< class="art-postheader">Has the U.S. Turned Against Consumers?

Yesterday, Ed Wallace wrote a piece for Bloomberg Businessweek titled “Has the U.S. Turned Against Consumers?” If you haven’t read it, get thyself over there and have a look at the article now.

The article begins with a quote from Oppenheimer oil analyst Fadel Gheit, during a speech he made on Bloomberg TV on May 25, 2011.  He says: “It is a self-fulfilling prophecy. They can invent reasons why oil prices go to $130 or $150, but history shows that these people are capable of moving markets. It is not Exxon or BP or Shell that moves the oil markets. It is the financial players.  It is the Goldman Sachs, the Morgan Stanley, or the other guys. It is a shame on the government that allows them to get away with that.”

The premise of the article is that Big Oil is not to blame–commodities market speculators are responsible for food and energy inflation. The truth is, that’s not the end of the story. It’s only the beginning.

A discerning person might ask him or herself why the government allows market speculators to continue to operate unchecked to the detriment of the American people (and the rest of the world). The answer, as usual, is money.

Consider that Big Oil is the richest industry in the world (surpassed only occasionally by Walmart.) Also consider that in the year 2000, Phil Gramm (whose campaign was heavily funded by Big Oil) introduced a little law now referred to as the “Enron Loophole” into the Commodity Futures Modernization act, which was signed into law by President Bill Clinton.

What’s this got to do with the commodities market, you ask? And for that matter, what’s it got to do with Big Oil?

The Enron Loophole is what made it possible for large corporations to establish private commodities exchanges and trade any way they want on dark markets without interference from government regulators. This, of course, is what allows Wall Street to escape its Big Brother baby sitters. Seems reasonable, right? Truly free markets, no big government oversight–every Republican’s dream.

Problem is, we now know this doesn’t work. Year 2008 financial crisis anyone? Bueller? Bueller?  And let’s not forget the Enron crisis itself.

After the Enron fiasco went down (which caused massive energy inflation, riots, business closures, and deaths in California), it’s reasonable to think the Government would repeal the Enron Loophole, right? Right. But as we all know, politics are often anything but reasonable.

The Enron Loophole is still on the books (although President Obama is trying, ineffectively, to patch it up). Thanks to the loophole, we now have the Intercontiental Exchange (ICE), which is a private commodities trading market. Today, more oil  futures contracts are traded on the ICE than are traded on the NYMEX, which means we don’t really have a window into what’s going on.

Many people believe Big Oil attempted to influence laws and policy by heavily donating to Presidential and senatorial campaigns and then calling in favors of the politicians they put in office–favors like the Enron Loophole. Many people even believe the second Iraq war was solely about oil, since President George W. Bush received more money in campaign donations from Big Oil than any other political candidate in history. (Incidentally, Texas’ Kay Bailey Hutchison and Phil Gramm received the second and third largest campaign donations from Big Oil.)

Imagine what would happen if an Enron-like bubble happened in the oil markets. There would be massive inflation. Job losses. An economic crash. Homelessness. Riots. Death. Many people believe it is coming. Others believe it’s happening now.

What do you think?

Find out more about the legal thriller, Black Oil, Red Blood here. A portion of the proceeds benefits Gulf People Helping People. Read for fun and help out a good cause.