course we can give up and invest in those sectors (we do) but that doesn’t do much for the global economy and, even as you sit here now, not doing anything, those oil profits have been plowed into the copper and gold markets and now the same Goldman energy cartel is bidding to take over your clean air (through Carbon Credit trading) and your clean water.
Maybe when they are charging you $80 a gallon for water and ten cents a breath you’ll want to do something about it. I think I’ll start right now and you can too! Here are the Email addresses and fax numbers for all of your Senators, Congresspeople and Governors. Send this article to them and let them know you’d like to see an investigation. Take a few minutes of your time to save a few bucks on your next gallon of water!
Editor's note: ICE has a web site www.globalmarketfacts.com that seeks to set the record straight on the exchange and the changes it has made to attempt to rein in problematic trading practices.