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Michael Greenberger is a professor at theUniversity of Maryland School of Law, where he teaches a course entitled "Futures, Options and Derivatives."Professor Greenberger serves as the Technical Advisor to the United Nations Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System.
He has recently been named to the International Energy Forum’s Independent Expert Group that provided recommendations for reducing energy price volatility to the IEF’s 12th Ministerial Meeting in March 2010. Professor Greenberger was a partner for more than 20 years in the Washington, D.C. law firm of Shea & Gardner, where he served as lead
litigation counsel before courts of law nationwide, including the United States Supreme Court.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington.Gas prices are emerging as one of the central issues in the 2012 presidential elections. The Republicans are saying the issue is: increase American oil, increase North American-produced oil. They want the pipeline of Canadian tar sands oil down to the Gulf to hit American refineries, and they say this will decrease the price of gasoline at the pumps. President Obama in response is saying more or less the same thing, except he's saying he has increased domestic supply and domestic production. But how much does increasing domestic oil supply really affect prices?Now joining us to talk about that and what may be the real issues in high gas prices is Michael Greenberger. He's currently a professor at the University of Maryland School of Law, where he teaches homeland security and financial law. He's a former division director at the U.S. Commodity Futures Trading Commission, where he worked closely with Brooksley Born. Thanks very much for joining us, Michael.MICHAEL GREENBERGER, UNIVERSITY OF MARYLAND SCHOOL OF LAW: Pleasure to be here.JAY: And I should add you're also the founder and director of the Center for Health and Homeland Security. So let's take up this question that's being discussed in the elections, first of all. How muchâhow big an issue or how much effect would it have on gas prices to increase domestic production?GREENBERGER: The truth is that it would probably have a very limited increase, if at all, because the president himself has identified the fact that it isn't really supply-demand. The problem here (and this problem has been corroborated by studies at Princeton and Stanford and MIT and the London School of Economics), it's the manipulation of the crude oil markets by speculators, who are essentially establishing a casino environment and betting the price of oil up to put money in their own pockets. On April 21, 2011, the president recognized this, said it wasn't supply-demand, it was manipulation by speculators. He asked the Justice Department to convene a task force to look into it. And 11 months later, nothing had been done. The president was so concerned about this that two or three weeks ago he announced that he wanted the attorney general to "reconstitute" that task force. It's my own viewâand a lot of experts' views that look at these marketsâis that if there was a serious criminal investigation, that investigation in and of itself would drive speculators from the markets, and the price would reach its real supply-demand fundamental, which is somewhere between $60 and $80, rather than $120.JAY: Now, if there is an an investigation, one would think it should start with and take up the role of these commodity traders. And I think it doesn't get talked about very much, but there'sâsome of the biggest players in speculation also own oil, in the sense that they buy it, transport it, and resell it. Big commodity tradersâsome of the biggest banks are some of the biggest commodity traders. How much is thisâhow much does this affect the price of gas? And add to thatâmaybe you could speak a bit about thisâif I understand it correctly, there's dozens, maybe even hundreds of super oil tankers sitting out at sea keeping oil off the market, and these supertankers are being rented by the same companies that are hedging over here that the price of oil's going to go up. Explain the dynamics of all of this.GREENBERGER: Well, it is true that keeping oil off the market through the use of supertankers which circle the world is a problem. But the bigger problem is that when you go into the crude oil futures market, you can buy multiples of the supply of oil around the world. Right now, if you looked at futures contracts calling for the delivery of oil, the supply called for is 33 times the physical supply of oil in the world. And those futures prices are the price discovery prices. So if you keep buying futures and don't call for delivery, you're sending a massive false supply signal to the market. And when people go to sell a barrel of oil, what they do is look at the futures price, where the demand appears to be 33 times the amount of oil in the world.If you actually look at supply-demand figures in the real market, the United States is now a net exporter of oil rather than importer of oil. And when the president keeps saying we have enough supply and we're getting enough supply, he's right. It is not a supply-demand problem. But he has saidâand, unfortunately, our Justice Department hasn't followed up on itâthat we have to pursue this as a criminal matter and drive these speculators from the market.And, yes, one of the techniques that's used is to fill up oil tankers and have them circle the world and never enter the oil into the delivery market. And if you're able to bet up the price of that oil, why would you ever want to sell it? It's like a precious commodity appreciating in value, and it's more valuable to you in a tanker than it is selling it off before it reaches its peak price.That's the problem we face today, and is as true of the subprime meltdown, the BP oil spill, the recent MF Global's stealing of $1.6 billion. The Justice Department, across the board, has refused to bring serious indictments. And that's why the question that's recently been raised is: is the president better off with a more aggressive attorney general who listens to the president, which this attorney general does not do?JAY: Or the president is saying things for public consumption but not really giving strong marching orders to his attorney general. I mean, one would think if the president was really determined, he would either get this attorney general to respond or get a new one.GREENBERGER: I think we have to wait and see what happened. I think it was a surprise to the president to find out three weeks ago that the task force he called into being on April 21, 2011, had essentially not done anything and is something of a joke. Look, the president has a hundred issues to deal with. He can't be president and the prosecutor of oil markets. That's the role of the Justice Department. The Justice Department has fallen down on this, on the subprime meltdown, on the BP oil spill, and on the MF Global stealing of $1.6 billion.My view is if the attorney general does not move on this stuff, he is not going to be around very long. Why is that? Because the only issue the Republicans have right now is the high price of gasoline. Otherwise the economy is doing well. That's the issue that they are pounding the president on and the Democrats in Congress. And if the president doesn't move on his own thinking, he's essentially destroying his own campaign. But even more important for you and me, he's assisting in the destruction of the economy, because gas prices, if they keep going up, will break the back of the recovery.JAY: Now, one of the things, if I understand correctly, that around 2008 there was this change in regulation where companies that were primarily in hedging and speculation weren't supposed toâI mean, banks were not supposed to also be physical commodity owners. And that changeâthat wall came down because of the crisis. The banks argued, we need to be able to do this. But it'sâthat wall's never come back up again. So places like JPMorgan and Goldman and others are now playing both sides of the street, commodity owners and speculators. Is that right? And if so, how important a factor is that?GREENBERGER: It's an important factor, and the story is even worse than the way you described it. Essentially, the law was, since 1936, and then reframed and emphasized in the passage of DoddâFrank in July 2010, that speculators should only constitute around 30 percent of the crude oil futures market. Today, speculators are 80 percent of the market, and the 20 percent of the market is people who really handle oil trying to hedge their price risk. DoddâFrank was supposed to fix that, but in the implementation of Dodd Frank, Wall Street behind closed doors went to work and they watered down the rule that was implemented, to the point where it almost has no effect, and then they went into federal court to get that rule enjoined. And my prediction is in the next week or two a federal court will enjoin the limits on speculators by administrative activity.But that is not the only avenue that's open to the government. The government can go in and bring criminal indictments for an intent to manipulate the price in an upward direction. Almost every observer of these markets who's of an independent mind, who isn't profiting from the high price of oil, says that there is manipulation in these markets. It's the kind of manipulation that Enron conducted in 1999 and 2000 to control the electricity market on the West Coast. In that era, the conservative Justice Department created a very tough task force and handed down indictments. This Justice Department almost seems like it's in a conspiracy with the speculators to let them go on, by conducting an investigation that is, in Washington, D.C., considered to be laughable.JAY: Now, the price of oil, obviously, affects the price of everything, but most importantly food. And this type of manipulation of markets, a lot of experts are saying, is not confined just to oil, but you're finding the same, first of all, concentration of ownership of the global food chain and the same kind of speculation when it comes to food in terms of hedging and futures markets. How big a problem is this role of speculation in creating what some people are saying is going to be another food price bubble?GREENBERGER: It is absolutelyâit is an identical problem. Right now, with gas prices going over $4, that's the issue that's most immediately hitting the U.S. consumer's pocketbook. But right behind the price of energy is the price of food, and the same speculative devicesâthe investments that allow you to bet that the price of wheat and rice and cotton will go upâis at work. If you looked into these manipulation issues, you would not only find that the price of oil is being manipulated, but you'd find the price of agricultural products is being manipulated.Now, in the United States that's an issue of pocketbook, but last week I attended a meeting of relief agencies around the world, and in the Third World, the price of food is a life-or-death matter. People are starving because banks are manipulating the price of agricultural products for their own profit.If the Justice Department would open an investigation, would get the FBI involved, would talk to market participants, would talk to academics, would subpoena records, that act in and of itself would so scatter the speculatorsâ'cause they don't want to spend time in jailâthat the price of all these commodity staples would start coming down. If indictments were handed down, the price would really come down. But nothing in Washington is happening to interfere with feverish speculation that is damaging the U.S. economy, the world economy, and for that matter the prospects of the Democratic Party in 2012. The Republican Party has only one issue right now, gas prices. That could be fixed by a tough investigation. That investigation is not taking place.JAY: And what law is being broken? Like, when we've talked directly to some of these commodity players, some of the people involved, they say, yeah, it's not good, it's not good for the world economy, but everyone's doing it and, quote-unquote, "we're not really breaking any laws". What laws are they breaking?GREENBERGER: They areâyou cannot reach a conspiracy with fellow traders in the market to drive the price of a commodity in one direction or another and to alter the price from market fundamentals. The CEO of Exxon a year ago said the price of oil should be between $65 and $75. Supply-demand is exactly the same today. But we see it approaching $120. Goldman says it'll go to $130. That premium is a speculative premium and is being caused not just by the innocent overwhelming of these markets by speculators without an evil intent, but it's like shooting fish in a barrel. If you can control the price of oil by manipulating the market with other traders, you're going to do it, and you're especially going to do it when the investigations that are taking place are a laughable subject among anybody who understands these markets and the laxity of our federal enforcement powers.JAY: Thanks very much for joining us, Michael.GREENBERGER: You're welcome.JAY: And thank you for joining us on The Real News Network.
DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.
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