One Last Orgy Of Profits

The Naked Capitalism blog highlights a research paper on why oil will continue to drop. According to the authors of the study, it ain’t just because the economy is tanking. No matter who comes into the White House this fall, the insane speculation party in commodities markets like oil that has gone on under George W. Bush will certainly come to end. And the traders know it.

Funny how much of a difference a couple of months can make. Seems like just yesterday that all the talking heads and so-called experts in the corporate media were pontificating about increased demand in China and India sucking up all the available oil and making $150+ a barrel prices a long-term reality. Now, crude’s already well under $100 and, according to the study, should keep falling.

The authors of the study say that all the hype about China and India was spread by … guess who? The major investment banks. That’s right, the same bunch of bunko artists who brought us the current financial meltdown had a major hand in making a tank of gas cost as much as dinner out at La Folie. At the height of the housing boom, they took the billions they were making on peddling subprime bonds and poured them into oil in a big way. They also made a pretty penny servicing oil transactions and oil derivatives. Playing Chicken Little about the Far East and increased demand was a convenient self-fulfilling prophecy for them. They and their puppets in the media kept shouting about prices going up and up and, lo and behold, prices did go up. A lot.

Think about it: The housing bubble began to pop in mid-2007. If I’m not mistaken, that’s right about the time the cost of oil started its meteoric climb. Do you really think China and India started buying up all the oil at that exact moment? No. Of course not. Wall Street knew its cash cow, housing (specifically mortgage-backed bonds), was about to croak. So they went all-in on oil and other commodities for one last orgy of profits before George W. and his dithering gang of non-regulators departed Washington.

How much did banks’ and big investors’ heavy-handed meddling in oil contribute to the price spike? According to the study, OPEC made $3.5 TRILLION in the last five years. (More than the previous 15 years combined.) Of that amount, the authors calculated that $1 trillion - more than a quarter - was due to speculation. That could be a low estimate. Earlier this year, one expert blamed speculation for up to 60% of the price increase.